Auto Dealers Expect Valuations and Profits to Increase in 2022

Positive momentum in auto retail and buy/sell market will continue in 2022, according to the recently-released 2021 Kerrigan Dealer Survey: 61% of dealerships expect an increase in their valuation, 79% expect profits to rise and 77% expect to acquire more dealerships over next 12 months

Auto dealers’ optimism about the valuation of their dealerships has doubled year-over-year, according to the newly-released, 2021 Kerrigan Dealer Survey, with the vast majority expecting their already record profits to continue to rise in 2022.

The survey, which was fielded by Kerrigan Advisors, is designed to gauge auto dealer sentiment about the future value of their businesses, as well as their perspective on franchise valuations and acquisitions. Sentiments about the year ahead, from the 825 dealers queried, align closely with Kerrigan Advisors’ prediction that the 2022 dealership M&A market will surpass 2021’s record pace and that valuations will rise further for most franchises over the next twelve months.

Sixty-one percent of dealers expect an increase in the value of their dealership/dealership group in the next 12 months, nearly double last year’s results. Only 6% expect a decline. The survey also produced overwhelming evidence of just how bullish today’s auto dealers are: 94% expect their profits to continue, and 79% expect them to rise even further.

“The ongoing momentum in auto retail is truly extraordinary and underscored by the fact that dealers expect their profits, already up over 150%, to continue to rise,” said Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors. “These survey results offer compelling evidence of the strength of the auto retail business model, despite inventory challenges and electrification risk. Dealers have re-engineered their businesses to thrive with modest vehicle supplies and deployed digital technologies to enhance productivity. Their bullish perspective on the value of their businesses certainly is a vote of confidence in the sustainability of today’s high profits going into 2022.”

In the survey, seventy-seven percent of dealers said that they were anticipating acquiring one or more dealerships in the next twelve months, while just 3% plan to sell one or more dealerships.

“The industry’s focus on expansion is indicative of the scale required to succeed in the current auto retail marketplace and is consistent with today’s high level of M&A activity,” continued Kerrigan. “It also shows dealers are looking to reallocate their profits back into the industry because they believe in its future. As more dealers seek to grow than exit, Kerrigan Advisors expects 2021’s seller’s market to persist into 2022, driving valuations even higher next year, consistent with our survey results.”

Earlier this year, Kerrigan Advisors’ Q2 2021 Blue Sky Report showed that blue sky values had risen more than 40% versus pre-pandemic levels, consistent with the findings in the 2021 dealer survey.

Dealers also shared their opinions about the direction of specific franchise values over the next 12 months, pointing out potential winners, as well as franchises they felt would remain consistently valued – or suffer a decline.

Over 40% of surveyed dealers expect an increase in Toyota, Hyundai, Kia, Subaru, Honda, Lexus, and Porsche franchise values in the next 12 months. Infiniti, Acura, Nissan, and Lincoln fared less well with 30% of surveyed dealers expecting their valuations to decline, although that is an improvement over last year’s 55%. Kia and Hyundai were the franchises with the highest percentage point improvement over last year (23 percentage points) from last year in expectation of rising valuations.

“The industry’s explosive profitability and positive earnings expectations for 2022 are driving dramatic changes in valuation expectations for most franchises compared to prior years,” said Ryan Kerrigan, Managing Director of Kerrigan Advisors. “Of particular note is how the survey highlights the value of the Toyota franchise, with 55% of dealers expecting that franchise to increase in value, despite already being one of the most valuable franchises in the market. This is reflective of Toyota’s partnership business model with its dealers and the importance of that partnership as the industry enters a period of evolution with electrification and digital retailing.”

Additional Franchise Valuation Highlights from the 2021 Kerrigan Dealer Survey:

• Projected increases in franchise values are higher on average for Toyota, Hyundai, Kia, Subaru, Honda, Lexus, and Porsche in 2021 versus 2020, when no franchise achieved greater than 40% of dealers projecting an increase.
• Toyota was the franchise most expected to increase in value by dealers at 55%.
• Lexus ranked highest among luxury franchises, with 43% of dealers projecting a value increase.
• Hyundai and Kia saw a 16-percentage point decrease in the number of dealers who expect their franchises to decline in value, versus 2020.
• Ford improved 17-percentage points in the number of dealers who expect the franchise to increase in value; greater than Chevrolet and CJDR.
• The top 5 franchises projected to increase did not include a luxury franchise for the first time, potentially due to increased competition from Tesla in the luxury segment.
• The top 5 franchises projected to decrease – Infiniti, Acura, Nissan, Lincoln, and Cadillac – saw an 18-percentage point reduction in the number of dealers expecting their valuation to decline vs 2020’s survey.
• Infiniti was the franchise most expected by dealers to decline in valuation at 55%.

Methodology

The data for The Kerrigan Dealer Survey is gathered from Kerrigan Advisors annual survey of auto dealers in conjunction with the issuance of The Blue Sky Report®. The Kerrigan Dealer Survey is based on over 825 responses from franchised auto dealers in Kerrigan Advisors’ proprietary dealer database. Survey responses were collected from June 2021 to October 2021.

• To download the full Kerrigan Dealer Survey report, click here.
• To download a preview of The Blue Sky Report^®, published by Kerrigan Advisors, click here.
• To access The Kerrigan Index™, click here.

About Kerrigan Advisors

Kerrigan Advisors is the premier sell-side advisor and thought partner to auto dealers nationwide. The firm advises the industry’s leading dealership groups, enhancing value through the lifecycle of growing, operating and, when the time is right, selling their businesses. Kerrigan Advisors has represented on some of auto retail’s largest transactions and advised 11 Top 150 Dealership Groups in the US, more than any other buy/sell firm in the industry. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, the firm does not take listings, rather they develop a customized approach for each client to achieve their personal and financial goals. In addition to Kerrigan Advisors’ sell-side advisory and capital raising services, the firm also provides a suite of consulting services including growth strategy, market valuation assessments, capital allocation, transactional due diligence, open point proposals, operational improvement and real estate due diligence.

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