64.8 F
Laguna Hills
Thursday, Jun 30, 2022

Dealership Deals Run in the Fast Lane

- Advertisement -

Sales of automotive dealerships are in overdrive. That means Irvine-based sell-side advisory firm Kerrigan Advisors is enjoying life in the fast lane.

In late August, it helped owner Car Pros Automotive Group in Renton, Wash., hand over the keys to the Carson Kia dealership in Carson to Trophy Automotive Dealer Group in Glendale for an undisclosed sum, which industry sources pegged in excess of $50 million.

The Carson dealership is a flagship for Kia Motors North America, whose operations are based in Irvine.

It’s also part of the highest-volume Kia dealership group in the U.S. since 2016, according to Kerrigan, which has brokered sales for more than 72 dealerships in three years representing over $1 billion in client sales.

The motor trend has arrived in Orange County, as well; property records and other reports show that more than $150 million worth of dealership properties have changed hands this year, the largest of those deals closing this summer.

Managing Director Ryan Kerrigan expects the pace to continue for the next five years.

“We’re seeing continued consolidation throughout our industry,” Kerrigan said. “In the last five years, there’s been an average of 200 transactions per year across the country.”

A big driver of the sales spike “is [that] the larger groups are finding cost efficiencies and successfully driving down costs relative to the smaller dealership groups,” he said.

In Orange County, two big auto dealerships traded hands this summer.

Orange Coast Acura, formerly South Coast Acura, sold to Costa Mesa-based Orange Coast Auto Group this month for an undisclosed price.

Orange Coast Auto now has six dealerships, all in Costa Mesa and along the city’s Harbor Boulevard hub of dealerships, including the just-purchased Acura site.

Meanwhile, BMW of Buena Park, formerly Shelly BMW, sold to Fort Lauderdale, Fla.-based auto retailer AutoNation Inc. in June for what knowledgeable sources said was $54 million.

Sales Traffic

While Car Pros Chairman and founder Ken Phillips sold Carson Kia as a step toward retirement, industry players are reporting that increasing industry consolidation is powering the increase in dealership sales traffic.

“Not every buyer would be willing to pay up for this kind of store because [Carson Kia] is overperforming so dramatically,” Kerrigan said. “However, there was significant interest on the part of larger dealership groups.”

Public companies, such as AutoNation (NYSE: AN), and Penske Automotive Group (NYSE: PAG) in Bloomfield Hills, Mich., are close to spending a record $1 billion on U.S. acquisitions this year.

Penske founder and Chief Executive Roger Penske—whose company bought the Crevier BMW and Mini Cooper dealership in the Santa Ana Auto Mall in 2011—said on a recent earnings call that his company plans to grow the business through both acquisitions and same-store sales over the next couple of years.

For AutoNation, picking up Shelly BMW raised its BMW franchises in California to seven and 17th nationwide.

It reported the Buena Park dealership’s annual revenue to be an estimated $140 million with retail sales of about 2,600 new and used vehicles, which would rank it 12th among Orange County dealerships.

The underlying property that holds the roughly 35,000-square-foot Buena Park dealership sold for about $23 million, according to property records. That’s roughly half of the estimated purchase price.


Andy Coyle, founder of Laguna Classic Cars and Automotive Art, said the battle for independent operators is to lower operating costs. He advised on the sale of Orange Coast Acura last month with J. Michael Issa, principal at Irvine-based GlassRatner, a B. Riley Financial Inc. subsidiary.

“The larger [groups] get better advertising rates, [a] cheaper floor plan, and lower interest rates on their inventory loans,” Coyle said. “They can chisel and grind the small percentage on everything, and it ends up being a significant savings. And they have the ear of the manufacturers and can get a better cut or allocation of inventory that a smaller dealer might not. It’s capitalism at its finest.”

Coyle, who represented the former South Coast Acura owner, said it became difficult to cover costs at the location, as the owner only operated one shop, adding that dealers with multiple stores can better spread their fixed costs, giving them a competitive advantage.

“When you’re dealing with margins of 2% and 3%, that makes a huge difference,” he said.

Issa said it’s not impossible for smaller groups to survive but expressed a bit of skepticism, pointing to shrinking gross profit margins.

The average gross profit per new vehicle sold has dropped 20% since 2015, reaching $889, according to Kerrigan’s report. It found that this year marks the first time since 2015 that a dealership’s rent exceeds gross profit on a per new-vehicle basis.

Featured Articles


Related Articles