The KAR Index™ Drops 9% in Two Weeks

Index from Kerrigan Advisors shows high inventory levels, gross margin compression, and weak sales forecasts depressing public auto retailer valuations

IRVINE, Calif.--()--Kerrigan Advisors today announced that The KAR Index™ (The Kerrigan Auto Retail Index) has dropped 9% – from 496.82 to 452.49 – in just the last two weeks, indicating depressed public auto retailer valuations. The KAR Index™ attributes the sharp drop to higher inventory levels, gross margin compression in new vehicle sales, and weakening retailer sales forecasts.

“This is a continuation of a volatile first quarter”

“This is a continuation of a volatile first quarter,” said Erin Kerrigan, Managing Director of Kerrigan Advisors. “After far outperforming the S&P 500 between 2009 and 2015 by over 700%, gravity is starting to set in. With sales growth slowing, auto retail will be a much more competitive industry going forward, likely resulting in lower earnings growth.”

The latest KAR Index™, which is a monthly index for the auto retail industry covering the seven publicly traded auto retail companies with operations focused on the US market, shows:

  • Weakening sales projections and inventory surpluses are having an impact on the publics’ forecasts, contributing to declines in their share prices.
  • Five of the seven publics – Asbury Automotive Group, Group 1 Automotive, Lithia Motors, Auto Nation, and CarMax – reporting drops in net income in the first quarter of 2016
  • Margins for new car sales are under pressure from high inventory levels, more internet sales channels, and increased consumer awareness.

“Although the publics’ share prices are depressed, there is a silver lining: auto retailers have been taking advantage of the dip by repurchasing stock, allowing them to decrease the number of shares outstanding and increase their EPS,” said Ryan Kerrigan, Managing Director of Kerrigan Advisors.

The KAR Index is designed to help public and private auto retailers understand the true value of their dealerships, while also providing key insights into factors influencing valuations of these public companies, with broader implications for the auto industry as a whole. To access the KAR Index™, click here.

Kerrigan Advisors also releases The Blue Sky Report™ four times a year and includes Kerrigan Advisors’ signature blue sky charts, multiples and analysis for each franchise in the luxury and non-luxury segments. The multiples are based on Kerrigan Advisors’ view of franchise values in the current buy/sell market and can be applied to adjusted pre-tax dealership earnings to estimate blue sky value. To download The Blue Sky Report, click here.

Erin Kerrigan is Managing Director of Kerrigan Advisors, and is a recognized industry expert on dealership valuation, real estate, and buy/sells. A sought after commentator on automotive retailing topics ranging from consumer auto buying trends to auto retail consolidation to private equity in auto retail, she has keynoted numerous automotive conferences and her analysis has appeared in publications such as Automotive News and the Wall Street Journal. For a recent video of Erin’s commentary on the market, click here.

About Kerrigan Advisors

Kerrigan Advisors is a national dealership buy/sell advisory firm focused on providing a high level of client service for dealership sellers. Led by a team of veteran advisors who have represented transactions totaling over $2 billion dollars in automotive, private equity, and investment banking, Kerrigan Advisors customizes each sale process to maximize the seller’s transaction proceeds. With the most comprehensive buyer database in the industry, Kerrigan Advisors has the industry context and expertise to match each seller with the right buyer.

Each quarter, Kerrigan Advisors publishes The Blue Sky Report™, a Kerrigan Quarterly, which is the auto industry's most comprehensive and authoritative quarterly report and analysis of dealership buy/sell activity and franchise values. Kerrigan Advisors’ Managing Director Erin Kerrigan, who authors the report, is a recognized industry expert on dealership valuation, real estate, and buy/sells, and is a frequent speaker at leading auto retail events and conferences, including NADA, JD Power Automotive Roundtable, AICPA, NADC, and Driving Sales’ President’s Club. She has also been a keynote speaker for events hosted by American Honda Motor Company, Audi of America, US Trust, Ohio Automobile Dealer Association, and SunTrust Bank, and has led webinars for NADA and Automotive News. Her expertise is also featured in a monthly column for Dealer Magazine.

Contacts

Kerrigan Advisors Media Contact:
mWEBB Communications
Melanie Webber, 424.603.4340
melanie@mwebbcom.com

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