"Blue Sky is at Risk!" The New Threat to Dealership Values (and the Brands to Buy Now) | Alan Haig, President of Haig Partners

It raises a whole question of the intangible value of our business.

It's the blue skies, the goodwill, and that is wholly dependent upon the buyer's

perspective of the future profitability of that franchise.

So if all of a sudden the buyers are saying, well, I don't know what the future

is going to be, because I don't know what brands are going to make it.

Today, I'm joined again by Alan Haig, president of Haig Partners.

We explore the massive tension between record high dealership cash reserves

and the existential threat of Chinese OEMs entering the U.S.

market. Alan breaks down why some franchises are trading for 15 times multiples

while others are selling for nearly zero and explains why a dealership's blue

sky value might be more fragile than one might think.

A big thank you to our sponsors for making this episode possible.

Overfuel, zero, and of course, Haig Partners.

And now let's get into the show.

Alan Haig back on the CDG podcast.

Alan, welcome back.

Thank you, Yossi.

May I be able to welcome you to the great state of Florida?

Coming to you live from Florida.

It's all right.

We're in the same zip code almost.

Amazing.

We finally made it happen.

We talked about this for a while.

Well, we've had many consequential people move to the great state of Florida.

I came here in 1993 and I was a bit of an outlier.

Since then, we've had people like President Trump move here.

But you might be the most consequential transplant we've had.

Yeah, yeah, yeah.

Very consequential.

You're welcome.

Massive ripple effects for the state.

Now, it's great to be here and it's just fun to be able to do this.

Well, a lot to talk about today.

You are always a wealth of knowledge on just providing a real pulse

into the auto industry and, of course, the buy-sell market at large.

Before we get into that, you were just at the New York Auto Show

and I know you were very busy over there.

Our team had a chance to chat with you.

How was that for you?

What did you get into over there?

We had a lot of interesting content.

JD Power and NADA did a great job selecting speakers.

I was on a panel with a couple of M&A advisors and we talked about the industry.

We can talk about that later.

Some of the people who I thought were quite interesting to listen to

was Christian Mounier from Nissan, who talked about the turnaround plan,

which he's saying is now 60% complete, which I think some Nissan

dealers are not quite feeling that in their stores, but hopefully they will be.

So that's encouraging to think that that is going to happen

because there's so many people that have Nissan dealerships and investment

in Nissan real estate.

So we're very optimistic that the trend will begin to reverse there.

And then there was also we had Senator Merino come and talk about the actions

that he's taking to support our industry and the federal government and legislation.

And he has been working on a bill which he's going to propose,

which would have quite significant impacts in the future for our business,

but also in the present in the terms of I believe the bill is going to be written

so that would ban the importation, manufacture or sale of vehicles made in China

or by Chinese companies in the North America or by companies controlled by Chinese entities.

So that we don't if that passes, we're not going to see BID dealerships

in this country for the foreseeable future, but also the potential

as a Volvo would need to be divested because it's currently owned by a Chinese company, Geely.

So this whole topic of Chinese vehicles was one that was a major topic of discussion.

Later on that night, I attended a dinner with a number of industry leaders

and people who are on the factory side and on the dealer side.

And our host asked a question to the group.

There are probably 20 of us at this dinner.

Is this the best of times or the worst of times to be an automotive?

You can only choose one.

So you couldn't choose COVID times is better.

Just this and I think 19 out of 20 people said the best of times.

The one that said the worst is because that person believes that Chinese vehicles

are going to be entering our market within the foreseeable future.

And that he thinks that's going to have a devastating impact on automakers

and on our retailers and also negative impact on consumers.

On consumers. Yeah. Why consumers?

So wouldn't it be deflationary?

It would be initially deflationary and maybe permanently deflationary.

But the experience that a consumer has today when they purchase a vehicle

from any franchise dealership of its new vehicle is there's a warranty.

And the warranty is good for 36 months.

In the case of Hyundai and Kia, I think it's 60 months on the powertrain.

But some of these Chinese manufacturers are coming out with so many new products

and some of them are going to I think there's something like 200 Chinese

automakers today that maybe end up with 20 over time.

But if you purchase a vehicle from one of those 180 that don't make it,

will there be spare parts available for your vehicle?

Will there be any after sales service ability vehicle?

And it's an issue because one of my teammates spoke with a large

dealership group in Australia and Japanese brands entered Australia a few years ago.

