Dealership Buy/Sell Activity on Pace For Blockbuster Year, Firm Reports

By: Automotive News

FT. LAUDERDALE, Fla. — Auto dealers are enjoying some of the best operating conditions in over a decade, according to a report released this week by Haig Partners.

The Blue Sky Report found that record profits from higher new-vehicle sales and improving fixed operations, combined with a stable economy, are creating a robust buy-sell market for both public and private dealer groups looking to acquire additional franchises.

“The number and value of deals accelerated in the first quarter,” said Alan Haig, president of the firm. “Private dealer groups made 56 acquisitions in all of 2013, but 42 through May of this year alone. Public retailers tripled their activity in the quarter from a year ago, and unlike in recent years, no major acquisitions were made in foreign markets.”

Haig Partners, which advises dealers on the dealership sales process, is paying close attention to the significant recalls of General Motors vehicles. So far, the firm sees no ill-effects on buyers’ interest in GM dealerships. “While GM will be incurring extraordinary costs for the recalls, GM dealers stand to benefit from customers bringing vehicles in for repairs and trading in recalled cars for newer models,” Haig said. “It’s early to call it a nonevent, yet GM’s market share is stable, new-unit sales are increasing, and its stock price is up from a year ago. We’re currently representing the seller of a very profitable GM dealership and we believe it will trade for a franchise-record price.”

The acquisition of the DCH Auto Group by Lithia Motors for more than $363 million confirms Haig Partners’ expectation that buyers would begin to pursue acquisitions of high value dealership groups, as discussed in its 2013 Blue Sky Report.

“No one’s shying away from very large transactions,” Haig said. “There’s no better use of capital than other investment opportunities, and lenders are more than willing to finance deals. As the buy-sell market began to recover from the doldrums of the recession, there was a concern that sellers had unrealistic valuations for their businesses. But many dealerships have grown into these valuations, so we are seeing buyers and sellers reach agreement on prices.”

The firm’s Blue Sky Multiples were unchanged from its year-end Blue Sky Report. Haig said that some adjustments would likely be made based on mid-year data.

To read the full report, click here.

Source: http://www.autodealermonthly.com/news/story/2014/06/dealership-buy-sell-activity-on-pace-for-blockbuster-year-firm-predicts.aspx

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Dealership Buy/Sell Activity on Pace For Blockbuster Year, Firm Reports
Dealership Buy/Sell Activity on Pace For Blockbuster Year, Firm Reports Dealership Buy/Sell Activity on Pace For Blockbuster Year, Firm Reports

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Aluminum Ford F-150 remains on track, Hinrichs says

By: Automotive News
DETROIT (Bloomberg) -- In response to Morgan Stanley’s concerns about potential delays, Ford Americas chief Joe Hinrichs said the new aluminum-bodied F-150 truck remains on track for its introduction later this year.
Ford is retooling two factories to make the pickup, part of a plan this year to add 16 new models in North America. The company says its new F-150 is about 700 pounds lighter than the steel version it will replace.
“Everything is on schedule and everything is going as planned” with the F-150 introduction, Hinrichs told reporters today at the automaker’s headquarters. “I’m very confident in this vehicle,” he said.
The company had previously said that it would lose production of more than 90,000 of its F-Series pickups, its best-selling and most profitable model, as it retools factories for the new aluminum-bodied truck.
The series of plant shutdowns will reduce the company’s sales, market share and profits in the lucrative pickup truck market, Hinrichs said earlier this month.
“We see scope for near-term negative surprise with the changeover,” Ravi Shanker, a Morgan Stanley analyst wrote in a note today. “Expect a slow changeover, with tight supply.”
The company may also see lower margins on the new truck versus the old model, he wrote.
Source: http://www.autonews.com/article/20140624/OEM04/140629950/aluminum-ford-f-150-remains-on-track-hinrichs-says

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Cars.com: Service Department Reputation a Key Factor in Car-Buying Decision
Cars.com: Service Department Reputation a Key Factor in Car-Buying Decision

