How an influx of capital for car dealers is shaping the buy-sell market – Alan Haig, Haig Partners

On today’s show, we’re pleased to welcome Alan Haig, President and Founder of Haig Partners to discuss the current state of car dealership values. Haig also takes deep dive into the buy-sell market and the major shifts in M&A activity since the start of the pandemic.

Haig begins the conversation by discussing how to buy-sell market fared in the first half of the year. Haig says it’s been a fantastic start to the year. He continues to say, it’s a completely different contrast to the previous year when Covid hit and the buy-sell came to a halt. Then M&A activity started to take off, led by Lithia Motors, who felt the market was going to rebound and wanted to put their capital to work. There have been 375 dealerships trades, over the last 12 months through the first quarter of 2021, which’s up 25% from pre-pandemic levels. In 2020, spending from the publics was up to 256% compared to pre-pandemic levels.

We’re running into a unique demand, where cars are outstripping the supply of vehicles. Haig says, they had a huge increase in dealership profits that’s been caused by factors, such as fewer new vehicles and consumers looking towards used vehicles. New vehicle margins are up 39% in the first quarter of 2021.

Buyers are using a mix of pre-pandemic earnings and post-pandemic earnings in their evaluations. Haig believes, there a belief by many buyers that some things have happened in the car business that’s going to cause a permanent shift to elevate the profitability for the average dealership going forward.

Haig believes, electrification is one of those risks, where its potential difficulty in having enough capital to reinvest in facilities. He’s still hopeful that EV chains won’t devastate fixed operations because EVs still break, are more complicated, and have more issues.

Since the pandemic, other than the additional capital that is in consumers’ hands, Haig says he’s seen the success of companies like Carvana, where people were skeptical. It shows more customers are willing to buy a car onsite unseen. He says, he doesn’t see his kids or anyone else going to a dealership in the future to negotiate for hours and doing all the paperwork. Dealers still have an advantage over virtual retailers, because they have a physical presence for customers, who want to come in and touch the car.

Haig wraps up the conversation by stating the balance for the rest of 2021. He says, it’s going to be a little rush to the finish. Factories have to approve the buy-sells that they have signed. They are a little concerned about getting the approval on time to close by year-end. He says, their expectation is they don’t see taxes doubling on the capital. The market condition for dealerships will remain robust into 2022, so there’s no rush to do it this year. 2022 will be the perfect year to sell.

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