Toyota and its luxury line are at the top of many auto dealers’ target list when it comes to store acquisitions.
More auto dealers are taking a dim view on profits and the value of their franchises, and more are therefore mulling a sale.
Sell-side firm Kerrigan Advisors found those and other trends in its sixth annual survey of more than 600 dealers conducted between June and November.
Though it found most dealers believe their profits and franchise valuations will either stay steady or increase, more are taking a pessimistic view of those metrics.
Nearly a third of polled dealers, or 32%, indicated they think their franchise valuations will fall this year, the third straight year of growth in the percentage taking that view and up five times over the lowest point for pessimism in 2021. Meanwhile, the percentage of dealers expecting a valuation increase fell to a record low of 17%.
The rising negative outlook coincides with lowering expectations on profits. A significant 43% of polled dealers indicated they expect their profitability to fall this year, the highest percentage with that sentiment in four years, Kerrigan said.
The firm said it believes the negativity reflects “the earnings volatility of weaker franchises, particularly those whose days’ supply ballooned in 2024 resulting in dramatic declines in franchise profits when compared to the pandemic years.”
Many dealers see electric vehicles in particular as a drag on profits, according to survey results. Sixty-eight percent of respondents said they expect EVs to drain profits this year.
The low expectations among many retailers lead Kerrigan to see 2025 as another year of strong buy-sell activity. More dealers indicated they may sell one or more stores this year, up a percentage point to 7% of those polled, five percentage points over 2022, and a 250% increase in three years’ time.
From a new survey question, Kerrigan learned that Toyota and its luxury line, Lexus, rose to the top of brands dealers are looking to add to their business this year.