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Hail on wheels? No problem as shoppers clamor for deals on damaged cars

By: Kathleen Burke, Automotive News

Woodhouse Auto Family in Blair, Neb., has been weathering a flood of new customers in the wake of a hailstorm that damaged nearly 4,400 vehicles last week at its three stores, including its “Truck Mountain” Ford truck dealership.
To clear the lots of the struck vehicles, Woodhouse declared a “hail sale” the day after the storm, marking stickers down by anywhere from $1,000 to $15,000. Lisa Cole, Woodhouse Family Auto marketing director, said in an e-mail that by Saturday, more than 150 customers were waiting to speak with a salesperson. Woodhouse’s Web site said e-mails and phone messages may not be returned for two to three weeks.
Woodhouse Ford said all of its 2,500 pickups at “Truck Mountain” were damaged. The dealership is the nation’s top-selling store for F-series pickups.
The situation in Nebraska underscores how dealerships can use “hail sales” to sell vehicles with dents or cracked windshields -- and attract new customers to their lots.
Tim Olson, president of Dent Terminator, a paintless dent repair company in Tulsa, Okla., said in such situations, customers feel as if they have the upper hand.
“It’s like blood in the water,” Olson said. “People sense that [dealerships] are at a disadvantage, bringing people into the marketplace that weren’t there before.”
Peak Kia in Littleton, Colo., has been holding a hail sale since storms on May 20 and May 24 damaged 425 vehicles, creating an average of $6,000 worth of damage per car.
Bill Byerly, owner of Peak Kia, said about one-third of the discounted vehicles were sold the weekend following the storm.
“We want to try to retail everything,” Byerly said on June 9. “We may sell them all in a month or six weeks from now.”
Byerly said past hail sales have proven profitable for Peak Kia, but they won’t know the effect of the latest storms until the end of the month. Kia has been providing the dealership with fresh inventory to replace the rapidly sold hail-damaged vehicles.
While hail sales are an effective way of clearing lots for dealers, the discounts may not be as equally beneficial for customers. Olson said that if a hail-damaged vehicle isn’t repaired after purchase, insurance companies can discount the damage from future accident coverage.
“There are benefits for consumers, but also ‘gotchas,’” Olson said. “…When [an insurance company] looks at a car and sees hail damage, they figure what that would have cost and deduct it from the current cost of the accident.”
Olson said an indicator of the severity of hail damage is if the paint is broken or cracked at the edges of the vehicle’s panels. Such damage would cause the car to rust within six months.
Dealerships can hire PDR companies to do repairs on site, or repair lightly damaged vehicles in their service centers to further incentivize customers. Olson said competitive pricing among PDR companies allows for high profit margins for the dealerships that hire them.
Cole said in an e-mail that Woodhouse was repairing some of the discounted vehicles at the dealerships. However, it is too soon to tell if the massive sale will be profitable.
Mark Cooley, general manager at Nebraska Auto Auction Inc. in Lincoln, said the auction house is expecting to receive vehicles damaged in the June 3 storm soon, though it is too soon to know how many and which dealers will be selling them.
“The [insurance] adjusters have been way behind,” Cooley said. “We usually get a couple hundred, they sell easily.”
He added that the dealerships his firm works with typically end up benefiting since their insurance has paid for the damages.
Cole said in an e-mail that salvaged vehicles will be taken away, but they will try and sell all of the damaged cars.
“The hail sale will continue until all vehicles with damage are sold,” Cole wrote.

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Hail on wheels? No problem as shoppers clamor for deals on damaged cars Hail on wheels? No problem as shoppers clamor for deals on damaged cars

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Consumers Believe Honda, Mercedes Provide Highest Quality

By: ALG

SANTA BARBARA, Calif. — Consumers feel that Honda and Mercedes-Benz deliver the highest quality vehicles, according to a report from ALG, the analytics division of TrueCar.