Chinese brands, Chinese brands, excuse me.

And they took two of the franchises.

I think it was Geely and BYD and they were happy.

They were selling cars and they said they turned around.

There were 20 brands in Australia and instantly the margins went to zero

on the Chinese brands that they were selling.

But also the other more traditional automaker brands had to compete.

And so for retailers to sell and clear the lots, they had to cut those prices to zero.

So now the new vehicle departments are all making no money.

And what's worse is if you're an owner of dealerships,

this group had more than 20 stores, all of a sudden you wonder,

well, what is the value of a franchise right now?

Can you, can you sell a franchise today in that country for meaningful blue sky?

If it's not clear that Nissan, Hyundai, Kia, Toyota, Ford, you name it,

is going to survive in any form of fashion as they have been for the past 100 years.

So it raises a whole question of the intangible value of our business,

which is largely what at Hague Partners, we're selling.

Certainly we're selling the tangible assets in a buy cell, the real estate,

the furniture, the fixtures, the parts, that type of thing.

But a huge chunk of value has to do with tangible blue sky, it's the goodwill.

And that is wholly dependent upon the buyer's perspective

of the future profitability of that franchise.

So if all of a sudden the buyers are saying, well, I don't know what the future

is going to be because I don't know what brands are going to make it.

I don't know if this industry is going to be as profitable as it has been

in recent years.

If I sell a Chinese car to a customer and that manufacturer doesn't have a part

or the manufacturer fails, the customer is going to come back at me.

And the vehicles I'm selling, are they going to make any money?

What's it going to be like working with Chinese companies on the warranty side?

Am I going to get reimbursed for the parts and labor that I invest in that vehicle?

So it raises like a, I don't want to say an existential question

because I think dealerships will always exist.

But in terms of the level of profitability and therefore the value of these franchises,

I would say in Australia, values have been badly hurt.

And we're hearing similar things in other markets, whether it's the UK or other

places where Chinese brands are entering.

So this legislation that Senator Merino is proposing, it's not just to protect

US auto makers and US auto retailers.

There's the consumer side he's worried about, but also he believes it's a

matter of the national security because all these vehicles are being produced.

They've got cameras, they're tracking where they're going.

They have microphones.

You know, he believes this would be basically thousands of little spies

running around on our roads and, and, and present presumably providing

information to the government of China, which maybe they would use to harm us in some way.

So A, it's an economic security bill, but B, it's a national security bill.

What do you think about, I'm thinking through the Australia example you provided,

you know, history doesn't repeat, but it does rhyme.

And if that has happened there, why can it happen here?

But can this transcend the current administration, right?

This type of hawkish attitude from Merino, which is, you know, very,

very pro business, pro dealer wants to, you know, protect the country, the system,

everything you just laid out, what happens in a couple of years, right?

And I mean, we don't know who's going to get elected and what it's going to look like.

But how, if I'm buying a dealership right now, especially if I'm shelling

out tens of millions or hundreds of millions, I'm not doing that for a couple of years.

I'm likely doing it for decades.

And has that come up in your conversation, right?

Like, can we really keep the Chinese vehicles out for the foreseeable future?

Or is this just a temporary couple of years until maybe there's a different

administration and different attitudes towards this topic?

What do you think about that?

Well, if you look at the history of our industry, there were only US made cars

in this country until the 1950s, perhaps, and then Volkswagen entered the market.

And then following Volkswagen was Audi, Porsche, we had some French brands in here.

That was kind of in the 50s and 60s.

And then the Japanese entered in a big way in the 70s with fuel-efficient,

reliable vehicles.

And then the Koreans entered in the 80s and 90s.

So there's been a history of foreign brands entering and doing quite well in the United States.

So I would say most auto dealers have said, I'm glad Toyota came to this country

because that's my very best franchise.

But none of those were adversaries at the time, geopolitical adversaries.

In fact, they were, in some cases, former adversaries.

Former, former Japanese.

I mean, yeah, the Germans, the Japanese.

They were people that we didn't feel that they were trying to dominate our country.

They were people who were bringing products that were in demand in the US.

And it didn't hurt this country.

In fact, I think it made this country better.

Certainly, there were some job losses in the rust belt, you know,

as for the General Motors factories closed because they lost market share

to Japanese and Korean brands and German brands.

