At NADA 2020 in sunny Las Vegas, host Jim Fitzpatrick was joined by Ryan Kerrigan, Managing Director of Kerrigan Advisors. The pair discuss expectations for the buy-sell market in 2020, the hottest selling brands right now, and the overall strength of the market.
VIDEO TRANSCRIPT:
Jim Fitzpatrick: Ryan Kerrigan with Kerrigan Advisors. Thanks so much for stopping by and taking the time out of your busy schedule. My gosh, you’re running around here. Crazy man.
Ryan Kerrigan: Yeah. Good to be here. NADA, as you just said, is our Super Bowl. We are incredibly busy for these four days. We’ve met with lots and lots of dealers, hosted some great events, and we love doing in Las Vegas. It’s frankly just a really good venue. People show up.
Jim Fitzpatrick: And you don’t have to travel that far.
Ryan Kerrigan: And it’s nice for us, for those of us in Southern California, it is far more convenient than New Orleans or Orlando, so we’re happy to be here.
Jim Fitzpatrick: And you just completed a super session, right? For NADA. Talk to us a little bit about that.
Ryan Kerrigan: We did. So, my sweetheart and I did a two hour super session on Valentine’s Day.
Jim Fitzpatrick: Wow, that’s like a marathon.
Ryan Kerrigan: It was a marathon and, yeah, thanks to the many, many dealers and attendees that stuck with us for the two hours, and we covered a lot. We talked about strategy, where we’re going, return on investment, transactions. In two hours, you can cover a lot.
Jim Fitzpatrick: I bet you can. We’re going to talk about some of those things today. Talk to us, an incredible year, 2019, let’s start there. What say you about 2019?
Ryan Kerrigan: Yeah. Let’s start with maybe talking about the publics because what goes on in the publics is very well documented, but then it really filters down to what’s going on with the rest of the dealers. And so, the publics up 50% in 2019, that’s with, their stock prices. So they had a really remarkable run. And what went on is that I think that Wall Street, the investor class, realized, “Hey, we’re reading all these negative headlines about cars and SAAR is going nowhere, but yet the profits are rising very dramatically. What’s going on?”
Jim Fitzpatrick: Right. Sure.
Ryan Kerrigan: So, they wizened up to what we already know. And that F&I is strong, used cars are strong, parts and service. So, there’s all these sources of strength and you saw a real boost in stock price. That’s exactly what you’re seeing at dealerships, at private dealerships. So, profitability is strong.
Ryan Kerrigan: I was with a very large dealer for breakfast this morning and he said that across his peer set of large dealership groups that profits were up 13% year-over-year and that’s with no increase in SAAR, so great year.
Jim Fitzpatrick: Wow, that’s fantastic. Yeah. No question about it. Let’s talk a little bit about what that means when a dealer does go to sell. Let’s talk a little bit about blue sky and the values have increased, first time since 2015, right?
Ryan Kerrigan: Yeah. Yeah, so happy to report that blue sky values very much in place. We did see a slight increase, a slight uptick, in blue sky this past year because profits are rebounding, but I will say that, in general, because profits are very strong, that transactions are getting done at close to, if not all-time, highs.
Jim Fitzpatrick: Wow.
Ryan Kerrigan: Really strong, blue sky, particularly, I would say, on some of the top brands. And there seems to be a bias towards luxury right now.
Jim Fitzpatrick: Really?
Ryan Kerrigan: And we’re seeing a lot of interest in luxury.
Jim Fitzpatrick: Interesting. So, continued strength in the buy/sell market and-
Ryan Kerrigan: Absolutely yes. So, our blue sky report comes out in about four weeks. We’ll have the 2019 data finalized between now and then. Over 200 transactions, again, in 2019, so that’s the sixth year in a row of over 200 transactions for the industry.
Jim Fitzpatrick: And are the publics making up? I know that some of them sat on the sidelines in 2019.
Ryan Kerrigan: They absolutely did. They were very much on the sideline in 2019. I’d mentioned earlier, the stock prices were up considerably. We said, in the latter half of 2019 we’re going to see them come back into the market.
Jim Fitzpatrick: Okay.
Ryan Kerrigan: And sure enough, we did. So for example, we had an Asbury step up with a very big transaction in December.
Jim Fitzpatrick: Huge.
Ryan Kerrigan: And then also, so tomorrow, for example, we’re going to be announcing a luxury transaction with the public as well. So, you’re starting to see them come back.
Jim Fitzpatrick: Okay. When a transaction happens like that in the marketplace, like the Asbury billion dollar deal, does your phone ring off the hook? Does your cell phone go off and go, “Ryan, what’s going on? Get me in this deal. Is now the time to sell?”
Ryan Kerrigan: To some degree, absolutely. So, a big announcement like that does get a lot of people just, one, they want to talk about it, they want to understand it.
Jim Fitzpatrick: Right, right.
Ryan Kerrigan: But absolutely. For those that are running groups of that size, it does beg the question, “Gosh, is this something that I should be thinking about?”
Jim Fitzpatrick: That’s right.
Ryan Kerrigan: So, have we had a couple more conversations because of that deal? The answer is absolutely yes.
