Dealership transactions jumped in the first half of the year, according to the latest Kerrigan Advisors Blue Sky Report.
Year-over-year, buy-sell deals rose 26% through June to 211 encompassing 357 franchises, the firm said, pointing out that that puts volume on pace for full-year dealmaking to match prepandemic levels.
In fact, Kerrigan Advisors expects record volume this year, saying that on a trailing 12-month basis, 418 deals have been done.
The firm credits industrywide dealership profits for the robust sales. It says that earnings are still three times prepandemic numbers, despite falling from their 2022 peak. Public dealer groups’ earnings have risen about 10% over the past three quarters as their average profit margin landed at about 5%, which it says is almost double the prepandemic level.
“Systemic changes to the business model due to pandemic-induced operational re-engineering have left an already attractive industry even better positioned for long-term success,” the report says.
If automakers’ forecasting plays out, the higher earnings will continue, Kerrigan Advisors says. It surveyed manufacturers, which project that inventory turn rates will hold at a "new normal" of 30 to 60 days of new-vehicle supply, a stark contrast to the prepandemic average of 60 to 90 days. The automakers further predicted that better inventory management should enable continued higher new-vehicle gross margins to the point that a return to prepandemic margins isn’t in view.
Its Kerrigan Index measuring the seven publicly traded auto retailers is up 48% since October to just 20% under its record high.
Originally posted on Auto Dealer Today