But overall auto manufacturing in this country has never been higher than it is now.

Many of those brands have built factories here.

They employ US workers here.

So, you know, what is an import brand today?

Is Hyundai an import brand today?

I think they constructed the last major factory in this country.

It's a huge one in South Carolina.

Yeah. So those brands haven't harmed our country.

They've helped consumers, they've helped dealers.

They've been a positive influence in our country.

Those who I think know more than I about national security seem to have

a unique concern about Chinese brands.

Those who understand manufacturing better than I believe it's not a level playing

field in terms of the Chinese brands.

That all of those factories have been funded essentially to export their product.

There are not enough Chinese people being born today to buy all the products

being made by these Chinese brands.

So they're essentially supported by the government to produce enough vehicles

to sell outside of China.

And I think that's part of the objection that maybe other countries will have too,

which is, you know, if you live in a country where there's no manufacturing base

for automobiles, do you care about Chinese brands?

No, come in. It's a good product.

Maybe it's less expensive than the competitors.

That creates competition.

That's a good thing for my consumers.

But if you are in England or France or Italy or Spain or Germany,

you have manufacturing capacity, you have your own brands.

What's going to happen to those factories?

I'm interested to see. I think they're going to get badly heard.

That's what we're hearing is that Chinese brands have already taken 15, 20 percent

share in Europe in less than five years.

So the U.S. has got a big manufacturing base.

It's also part of the supply chain of other non-automaking defense industries

also are part of the supply chain for automakers.

So Senator Marino and other people who understand the security landscape

better than I are proposing this legislation.

And whether or not it'll be passed by this administration and revoked by the next,

it's hard to know what's going to happen next week in the car business,

much less the next administration.

Yeah.

Certainly the consumer is calling for lower priced products.

And that's one thing which Nissan is focused on.

I think they have six vehicles under 25,000.

But also automakers are looking at what consumers are actually buying

and what are customers buying today?

A lot of what they want are the full size trucks and SUVs,

which is where U.S. brands have historically dominated.

We've almost retreated from all the sedans.

Ford doesn't make a little sedan.

I don't think General Motors, maybe they make one in South Korea, a small car.

So the traditional domestic brands are in some ways the best position

if the Chinese were to come to the U.S.

because they're making full size trucks.

And they're differentiated.

Yeah.

The brands who are probably most at risk are probably the Asian import brands

that are making smaller, less expensive fuel-efficient vehicles.

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Before we get into some buy-sell headlines,

we talk about the state of the market.

Did Senator Merino add the New York Auto Show address Volvo, which you just mentioned?

Was that a topic that someone asked that question?

Yes, I can't remember if it was brought up during his remarks,

but after he finished, we were waiting outside to speak with him

and he was giving an interview with a journalist,

and he mentioned that if this legislation is passed,

Volvo, which does have a manufacturing plant in the U.S.,

most of its cars are still produced overseas,

but that if it's passed, since it's owned by Geely,

which is a Chinese automaker, you would have to be divested.

Pardon me?

You're not just new Volvo, you're talking about divesting current.

Yeah, because his bill is going to say that vehicles could not be sold in this country

if it's controlled by a Chinese entity,

even if vehicles are built in the United States,

because he's concerned that there would be technology in that car,

cameras, the other telematics that would transmit data back to China,

because he believes all these automakers are in some ways controlled by the Chinese government.

Whether I should say he believes, but there's belief in the industry, that's why.

So I don't want to speak for Senator Marino, as Bill is out there, you can review it.

But part of me thinks when I first heard that Volvo would have to be divested,

I thought, wow, that could be bad.

Who's going to buy that company?

How long would it take for them to develop products in the United States?

And then I thought, well, maybe it would be a good thing,

because for a long time, the Volvo products,

they were really going heavy towards EVs.

They were probably more oriented towards EVs than almost any other automaker besides Tesla.

As a result, they weren't really producing vehicles that were in high demand from US consumers.

But if it could be divested, if they could focus on the US market,

they have a factory which is grossly underutilized.

If they could really develop smaller SUVs, well, just SUVs and smaller vehicles,

designed for US consumers.

And I think the brand could do better in this country than it is right now.

I think realistically, in any scenario like that,

you would end up seeing like a TikTok style deal where they force the hand of the business

to sell to someone else who the country or the administration is okay with,

and then everyone gets to continue doing business.

