Most auto retailers have remained confident in their dealership valuations throughout the 2023 buy-sell market, but a growing number are starting to feel less certain due to demand and profit-margin pressures.
According to the Kerrigan Dealer Survey, hosted by buy-sell firm Kerrigan Advisors, 52% of dealers believe their businesses’ value will hold steady over the next 12 months, while 21% expect to see an increase. However, the number of retailers expecting dealership valuations to decline in 2024 reached 27%, the highest percentage in the survey’s four-year history.
Kerrigan Advisors associates this dip in sentiment with a coinciding decline in profitability forecasts among retailers. Of the survey’s 650 respondents, 38% expected their earnings to fall, and only 15% foresaw higher profits. Given that dealership valuations heavily depend on a storefront’s financial history, revenue pressures are also likely to impact value projections.
Although dealers are certainly making more money than in 2019 and continue demonstrating high levels of optimism, these subtle shifts in attitude make sense in the broader context of the automotive industry. While profit margins soared in the years following the COVID-19 outbreak due to vehicle scarcity, inventories have recovered substantially throughout 2023, weakening prices. Buyers are also struggling to justify car purchases due to low affordability, high inflation, and rising interest rates, trends that could further hurt demand in the coming months. While nothing is set in stone, it does seem that the market is starting to move toward (comparatively) consumer-friendly conditions, meaning retailers will need to identify new strategies if they hope to keep revenues, and thus dealership valuations, up over the next year.
Projected dealership valuations varied heavily between franchises. Out of all brands, retailers expect to see the values of Kia, Hyundai, Lexus, Toyota, and Porsche storefronts increase the most in the next 12 months. On the other hand, the values of Lincoln, Infiniti, Chrysler-Dodge-Jeep-Ram, Ford, Buick GMC, and Nissan storefronts are anticipated to decline in 2024. The brands with the highest and lowest levels of optimism, respectively, were Kia and Lincoln.