Jim Fitzpatrick: Yeah, for sure. And do the other publics, obviously they take note and say, “Wow, this, this is great for the stock price, for the overall market.” Do you think that they up their game and say, “Hey, we got to get out there and follow suit. Let’s grab some 20-“?
Ryan Kerrigan: Human beings are competitive, right?
Jim Fitzpatrick: Yeah.
Ryan Kerrigan: We can’t help ourselves. And so, yeah, absolutely. If nothing else, strategically you have to take account into what others are doing. And so, if you see your closest competitors getting into new markets, gaining size, you have to be thinking about it, and then deciding what your reaction is going to be.
Ryan Kerrigan: So, absolutely, the actions of one of the publics does influence how the other publics are thinking. They may or may not act on it, but they certainly will think about it.
Jim Fitzpatrick: Sure. What are some of the top, or I should say, the hottest selling brands right now, without getting some of your clients upset with you?
Ryan Kerrigan: Sure.
Jim Fitzpatrick: “You didn’t mention my brand.”
Ryan Kerrigan: Yeah.
Jim Fitzpatrick: But what’s the deal there?
Ryan Kerrigan: Well, so maybe I go back and refer. So, we did a dealer survey just a few months ago and coming out of that survey, the brands that were strongest and had the most interest on the part of buyers, were, and it’s no surprise, but Toyota, Honda, we throw Subaru in there, in terms of the volume brands, probably the three that just, they perform incredibly well. And then, the luxury. Again really, really strong with the German luxury, as well as Lexus.
Ryan Kerrigan: The one surprising brand that we throw in there is that it would appear that VW has convinced the dealer body that they’re serious about turning around profitability.
Jim Fitzpatrick: No kidding? Wow.
Ryan Kerrigan: I think there’s a lot of excitement about Scott Keogh in that role.
Jim Fitzpatrick: Yeah.
Ryan Kerrigan: So, we are absolutely seeing, and it’s interesting, because of those brands that suffer with average profitability, it’s hard to get the dealer body excited about them. But we’ve seen some momentum right now on VW. We’ll see if that continues in 2020 .
Jim Fitzpatrick: Wow. I bet there’s a number of dealers out there that just heard that and said, “Oh my gosh, I sold my VW store maybe at the wrong time. I should have held in there.” Right?
Ryan Kerrigan: Well, yeah. Hey, I mean, it takes a while to get all the things required to get momentum.
Jim Fitzpatrick: Sure.
Ryan Kerrigan: I would just say that the one surprising brand that popped up with real dealer interest was VW in our most recent survey.
Jim Fitzpatrick: Sure. Let’s talk about expectations for 2020. What’s it look like?
Ryan Kerrigan: Well, all the data that we see is really positive. Sufficiently positive that it makes me nervous because things are lining up really, really well for dealers.
Jim Fitzpatrick: Okay.
Ryan Kerrigan: The only really impediment of 2019 is that we saw rising interest rates, and then guess what? Interest rates came back down.
Jim Fitzpatrick: Exactly. Right.
Ryan Kerrigan: So, it’s a little, almost, eerie right now. Things are very, very good in automotive retail.
Jim Fitzpatrick: That’s right. And the tariffs? Where does that stand? What kind of an impact does the threat of the tariffs have on a buy/sell market?
Ryan Kerrigan: Well, it’s a great question. And interestingly, we have not seen the prospect of tariffs get enough traction or enough belief in the dealer body to really impact it. That could change. So, monitor your tweets daily from Washington, DC.
Ryan Kerrigan: So, in the event that the administration decides to re-up on that conversation, re-engage with the Europeans and/or the Japanese, that could change. But here, to date, thankfully the consensus has been, this too shall pass, and it’s not impacted by sales.
Jim Fitzpatrick: Okay.
Ryan Kerrigan: And let’s hope that continues to be the case.
Jim Fitzpatrick: Is it a buyer’s market or a seller’s market in 2020?
Ryan Kerrigan: It’s a strong seller’s market. I would say it’s a strong seller’s market, but I’d say it’s reasonably balanced. If we go back three or four years ago, it was absolutely a seller’s market.
Jim Fitzpatrick: Okay.
Ryan Kerrigan: Today, I think there’s a little more availability. I think expectations have dampened just a little bit. So, I think there’s some balance to the marketplace.
Jim Fitzpatrick: Okay.
Ryan Kerrigan: But, hey, valuations are still really, really strong. It’s a solid time to be a seller. No question.
Jim Fitzpatrick: Dealers, you heard it right from the man himself. Mr. Ryan Kerrigan. If you’re thinking about it in 2020, get top dollar. He’s the guy that you want to talk to. Thank you so much, Ryan. It’s such a pleasure.
Ryan Kerrigan: You too.
Jim Fitzpatrick: And I know you’re going to go back to knocking the cover off the ball here, the 2020 show in Vegas.
Ryan Kerrigan: We have never been busier. It’s going to be a great year.
Jim Fitzpatrick: That’s right. That’s right. Thanks so much.
Ryan Kerrigan: Thanks, Jim.
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