The Future of the Auto Dealership Market: Record Growth and Trends Impacting Vehicle Financing

Record Growth in Auto Dealership Transactions

The auto dealership buy/sell market has reached new heights in 2024, as highlighted in the recently published 2024 Annual Blue Sky Report by Kerrigan Advisors. Sales of franchises soared by 10% this year, marking a total of 697 franchises sold—the highest figure since 2021 and an increase of 2.5% from 2023. This surge illustrates a growing confidence within the industry regarding retail sales and profitability.

After amassing over a quarter of a trillion dollars in pre-tax earnings since the pandemic, much idle capital now sits on dealership balance sheets. Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors, attributes this growth in part to lower interest rates and a stabilization in inflation, allowing dealerships to regain faith in vehicle sales.

The Hidden Divide: Winners and Losers

The market is witnessing a sharp contrast between successful franchises and those lagging behind. Diversification and inventory management have emerged as critical factors in the prosperity of dealership groups. Top-performing franchises, including Lexus, Toyota, and BMW, maintained low vehicle supply while achieving high gross profit margins. In contrast, weaker franchises like Lincoln and Nissan struggled to maintain inventory and profitability, reflected in their higher days’ supply and decreased valuations.

Kerrigan reflects on this trend: "Valuations for underperforming franchises declined swiftly in 2024 as dealer solicitation waned for these OEMs. Some dealers faced significant financial challenges, urging them to reconsider their business strategies to adapt to market conditions." This bifurcation in success is not just a passing phase but a significant indicator of the industry's evolving landscape.

Consumer Confidence and Its Ripple Effect

The volatility of vehicle inventories and fluctuating costs has created a marketplace split into clear segments of "haves" and "have-nots." The rebound in new vehicle sales post-election demonstrates rising consumer confidence, fueled by pent-up demand experienced during years of supply constraints. As vehicle affordability improves and sales grow, this consumer behavior is likely to further bolster the buy/sell market for dealerships.

This renewed confidence is reflected in the financing sector as well. With the current used car financing rates potentially decreasing and better options arising for consumers, dealerships should evaluate their financing strategies. Understanding used car loan interest rates alongside current lending offers will help dealerships better cater to buyers seeking affordability amidst fluctuating market conditions.

What Lies Ahead for Dealerships in 2025?

As we move into 2025, Kerrigan Advisors predicts the consolidation trend in the dealership market will continue. This trend is primarily driven by improving economic indicators, steady interest rates, and a growing consumer appetite for new vehicles. Dealerships must remain agile, adapting to market dynamics while leveraging their financial insights to navigate potential pitfalls and capitalize on emerging opportunities.

To thrive in the evolving marketplace, dealers should focus not only on expanding their franchise portfolios but also on understanding the impacts of interest rates on financing, inventory levels, and valuations. Utilizing tools like a used car loan calculator or exploring best used car financing rates can empower dealers and consumers alike in making informed decisions in the face of market changes.

Take Action Now: Navigate Your Dealership's Future

In summary, the dealership buy/sell market is experiencing unprecedented growth, with shifts in consumer behavior and economic conditions significantly impacting financing options for both dealers and buyers. As dealerships prepare for 2025, it is crucial to understand these trends and act accordingly. Explore financial resources, evaluate inventory strategies, and enhance customer engagement to ensure your dealership remains competitive as the market continues to evolve.