Honda received the highest ratings among mainstream brands, followed by Toyota and Volkswagen, according to ALG’s Brand Perception of Quality (BPQ) study. Mercedes-Benz received the highest ratings among premium brands, followed by Lexus and BMW.

European automakers netted six of the Top 7 premium brand spots. The mix was a bit more varied among mainstream brands. While three of the Top 4 spots were held by Japanese automakers (Honda, Toyota, Subaru), domestic brands GMC, Ford and Buick were all among the next tier.

“When consumers buy a car, brand perception directly impacts how quickly the vehicle will depreciate,” said Larry Dominique, president of ALG and executive vice president at TrueCar. “Many consumers lack any real experience with the brand, so there is often a gulf between perception and reality. When deciding on a car purchase, consumers need to consider more than just build quality — they need to consider how the brand is perceived in the marketplace.”

Among college-educated respondents, Volkswagen and Subaru saw lifts in their favorability. Among Millennials, Jeep leapfrogged into the Top 3 brands.

“Millennials value transparency and authenticity and Jeep positions itself as authentically rugged,” said Dominique.

Brands with less familiarity among consumers tend to be perceived less favorably. Alfa Romeo, set to return the U.S. market by 2015, is a good example of a brand that will need to establish greater awareness before it can change perception.

ALG surveyed 30,000 recent car buyers in conjunction with Strategic Vision’s New Vehicle Experience Survey (NVES). They polled are asked to rate the quality of all brands. The calculated index removes the rating for the brand that the consumer purchased. BPQ rankings are indexed on a 100-point scale based on survey respondents’ qualitative scores, ranking aspects of vehicle brands.

Source: http://www.autodealermonthly.com/news/story/2014/06/consumers-believe-honda-mercedes-provide-highest-quality-alg-reports.aspx

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Consumers Believe Honda, Mercedes Provide Highest Quality

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May Depreciation Levels Reveal Signs of Summer Slowdown, Black Book Reports

LAWRENCEVILLE, Ga. — The average price of a used vehicle for model years 2008-2012 dipped slightly during May, according to Black Book. The firm noted that depreciation levels are typically higher at the beginning of the summer selling season vs. typical spring levels.

Average segment prices saw -0.4% depreciation in May compared with the previous month (+0.9% in April). Domestic cars changed -0.5%; import cars changed -0.9%; domestic trucks gained +0.5%; and import trucks changed -0.4%. Average pre-recession depreciation is historically between -1% and -2% monthly, and Black Book expects overall 2014 depreciation of -13.5%.

Full-size passenger vans led all segments with the strongest monthly retention at +2.5%, following by full-size cargo vans at +1.7%. Compact cars led all car segments with the strongest retention at +0.8% during May. Vehicles in this segment include the Honda Civic, Chevrolet Cobalt, Toyota Corolla, Chevrolet Cruze, Ford Fiesta and Ford Focus. The average segment price at the end of May was $9,383, a -6.8% change from year-ago levels ($10,668).

Luxury cars led all segments with the highest depreciation at -1.5% during May. Vehicles in this segment include BMW 5-Series, Cadillac DTS, Mercedes-Benz E-Class, Hyundai Equus, Lexus IS250 and Infiniti M Series. The average segment price at the end of May was $20,190, a -15.5% change from year-ago levels ($23,882). Even though these change levels are greater than the remainder of the market, they fit within normal pre-recession depreciation levels.

Luxury SUVs led all truck segments with the highest depreciation on the month at -1.0%. Vehicles in this segment include the Cadillac Escalade, Mercedes-Benz G Class, Land Rover LR3 and LR4, Lexus LX 470 and Lincoln Navigator.

Opposite their luxury counterpart, four of the Top 8 best-performing segments of the month were the full-size pickups (+0.6%), mid-size pickups (+0.5%), full-size SUVs (+0.2%) and the mid-size SUVs (+0.1%).

