Today on CBT News, Erin Kerrigan joins the show to share a monthly update on automotive M&A activity and the Kerrigan Index. Kerrigan is the Founder and Managing Director of Kerrigan Advisors.
In February, The Kerrigan Index had yet another record month. Year-to-date the index is up 20% as it quickly approaches 1,000. Kerrigan says that the industry is “knocking it out of the park” to perform at this level. As other retail industries suffered during the COVID-19 pandemic, the automotive industry showed resiliency through a flexible business model.
Kerrigan then talks about the growth of the used-vehicle market. She says that one reason why large dealership groups are focusing on expanding their used-vehicle presence is due to Carvana trading well above all the public new dealership groups combined.
Larger automotive groups should be best positioned to handle the digitalization of the industry. Kerrigan says she has seen this in the way Lithia has improved its stock pricing. As the rapidly growing retailer continues to expand, they are quickly approaching $1 billion in market cap. Kerrigan believes Wall Street has rewarded Lithia for the innovation they discuss on their earnings calls. The company continues to grow its Driveway product, and it is now developing its own fintech product for consumers. The retailer’s message is always centered around growth, and Wall Street continues to buy into the message.
Kerrigan wraps up the conversation by talking about what excites investors about the automotive retail industry. At a recent investor conference for investors looking to get involved in the auto retail space, investors said they love that margins are low. This allows investors to see plenty of new ways to increase profitability.
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