Alan Haig, head of automotive services for Presidio Group, says Hyundai and Volkswagen no longer are highly coveted dealerships.
Jaguar Land Rover stores are suddenly in hot demand. And Mercedes-Benz and BMW still command the highest prices.
Presidio is a financial services company that brokers dealership sales and tracks acquisition spending by the public groups, including international deals.
It also estimates and tracks blue sky - the intangible value of a dealership, including goodwill and items such as customer lists and marketing materials. It is expressed as a multiple of adjusted pretax income.
Haig was interviewed by Staff Reporter Diana T. Kurylko.
Q: WITH THE U.S. AUTO MARKET BOUNCING BACK, WHAT HAS BEEN THE EFFECT ON BLUE SKY?
A: Blue-sky multiples definitely increased as the market returned to more healthy sales numbers and as buyers became confident that we would have a strong recovery.
There were very few transactions that happened in 2008 to 2010. Our report that tracks public spending on dealership acquisitions shows in 2009 it went to zero when the recession was at its worst.
SO WHAT DOES THAT MEAN FOR FUTURE ACQUISITIONS?
You have a declining growth in SAAR and a declining increase in dealership profits. Buyers are looking at acquisitions today with expectations of lower sales growth than they did in 2010. That might make them reduce the multiples they offer for an acquisition. But offsetting that trend is that there is so much cash being generated by dealers today, and there are very few alternative investments available in the marketplace.
In 2014, it is our expectation that blue-sky multiples overall will hold steady. The businesses that we represent now are still getting strong offers very quickly.
WHICH BRANDS ARE SHOWING THE HIGHEST INCREASES IN BLUE SKY?
The franchise we have seen improve the most is Jaguar Land Rover. We see Jaguar Land Rover becoming more desirable for number of reasons. One reason is the products - Land Rover today is the cash cow of the franchise. The other part of the company is Jaguar, which has been suffering for the last five years. Their sales may have bottomed out.
WHERE WAS THEIR BLUE SKY AND HOW IS IT INCREASING?
We had their blue sky at 4 to 5, and it will be going up from there.
WHICH FRANCHISES HAVE LOWER BLUE-SKY MULTIPLES?
Some franchises that have suffered include Hyundai and VW.
Hyundai was an extremely hot company. The Sonata was a fantastic car, and they introduced the best warranty in the business. They really changed the consumer's perspective of that brand, making it a very stylish alternative to Honda and Toyota when they were suffering from the tsunami. Hyundai was able to take a lot of the share. They do not have the products that are as much in demand as in 2011 and 2012 and there is stronger competition from Honda or Toyota.
VOLKSWAGEN WAS HOT BUT ISN'T NOW?
It was very a hot franchise. They opened their factory in Tennessee and launched new versions of Jetta and Passat that were more directly designed for the U.S. market and much lower priced than the former models. That led to significant growth at dealerships, a big increase in 2011 and 2012. But in 2013 VW was down 7 percent and the market was up 7.5.
IS THE SUBARU FRANCHISE IN DEMAND?
Their sales were up 26 percent in 2013, compared to 7.5 overall. They are taking a lot of share. We see that franchise performing very well in colder markets where there is snow. We have not seen data on how they are performing in the Sun Belt.
WHAT ARE THE MOST COVETED FRANCHISES?
BMW and Mercedes-Benz remain the two franchises that we get calls on the most. They have broad product lineups. We are in the 5.5 to 7.5 range for a normal store if there is significant upside for a buyer.