Expensive image upgrades, particularly for luxury import franchises, prompt more dealers to sell
Incline Village, Nev.—The auto dealership buy/sell market rose to another record high, with 330 dealership transactions completed in the nine months ended September 30, 2024, representing 544 franchises sold, according to the new “Third Quarter 2024 Blue Sky Report” by Kerrigan Advisors. Up 93% compared to 2019, this market velocity was fueled by more sellers entering the market, as stronger franchises took advantage of historically high blue sky values, while weaker franchises were divested.
“Clearly, 2024 is on track to be another peak year for the buy/sell market,” said Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors.
Of note in the report is the increased market share for the Top 150 US Dealership Groups reaching 30% of total industry revenue in 2023, up 5% in just five years. At this growth rate, Kerrigan Advisors projects the largest groups will represent the majority of industry revenue by 2043. The accelerating market share growth is due to the largest group’s preference for higher-volume dealerships. Since 2021, the average dealership revenue for the Top 150 Dealership Groups has risen 7% to over $83 million, 16% higher than the industry average, which has stalled at $71 million since 2021.
Kerrigan added, “If the consolidation rate continues, the Top 150 US Dealership Groups, which now represent nearly one third of total industry revenue, could account for 50% or more of industry sales in the next 20 years, potentially a tipping point for an acceleration in consolidation in the following decades.”
Third Quarter 2024 Buy/Sell Trends
Kerrigan Advisors has identified the following three trends which it expects to meaningfully impact the buy/sell market into 2025.
- Expensive image upgrades, particularly for luxury import franchises, prompt more dealers to sell.
- Larger groups’ stronger balance sheets and banking relationships increase their buy/sell market share.
- Buyers less open to new markets, more focused on tuck-in acquisitions and local scale.
The negative projected return on investment associated with expensive facility upgrades is a key trend driving more dealers to consider a sale in the near term, and it is bringing more luxury dealers to market. Average dealership rents have risen 32% since 2019, with luxury dealers’ rents increasing at the highest rate since 2020, making the impact of expensive image upgrades particularly pronounced for those franchises.
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