Blue Sky Values Stay High

Profits and blue-sky value for dealerships are down from recent peaks, but they’re still high. It looks like 2023 will be the third-most active year ever, after 2021 and 2022, in terms of the number of dealership rooftops trading hands, according to the latest Haig Report for the third quarter of 2023.

“We believe blue-sky values will remain elevated, since buyers believe profits will also remain elevated,” says Alan Haig, president of dealership broker Haig Partners, Fort Lauderdale, FL. “Blue sky” is the portion of the price above and beyond the value of a dealership’s physical assets.

An estimated 385 dealership rooftops were sold from January through September 2023, says the Haig Partners report, That’s down 12% vs. the same period in 2022.

For full-year 2023, Haig Partners expects total buy-sell volume of an estimated 500 dealership rooftops, Alan Haig tells Wards. That’s down an estimated 29% vs. the all-time record of 707 in 2021, and down 21% from 634 in 2022.

As always, dealership buyers and sellers disagree over dealership values. “A seller wants yesterday’s prices and a buyer wants tomorrow’s price,” Haig says. That is, in today’s moderately declining market in terms of profits and blue sky.

Haig Partners estimates the average publicly owned dealership made a profit of $5.4 million in the 12 months ended Sept. 30. That’s down 17% vs. year-end 2022, but it’s still 2½ times higher than pre-pandemic levels, the report says.

Haig notes the publicly traded new-car retail groups have dialed way back on acquisitions after a huge spike in public-group acquisitions, especially in 2021. However, he says in the long term the public groups need to maintain a certain pace of acquisitions to hit their growth targets.

Spending on U.S. dealership acquisitions by the public groups fell to just $80 million in the third quarter, down from $956 million in the second quarter, according to the report.

In a separate conference call announcing third-quarter earnings in October, Thomas Szlosek, AutoNation chief financial officer, says selling dealers haven’t toned down their asking prices along with the market. “I would say that seller expectations have probably not moderated in any meaningful way as you might expect,” he says in response to an analyst’s question.

“Those expectations have to start moderating as we cycle out of what was a pretty frantic period of time, here, for the whole U.S. and globe, not just in the retail auto but in many other industries,” Szlosek says.