David Wilson, president of David Wilson Automotive Group in Orange, Calif., owns seven Toyota dealerships and three Lexus stores, including the $75 million Newport Beach, Calif., Lexus dealership he built in 2006.
And he's aggressively hunting for more Toyota and Lexus stores -- so far without success.
"With the troubles they have had, you would think the sellers would be offering bargains," Wilson said. "But no such luck."
Dealership acquisitions are heating up after two years in the deep freeze, but not to the red-hot temperature of three years ago.
Buyers -- especially the public dealership groups -- are not paying the six times net pretax earnings for dealerships that they were a few years ago. They're paying half that.
Some sellers are accepting discounts from peak prices, but those with the most profitable stores are still holding out for better prices. And the credit crisis is shutting out smaller buyers with one or two stores.
Today, the shopping is restricted to the nation's largest retailers and those with the most cash.
Tony Kraatz, vice president of acquisitions for the Ken Garff Automotive Group in Salt Lake City, tried to sell a few stores. But the deals collapsed when buyers failed to obtain credit lines for their vehicle inventory.
Mortgage bankers also are demanding 25 to 35 percent down payments and are sharply discounting the real estate, Kraatz said.
"The banks tell appraisers to value a dealership that's open as if it is vacant, which drops the value about 25 percent," he explained. "Then they're loaning 65 percent of that."
Even the public retailers, such as AutoNation Inc. and Lithia Motors Inc., that announced they would plunge back into acquisitions are on a budget. After slashing expenses to stay profitable last year, they are reluctant to take on debt.
Lithia CEO Sid DeBoer explained his acquisition strategy to Wall Street analysts when the company reported its first-quarter results last month. "We believe it is a buyer's market currently, and we are taking our time to make sure we make the best investments for our shareholders," DeBoer said.
Large, privately held auto retailers and well-capitalized regional dealership groups also are carefully scrutinizing deals. The recovery is under way, but it will take several years for the U.S. auto industry to get back to 16 million light-vehicle sales a year. The dealers want to make sure they get an acceptable return on investment.
"We're in a buying mode if it makes sense," said Don Bavely, president of the Rosenthal Automotive Organization in Arlington, Va., which recently acquired three dealerships.
"The risk factor has heightened," Bavely said. "If we see brands we like in great locations, we will take the risk and purchase them."
In better times, some dealers would have dumped their car businesses in a heartbeat to get bigger returns by building condominiums or strip malls. Now they're facing the reality that the dealership -- though devalued -- is worth more as a going concern.