US auto dealership chains seeking to expand networks

Article by Christian A., on March 18, 2011

As the U.S. auto market recovers, auto dealership chains are looking to expand their networks by acquiring new stores and paying pre-recession multiples on acquisitions.

According to four dealership brokers surveyed by Bloomberg, AutoNation Inc., Penske Automotive Group Inc. and Group 1 Automotive Inc. are paying 3 to 5 times earnings before interest and taxes for acquisitions after failing stores were sold during the recession for book value or scrappage prices.

U.S. new-vehicle sales dropped to a 27-year low of 10.4 million in 2009 but for 2011, they’re predicted to increase to 12.9 million. Gary Silberg, who leads KPMG LLP's U.S. automotive practice and is based in Chicago, said that the economic environment “bodes well for dealer M&A activity."

He explained that when one doesn’t know what sales will come to, it makes it difficult to do a deal. But he said that there’s now stability and growth. Last month, auto-dealership consultant Urban Science said that new-vehicle sales per U.S. dealership this year may increase to levels reached before the recession.

The firm said that sales per dealer could reach those levels with 3.2 million fewer industry deliveries than in 2007 since carmakers, led by General Motors Co. and Chrysler Group LLC, shut down locations as part of their bankruptcies in 2009.

This month, AutoNation, the largest U.S. auto retailer, acquired a Toyota Motor Corp. namesake brand store in Fort Myers, Florida, which claims to have annual sales of about $135 million.

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