Dealers upbeat on valuations, survey finds

The majority of dealers surveyed by Kerrigan Advisors think the value of their dealership or group will remain the same or increase in the next 12 months, as dealers have high expectations for brands such as Subaru and are less bullish on franchises such as Nissan.

Twenty-six percent of dealers expect their store value to increase in the next year, 60 percent expect it to stay the same, and 14 percent predict a decline, according to the first Kerrigan Dealer Survey, published this week by Kerrigan Advisors and based on responses from 650 franchised dealers — domestic, import, single points and groups — from around the U.S. They were surveyed from June 6 to Sept. 30.

Erin Kerrigan, managing director of the sell-side firm in Irvine, Calif., said that despite some economists predicting a recession in the next year or two, "I was very pleased with how few dealers thought the value [of their dealership] would go down."

Dealer sentiment mirrored findings in Kerrigan Advisors' quarterly Blue Sky Report on the buy-sell industry. In the second-quarter report, Kerrigan Advisors said blue-sky values, including intangible assets, rose less than 1 percent to $6.2 million in the first half of 2019.

Dealers think Subaru, Toyota, Porsche, Volkswagen, Mercedes- Benz, Honda and Lexus franchises are the most likely to increase in value over the next year, according to the survey. Subaru led the way, with 43 percent of dealers expecting Subaru dealership values to rise.

On the flip side, dealers are least optimistic about the value of Nissan, Infiniti, Cadillac and Buick-GMC franchises, with the majority of dealers expecting the value of those stores to decline in the next 12 months. Sixty-five percent of dealers — highest in the survey — expect the value of Infiniti and Nissan stores to slide.

"Franchises which are expected to increase in value have strong or rising buyer demand, while franchises that are expected to decline in value have low or declining buyer demand," according to the study.

Kerrigan Advisors downgraded Infiniti and Nissan blue-sky multiples in the second quarter, giving a negative outlook for Nissan because of automaker challenges and "earnings swings." It boosted Volkswagen's blue-sky multiple to positive during the second quarter.

The survey also indicates dealers have confidence in the values of certain brands. More than 60 percent of respondents predict values of Honda, Lexus, Toyota, Mercedes-Benz and BMW stores will remain the same in the next year.

Kerrigan said those franchises are among the most attractive investments and are consistently profitable. "They retain their value through challenging times and strong times," she said.

Dealers appear to be split — either optimistic or pessimistic — on Volkswagen and Volvo. The survey found 24 percent of dealers expect the value of Volkswagen stores to rise in the next year, but 28 percent expect a decrease. For Volvo, 20 percent expect a rise in value, while 29 percent expect a decrease.

"The jury is out on those two franchises, and I think they could truly go either way, and the market thinks that way as well," Kerrigan said.