Publics' dealership acquisitions drop in '22

Dealership acquisition and spending by the public dealership groups, which collectively played a significant role in last year's feverish buy-sell market, dropped sharply in the first half of 2022.

Lithia Motors Inc., Group 1 Automotive Inc., Penske Automotive Group Inc. and Sonic Automotive Inc. bought 21 U.S. franchised dealerships in 10 transactions in the first six months of 2022, down from 67 stores acquired by public auto retailers in 17 deals in the first half of 2021, according to Automotive News' tracking of dealership buy-sell activity.

The number of dealerships purchased by the public groups in this year's first half decreased by more than two-thirds compared with the first half of 2021, a period headlined by Lithia's April 2021 purchase of Michigan's Suburban Collection and its 34 franchised dealerships.

LMP Automotive Holdings Inc., which is now traded over the counter and is pursuing a liquidation plan, is included in the 2021 buying figures.

Sonic did not acquire any franchised stores in the first half of last year. AutoNation Inc. and Asbury Automotive Group Inc. had no new-vehicle dealership purchases in the first half of 2022 or 2021.

U.S. new-vehicle dealership acquisition spending by the publics fell by nearly half to $1.1 billion in the first half of this year, compared with $2.1 billion spent in the first half of 2021, according to an estimate from Haig Partners, a Fort Lauderdale, Fla., buy-sell firm, which reviewed public disclosures, and Automotive News analysis.

Lithia was, by far, the biggest public buyer in the first half of 2022, acquiring 16 new-vehicle dealerships in five transactions, Automotive News found. But those totals are down sharply from the 57 stores the auto retail giant acquired in 11 transactions in the same period last year.

Group 1 and Penske Automotive each bought two U.S. dealerships in the first half of 2022, while Sonic Automotive bought one store.

The publics' acquisition activity substantially heated up in the second half of 2021 and rose to a crescendo in the fourth quarter when Group 1 bought 28 stores from Prime Automotive Group, Sonic purchased RFJ Auto Partners Holdings and, in the largest deal of the bunch, Asbury acquired Larry H. Miller Dealerships.

"In '21, the publics were on a tear buying stores and buying major groups," Erin Kerrigan, managing director of Kerrigan Advisors, a sell-side firm in Incline Village, Nev., told Automotive News.

Kerrigan Advisors estimated the six major public groups spent a record $9.56 billion on acquisitions in 2021, nearly four times the $2.48 billion spent in 2020.

While dealership acquisition spending is down this year so far, the publics have been busy buying back their own stock.

Kerrigan Advisors said the six major publics collectively spent $2.2 billion on stock buybacks in the first half of 2022, about double the $1.1 billion they spent a year earlier.

Many of the publics have indicated they will remain active in buying dealerships but at the same time are beefing up share repurchase authorizations. For example, in October, AutoNation said it planned to buy four dealerships in Colorado by year's end and said its board authorized up to an additional $1 billion to buy back its stock.

"M&A is one of the things that's so hard to predict because the opportunities come along sporadically," Sonic Automotive CFO Heath Byrd said in an October earnings call. "But we're in a great position to take advantage of those when they do come up."

Sonic CEO David Smith acknowledged that while prices for franchised dealerships are still historically high, retailers have seen some signs that prices are coming down.

"It'll be interesting to see, especially going forward into '23, what prices we're going to see and what opportunities could come across our desk," Smith said last month. "But they've got to be extremely, extremely attractive in order to allocate capital towards acquisitions."