Ryan Kerrigan on the automotive buy/sell market: ‘level of activity remains incredibly strong’

Welcome to another edition of Inside Automotive. Today, we get an update on the buy/sell market from Ryan Kerrigan, Managing Director of Kerrigan Advisors. Ryan also tackles record-setting profits across the industry and the continued buzz around electric cars.

All of the publics recently announced Q1 earnings and doubled the aggregate, up 94% over a robust Q1 2021. We’ve never seen these margins and levels of cash flow before, says Kerrigan. Auto retailers now regularly post quarterly profits that far exceed their annual earnings from just a couple of years ago.

On the other hand, the markets have been brutal in recent weeks. Auto retailers have trended down with the market. Year to date, the markets are down about 16%, and auto retailers are down about 15%. These numbers are in line with what’s going on in the marketplace. P/E (price-to-earnings) ratios start to get quite interesting when extraordinary profits are in the mix.

The buy/sell market is experiencing incredible activity levels, and the deals are getting bigger, says Kerrigan. 30 to 40% of all these deals often involve between 3 and 6 franchise stores, sometimes more. The activity level remains incredibly strong, and Kerrigan Advisors does not see it slowing down.

“If we had a crystal ball and we knew that this margin structure was going to end at date certain well, then that would change everything. And people would be making very quick decisions,” explains Kerrigan.

However, Kerrigan adds that he doesn’t know if elevated margin levels will continue. It does give some sellers pause and keeps valuations high because sellers will not hand over their businesses that generate robust cash flows.

The race to electric cars also adds variables of uncertainty. It’s still a minimal market share, but EV sales increased substantially in Q1, roughly 60% year-over-year. While Tesla is still the dominant electric car provider, a fleet of new electric models is coming to the marketplace, including the Ford F-150 Lightning, the GMC Hummer EV, and the Hyundai Ioniq 5, to name a few.

Recently, one of the biggest headlines in this space was Volkswagen resurrecting the international Scout, rebranded as an EV SUV. Reportedly, VW wants to sell 250,000 Scout-branded EVs every year in the United States.

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