Buy-sell expert Alan Haig discusses current valuations and M&A trends in the auto industry

Haig Partners has new, recently released data on the profits from the largest public automotive retailers. On today’s show, we’re pleased to welcome Alan Haig, President and Founder of Haig Partners to discuss this data and how the ongoing chip shortage is affecting retail automotive.

Haig begins the conversation by giving an update on the M&A activity of the first half of the year. He says M&A seems to track the profitability of new-vehicle dealerships. The public companies have been releasing their second-quarter earnings and the results are astounding. The average gross profits for front-end gross are being reported at $3,756 per copy. That number is up 46% from the 2020 average, and 75% from the 2019 average.

Used vehicle profits are also astounding says, Haig. In the second quarter of 2021, used front-end average gross profits hit $2,355 per car. That is up 34% from 2020 and 58% from 2019. F&I numbers also look good. Public companies average $1,920 per copy, in Q2 of 2021. That is up 10% from 2020 and 17% from 2019.

When it comes to the chip shortage, Haig believes, it’s going to be with us through the end of the year. He thinks the domestic brands, Stellantis, General Motors, and Ford have been the worst hit. They’ve shifted their production towards their most lucrative vehicles, so their profits are fantastic. Haig says most dealers are assuming that margins are going to remain elevated, at least for the next six months.

There is a lot of demand for Toyota. Haig says that’s possibly one of the brands they get called on the most. He does say that Kia and Hyundai have elevated themselves in the last few months. The vehicle quality, the styling of the SUVs is leading to a big lift in profits for those dealers. They’re also seeing a different type of customer come into the showroom.

For luxury brands, there is also a lot of demand, says Haig. Those businesses are also producing record-high profits. They have a great pipeline of products coming in, with more customer loyalty in the mass-market brands.  Haig says, what’s fun for them right now is, almost every franchise is doing well. He says we’ll see what the consumer demand is for electrification but all brands are focused on bringing products for that type of vehicle.

Haig does believe dealers are learning new skills, in the pandemic. Some of them have reduced their cost-based, with fewer units to sell. Maybe now, they are getting better at taking orders from consumers, which results in a higher profit for units. Haig doesn’t believe dealers are going to spend as much money advertising vehicles as they have in the past. Possibly, stocking fewer vehicles they have in the past.  He’s optimistic that the profits at franchised dealerships are going to be averaging out higher, post-pandemic than they were pre-pandemic by a pretty good margin.

Haig wraps up the conversation by discussing the growth in markets. He says, there are certain markets of the country many people want to grow in. He believes Florida and Texas are at the top of the list because of no income tax, high growth in population, and high profits per store. Some states are more desirable than others, but Haig says, they are seeing good M&A activity in just about every state, right now.

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