DETROIT -- The appetite for dealership purchases is back, but the retail acquisitions market is stalled because of an impasse over valuations.
So said a prominent dealership broker and the CEO of the nation's largest dealership group at a panel discussion Tuesday at the Automotive News World Congress.
“There's a disconnect between sellers and buyers, and there's no deals being done,” said Mike Jackson, CEO of AutoNation Inc., which is looking for dealership acquisitions.
Large dealership groups eager to expand don't want to pay too much, the panelists agreed. And dealers who survived the bitter shakeout of 2009 have improved their financial structure and are poised to do quite well as industry volume rebounds. Even if those dealers are ready to sell, they won't let their stores go at rock-bottom prices.
‘I'm not going to overpay'
On Monday, AutoNation completed the purchase of Honda and Acura stores in Spokane, Wash., but no other deals are imminent for the chain. “I'm not going to overpay for stores,” Jackson said.
But Sheldon Sandler, CEO of Bel Air Partners, which values and represents dealerships in acquisitions, said the bargains won't get any better than they are now. Dealerships that survived the industry shakeout have cut costs and are profitable. And manufacturers aren't likely to approve many new stores, he said.
“After their revival, they're jewels,” Sandler said. “You just can't replace them, and there are not going to be a whole lot more of them.”
There is pent-up demand among owners to sell. And dealership groups are looking to grow and diversify, fueling new interest in an acquisitions market that had been dead for two years, Sandler said. The need for diversification -- in both brands and geography -- was reinforced in the past several months by the closure of brands like Pontiac and Saturn.
“It has finally dawned on everyone that being a two-point Saturn dealer in Las Vegas is just too risky,” Sandler said.
Buyer demand and the potential for surviving stores should justify higher valuations for dealerships than “what we're seeing the market wants to pay right now,” Sandler said. “In two years, you're going to pay full price again.”
But the dealership seller wasn't able to convince the dealership buyer that he should pump up his offers.
AutoNation's Jackson said dealers want to base their selling price on results from three years ago -- despite drastically lower sales today. Rather than pay that, AutoNation will find other uses for its cash.
Said AutoNation's Jackson: “I'm proud to be a bottom fisher. If it's down to buying my stock back, I'm happy doing that all day long.”