The robust Buy-Sell market continues to expand in Q3-2021. The continued consolidation from larger groups and limited supply of quality listings led to 25 completed & closed franchised dealership sales in Q3. This elevated market activity resulted in a 45% year-over-year increase in the third quarter for Tim Lamb Group.
With the continued constraints in inventory due to worldwide chip shortages, Q3 is expected to see a 13% decrease in year-over-year new vehicle sales . The semi-conductor shortages and supply chain issues have forced manufacturers to focus production on high velocity/margin vehicles. Despite this reduction, franchised dealers continue to trend to record net profit results for 2021. With the focus on core production, this has produced three outcomes.
Dealers are continuing to see increased margins retailing high-demand models
The limited supply in off-rental vehicles due to the fleet production constraints has maintained elevated trade-in values and robust pre-owned sales & profits.
Stocking the shelves with core and high-velocity new vehicles has assisted in reducing dealer's overall carrying costs.
With dealers continuing to see strong balance sheets, cash flow and extended credit from their lenders, we continue to see an in-flow of new buyers entering into the market sourcing acquisitions. Conversely, this has continued to perpetuate the dramatic decrease in dealers looking to divest.
Our outlook in Q4 is that the buy-sell market will continue to have a shortage of acquirable franchised dealerships. As Blue-Sky multiples continue to expand to new all-time-highs, should the lack of divesting dealers persist, we expect the Blue-Sky values to continue to be elevated in a continued sellers' market. With the decrease in tier one franchises & locations, large dealer groups will likely continue to expand their ideal targets, becoming more flexible on brands & locations. Buyers will continue to expedite offers on sought-after franchises & locations at the high-multiple range to satiate their sourcing of a return on stagnant cash flow.
The key drivers for all buyers continue to be brand and then location. The most requested brands continue to be domestic, tier-one import brands and Luxury. Metro and near metro locations are in significant demand across both markets.
In summary, the continued surge of interest to acquire, a dramatic reduction in selling dealers pushed by the low interest & significant year-over-year increased profitability has further perpetuated the shortage in supply and elevated blue-sky values.
Tim Lamb Group is the Largest Automotive Buy-Sell broker in North America, and since 2006, we have assisted in over 1000 transactions totalling more than $10bn.