According to the Q2 2022 Haig Report, economic headwinds are not having much influence on the auto retail sector. The costs of gas, loan rates, automobiles, and inflation were much higher in Q2, while the GDP, stock market, and consumer confidence were lower. Typically, these circumstances would be devastating for auto retail, but automobile dealers are reporting record profits.
Numerous automobile dealers and investors are interested in buying car dealerships because of the significant current and potential returns. However, there is disagreement on how to value car dealerships. Joining us today on CBT Now is Alan Haig, President and Founder of Haig Partners, to discuss this issue and more.
Many automobile dealers are wondering how long car dealership values will remain elevated. With a lack of inventory, automobile dealers have the buying power to set prices at their desired margins. However, second-quarter data indicates that profits are starting to level off from what was seen in the last year. This plateau in profits is likely due to higher expenses and increased fixed operations business.
In an effort to stimulate demand, many factories are offering 0% financing on vehicles that haven’t even been released yet. Haig says this is a risky move on the part of the factories, as they are counting on customers willing to pay higher prices for the vehicles once they are released. This strategy has been working for the last two years, as factories have captured revenues that would typically go to car dealerships.
Many automobile dealers find that selling a minority stake in their company is the best option. This allows them to maintain some control over their business while still receiving a fair payout.
Automobile dealers are seeing tremendous value in the industry right now and are considering their options. Some are looking to sell their businesses entirely, while others are considering selling a minority stake.
Those looking to sell a minority stake in their company are doing so to receive a fair payout while still maintaining some control over their business. This option is proving to be popular among automobile dealers who are unsure about completely exiting the industry at this time.
Car dealerships are concerned about OEMs wanting to stick with direct-to-consumer business models and how that can impact a franchise down the road. Haig sees that some factories are reaching into this and taking some of the margins from the car dealerships, which may be violating some agreements these dealerships have with them. Toyota has come out and said car dealerships are their front-line people and don’t have any intentions to mess with that current model. Haig stated, “If I’m a dealer and thinking about growing, I’m going to go with a factory that cares about me and my business.”
Car dealerships should still look to use the services of valuation companies even if they are looking to bring on a GM. This is because both parties need to understand the dealership’s value before making any decisions. Most places are looking to partner with GMs rather than bring them on outright, as this allows for mutual growth and expansion.
So far, in 2022, Haig Partners has been involved in the purchase or sale of 31 dealerships nationwide. If you are interested in learning what your business is worth, are seeking acquisitions, or would like to learn more about selling a majority or minority stake in your business, please contact Alan Haig at firstname.lastname@example.org or (954) 646-8921 or any member of the team at Haig Partners to have a confidential conversation.
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