"The market is telling us they expect some compression in our industry, so we would be crazy not to build that in when we look at a buy-sell," said Ford, an active acquirer in the last two years. His company, formed in early 2014 with the backing of a New York private equity firm, now has 26 stores. "We're seeing that downward slide in profitability on the stores we look at, and the dealers willing to sell are not willing to account for that today."
Already, the buy-sell market seems less heated than it was a year ago, Ford said. He expects to do fewer deals in 2016 and only in markets where RFJ already operates.
Some of the industry's buy-sell advisers also foresee shifts in the market, though they differ in their 2016 forecasts.
Lower values for the public retailers could indeed lead to less activity this year, said Erin Kerrigan, managing director of Kerrigan Advisors in Irvine, Calif.
"It creates a ceiling for what they're willing to pay," she said. "I don't foresee prices dropping in 2016. However, we could see fewer transactions because sellers will not take lower prices."
Buy-sell adviser Alan Haig said 2016 will be a more balanced market but won't flip overnight to a buyer's market.
"Dealership values have been going up very rapidly in the last six years," said Haig, president of Haig Partners in Fort Lauderdale, Fla. "It's inevitable that at some point, the growth and value will level off and prices will decline."
But not anytime soon, he added. There's still a lot of interest in buying stores, and people are paying healthy prices for them, he said. If, however, many dealers decide they want to sell now while the market is still at or near its high point, that could cause prices to fall because of oversupply.
Dealer Mark McLarty, founder of McLarty Automotive Group in Little Rock, Ark., is looking to buy more dealerships but said he does not expect price cuts soon. When the economy softens and profit margins shrink, it's natural for prices to narrow because valuations are based on future earnings, he said. But it takes time for sellers to lower expectations. Until sellers and buyers find common ground, the buy-sell market probably will slow down, he said.
"It's certainly been a seller's market, but a lot of people would agree it's shifting to a more balanced market," McLarty said. "The peak of it being a seller's market is behind us."
Penske Automotive Group President Rob Kurnick called today's pricing "frothy" and "very expensive." The retailer has passed on good opportunities because prices were too high, Kurnick said, and will continue to be cautious and not overpay.
But unless buyers walk away, there's no motive for sellers to lower the prices, he admitted. He said the market is figuring out where the "sweet spot" will land between buyers and sellers.
Lithia Motors Inc. CEO Bryan DeBoer said prices will retract this year. "Now's the time to sell" before the market hits a low point and sellers cannot command the prices they want, he said.
If dealers see profits plateauing, "then the idea of being able to forecast continuous increases in net profitability -- which is ultimately what drives pricing on deals -- that goodwill factor would start to go away or become less believable," DeBoer said.
Rick Ford said more sellers may come to market in 2016 because many are tired after coming through the recession and don't want to go through another downturn. Many also lack a succession plan, he said.
"You'll probably see an increase in the number of dealers who are at least exploring selling," Ford said. "Whether we see an increase in transactions remains to be seen because the dealers are going to have to be willing to accept less, and that may be hard for them."