Ryan Kerrigan on how record earnings for auto retailers affects industry consolidation

On today’s edition of Inside Automotive, Ryan Kerrigan, Managing Director of Kerrigan Advisors, gives an update on the market and breaks down some of the industry’s recent headlines. Earnings are just off the charts, says Kerrigan. Quarter over quarter, the Kerrigan Index is up over 64% in aggregate for auto retailers. AutoNation and Lithia doubled earnings over Q3 in the prior year. Kerrigan says that Mike Manley and the new leadership at AutoNation are probably more focused on acquisitions and growth.

Year to date, the Kerrigan Index is up 43%, which is double the S&P 500. They were also up 2.5% in October. Over the first three quarters of 2021, the average dealerships have $3 million on the P&L statement. The average dealership is expected to annualize $4 million on the P&L statement. To say we haven’t seen this before is an understatement says, Kerrigan. 2020, set the old record of a $1.2 million average in the first nine months. This year, a new record was set of a $3 million average in the first nine months of the year.

Kerrigan says they are seeing interest across the board. Hyundai, Kia, and Ford have positive news. He says Ford leadership seems to be in sync and dealers have more confidence in what’s going on. Kerrigan also says they have released some great products, such as the Bronco and Ranger. Hyundai and Kia products are translating nicely into market shares and consumer acceptance. Kerrigan says they’ve seen more interest in Kia and Hyundai dealers expanding their footprint.

Morgan Stanley is projecting the direct-to-consumer SAAR from now until 2030 growing at 30 to 31% a year. By contrast, Morgan Stanley is also projecting the franchise dealers’ SAAR, from now until 2030, will decrease by about 2.5%. Kerrigan says the franchise dealer body is going to fight for an increasingly smaller pie.

In 2021, year to date Tesla has sold more new cars than Mercedes- Benz. Kerrigan says, clearly there is a supply issue. The market capital hasn’t moved much in the last decade, but now there’s a lot of energy around EVs.

Kerrigan believes 2022 is going to be a continuation of what we’re seeing today. He says, the first half of 2022, expect to see strong profitability with limited inventory. Eventually, we may trend back to normal. Kerrigan suggests at that point, dealers need to make decisions to deal with normalized margins and a lot more inventory. He says it is possible to see peak evaluations on dealerships. Also, if you don’t want to be in the business three to five years from now, Kerrigan says, think about selling now. Lastly, if you are in a suboptimal situation, now might be the time to sell and get out of the situation.

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