Buy-sell deals involving multiple stores tend to be more sensitive to market volatility due to their high degrees of leverage from capital markets, Kerrigan Advisors says.
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Economic uncertainties driven by volatility from U.S. trade tariffs put a damper on first-quarter auto dealership mergers and acquisitions, though activity was still up from before the pandemic, and the industry sees dealership profit growth on the horizon.
Transactions of dealerships fell 14% year-over-year, Kerrigan Advisors said in its Blue Sky Report. That’s still almost double the prepandemic average on a trailing 12-month basis.
The number of franchises that traded hands among the transactions, though, fell 43% year-over-year for an average of 1.4 per deal, the lowest in a decade, led by a steep decline in deals involving multiple stores, Kerrigan Advisors said. The sell-side adviser attributed the trend to financial market volatility and continued high interest rates.
Kerrigan pointed out that the CBOE Volatility Index of stock market fluctuations hit its 18th highest point historically in response to U.S. trade tariffs. Buy-sell deals involving multiple stores tend to be more sensitive to market volatility due to their high degrees of leverage from capital markets, the firm said.
Despite trade policy’s damper on buy-sells, Kerrigan finds reason for auto retail optimism. At least among publicly traded dealerships, average earnings rose 7% in the first quarter compared to the fourth in the first quarterly increase since 2022, the firm said.
The majority of automakers and auto retailers expect dealership profits to be flat or increase this year, Kerrigan’s surveys of each group found. Ironically, the tariffs are a driving factor in that optimism.
“The improvement in earnings was consistent with dealers’ expectations that industry earnings are beginning to normalize to a level where growth can now be projected,” the Blue Sky Report says.
Post-pandemic normalization of profits, which had already been in motion before the second Trump administration began, in addition to strong first-quarter sales, were augmented by a tariff-inspired sales rush as consumers tried to get ahead of tariff-inflated prices.
U.S. March and April seasonally adjusted annualized rates surpassed 17 million light-vehicle units for the first time since April 2021, Kerrigan said.
With SAAR up, vehicle inventory is down, driving higher profits, said Kerrigan, which put first-quarter supply at its lowest point since 2023’s fourth quarter. It projects inventory to dwindle throughout the year “given reduced vehicle production and fewer imports.”
