By Michael J. Weikert

Auto dealership mergers and acquisitions dropped 55 percent for the first half of 2012 according to The Presidio Group, LLC. The reason for the drop appears to be a fundamental difference between buyers and sellers as to price. With strong sales and more ability for customers to obtain credit for the purchase of vehicles, private dealerships appear to be on their way to record profitability in 2012. As a consequence, sellers are putting a premium on the value of their dealerships. However, at the same time, purchasers are being very conservative in their valuation of dealerships due to perceived economic uncertainties, based upon the economy over the last several years; as well as the political uncertainties that exist during an election year.

Another issue appears to be coming to terms on the real estate upon which the dealership is located. With the depressed real estate market, a number of sellers are still struggling with real estate that is valued at less than the amount of the mortgage. As a consequence, some sellers are reluctant to sell the real estate as part of a transaction and are pushing for long term leases to try to allow real estate values to increase over time. However, most purchasers are looking to buy the real estate; as they perceive the value of the real estate to be depressed and most likely to increase in the coming years. Therefore, purchasers are reluctant to enter into lease agreements for the property.

As the economy and real estate markets stabilize and become stronger, I expect that you will see an increase in auto dealership mergers and acquisitions; as private and public dealership groups continue to increase their portfolio of dealerships.

For further information regarding these matters, please contact Mr. Weikert at 248.740.5680 or via email.