Ten of the 24 total segments finished May at no change in value or better, following April when 21 segments finished in positive change range. What’s more, eight of the nine segments with highest depreciation in May were car segments.

“As we’ve seen first-hand from the dealer comments collected by our survey personnel at wholesale auctions, the summer season is kicking in and there is less activity around filling the car lots right now,” said Ricky Beggs, editorial director at Black Book. “Many dealers will begin to prepare their inventory strategies for the incoming new model year in a few months, depicting higher depreciation between now and the end of the year.”

Here is the complete breakdown of Black Book-recorded May value changes of used cars (2008-2012):

Bodystyle	Seg	Veh Type	6/1/13	5/1/14	M Chg	6/1/14	12M Chg
			[$]	[$]	[%]	[$]	[%]
All Vehicles			$20,826	$18,312	-0.4%	$18,242	-12.4%
Domestic			$14,193	$12,657	-0.5%	$12,598	-11.2%
Dom. Trk			$19,098	$17,310	0.5%	$17,395	-8.9%
Import			$22,319	$19,243	-0.9%	$19,068	-14.6%
Imp. Trk			$23,195	$20,372	-0.4%	$20,298	-12.5%
Luxury Level Car	LLC		$23,882	$20,501	-1.5%	$20,190	-15.5%
Prestige Luxury Car	PLC		$40,137	$33,043	-1.4%	$32,596	-18.8%
Sporty Car	ESC		$22,086	$19,064	-1.2%	$18,838	-14.7%
Luxury SUV	LSU	Trk	$38,087	$33,331	-1.0%	$32,994	-13.4%
Premium Sporty Car	PSC		$51,786	$45,519	-1.0%	$45,072	-13.0%
Upper Mid-Size Car	UMC		$12,719	$11,344	-0.6%	$11,273	-11.4%
Entry Level Car	ELC		$8,879	$7,792	-0.6%	$7,744	-12.8%
Near Luxury Car	NLC		$20,651	$17,927	-0.5%	$17,843	-13.6%
Full-Size Car	FSC		$14,865	$13,396	-0.4%	$13,349	-10.2%
Compact CUV	CXU	Trk	$14,919	$12,927	-0.3%	$12,882	-13.7%
Full-Size CUV	FXU	Trk	$24,761	$21,547	-0.2%	$21,508	-13.1%
Compact SUV	CSU	Trk	$17,378	$16,410	-0.2%	$16,385	-5.7%
Mid-Size CUV	MXU	Trk	$21,611	$18,619	-0.1%	$18,592	-14.0%
Mini Van Wagon (Pass)	MVW	Trk	$14,853	$13,026	-0.1%	$13,013	-12.4%
Compact Pickup	CPT	Trk	$16,016	$15,064	0.0%	$15,061	-6.0%
Entry Mid-Size Car	EMC		$12,433	$11,026	0.0%	$11,030	-11.3%
Mid-Size SUV	MSU	Trk	$20,589	$18,030	0.1%	$18,043	-12.4%
Full-Size SUV	FSU	Trk	$22,655	$20,753	0.2%	$20,798	-8.2%
Mid-Size Pickup	MPT	Trk	$18,546	$16,826	0.5%	$16,903	-8.9%
Full-Size Pickup	FPT	Trk	$24,729	$23,431	0.6%	$23,580	-4.6%
Mini Van Cargo	MVC	Trk	$11,202	$9,543	0.8%	$9,618	-14.1%
Compact Car	SCC		$10,668	$9,304	0.8%	$9,383	-12.0%
Full-Size Van Cargo	FVC	Trk	$14,041	$12,869	1.7%	$13,093	-6.8%
Full-Size Vans Wagon (Pass)	FVW	Trk	$14,599	$13,369	2.5%	$13,698	-6.2%

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May Depreciation Levels Reveal Signs of Summer Slowdown, Black Book Reports
May Depreciation Levels Reveal Signs of Summer Slowdown, Black Book Reports

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