Despite earnings dip, auto dealership industry in good shape, adviser says

Dips in overall earnings in the auto dealership industry over the last two years have led to some dealers questioning their futures, a leading sell-side adviser said recently.

Some dealers, particularly single point and those nearing retirement, are concerned over the erosion of traditional business models and rapidly developing technology, Erin Kerrigan, senior managing director of Kerrigan Advisers, publisher of Blue Sky Reports and the Kerrigan Index, told an Automotive News-organized webinar that focused on the present and future state of buy/sell business and on the health of the auto dealer industry more generally.

Overall, Kerrigan had an upbeat take on the industry, saying buying and selling are likely to be brisk because of various factors; and that while earnings dropped in 2016 and will do so again this year, profits remain at historically high levels.

In her address, Kerrigan spoke on acquisitions, the current state of both private dealers and publicly listed companies, and fears in some corners of the industry.

Kerrigan Advisor's Blue Sky Reports focuses on the state of dealership buying and selling, and the Kerrigan Index tracks stocks and provides information on the seven publicly traded companies.

The managing director noted that the index rose by 968 percent between 2008 and 2015, but dropped last year.

However, the publicly traded companies remain a small part of the industry overall when it comes to the buy/sell market, Kerrigan said in the webinar.

Activity in the second half of the year is expected to surpass the first half, resulting in the fourth year of over 200 buy/sells, according to the latest Blue Sky report.

Smaller dealerships continue to make up the vast majority of the industry, but that leads to plenty of opportunities for acquisitions. Some will take advantage of the continuing high value of dealerships and step away from the business.

"Dealers do perceive risk on the horizon, particularly single-point dealers," Kerrigan said in the webinar. "They are concerned about the future of auto retail and coming technology."

Some are concerned about the erosion of traditional business models, particularly those nearing retirement or those unsure of succession. But those perceptions open a window of opportunity for others.

Overall Kerrigan believes the industry is healthy, and while there were drops in earnings in 2006 and this year, "profits are still at historically high levels." 

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