It doesn't actually go away.

That's at least, I'm speculating at this point, but if we get to that point.

Yeah, if they could sell the company or sell control of the company to a US entrepreneur

of some kind or a Canadian, some international, non-Chinese entrepreneur

that says, I'm going to take a well-known global brand, and I'm going to make it in the United

States for US consumers and focus on this market, which is still the most profitable

market in the world for automakers and auto dealers.

It could be a good thing for Volvo and Steelerbase.

Well, geopolitical risk has not gone away.

We know that.

Let's talk some headlines here.

I want to get into buy-sell and just setting the table.

We went through the most recent Hager report that you put out.

A couple of things that stood out.

2025 ended with 616 dealerships changing hands.

That's your estimate.

Profits, of course, still historically strong.

According to the report, 2026 should match or beat that.

We're off to a pretty good start.

January and February were a little softer in some pockets.

From what we've seen on our in a car dealership guy, March picked up again.

We'll let you chime in on that.

Today, we're in April already, and Q4 was a bit rough on the sales side.

Sar stumbled out the gate, and we know although macro shenanigans happen around the world,

of course, oil prices, that's impacting sales to a certain extent.

All that said, what is the current headline?

How do you sum up with the current state of the buy-sell market?

Auto dealers are still buying stores.

There's still a lot of bullishness in this industry.

The dinner that I attended after the New York auto show,

there was a poll taken by the 20 or so people there.

Choose one.

Is it the best of times on auto retail or the worst of times on auto retail?

Can't say two years ago, COVID was the best today or best or worst.

And all the one person said best of.

There have been all these risks and challenges that we've had in auto retail in the past 10,

20, 30 years.

If you compare those 10, 20, 30 years to today, a lot of those risks are gone.

The internet is here, dealers taking advantage of it.

Public companies are here, dealers taking advantage of it when they want to exit.

They're a great exit for the larger, more valuable dealerships.

The big risk that I think many people see today is China.

And if a bill like Senator Marino has passed, then that risk is put in a box for the time being.

So I think that dealers continue to make a lot of money in their stores.

The average profits per store is still double what it was pre-COVID.

So dealers have been making this money.

What's average profits right now versus pre-COVID?

Before COVID, the average publicly traded dealership was making less than $2 million

per rooftop.

Today it's over four.

So the public company's average store is a little bit bigger than a private average store.

But in terms of relative profitability, I think dealers have been making twice today

what they were before.

Some of it is a permanent reset partly because of inflation.

The FNI profits per car have gone up a lot.

But the fixed operations have gone up significantly too.

So even dealerships today are less dependent upon the new car business than they were in the past.

So because dealers have been making double, triple the profits pre-COVID,

they've been doing this now for six years.

All right, 2020, 2021, 2020, 2020, 2025.

Those dealers have amassed a significant amount of cash on their balance sheets.

They paid down their mortgages.

They paid off their blue sky loans.

They paid off their house mortgages.

They paid off their boat mortgages, their plane notes.

You know, they've got a lot of cash.

And so when the right dealership shows up in their market, they're jumping on it.

And we're seeing very significant prices being paid for the best franchises.

But we're also seeing for the first time in quite a while,

some bargains appearing on the landscape.

So that's probably to say the biggest shift in 25 from the previous years.

What do you think about...

I noticed that single store transactions jumped from 64% of all deals in 21 to 81% in 2025.

Why is this happening?

I mean, is this a strategic shift or what are you seeing as the reason for that?

There was a lot of M&A during COVID.

We saw the number of stores per year jump from 350 stores on average pre-COVID

to 600, 700 stores during COVID.

So a lot of dealers acquired dealerships, not one at a time, but in big chunks of a buy a whole group.

And we saw some significant transactions of groups trade from

private owners to public companies or private to private.

So for instance, a couple years ago, we sold a group of stores in Pennsylvania to Greg Sioka.

Nine stores, the Apple Automotive Group.

There are dozens of transactions like that that happen all over the country.

And when you are a larger acquire and you're buying a whole group,

there may be a couple of assets that don't really fit your model.

Maybe they're in their own geography, maybe it's not the right franchise,

maybe they're just smaller stores than what you're comfortable operating.

So I think a lot of people that grew significantly during the COVID era

are now divesting some of those stores that just aren't a great fit.

So they're selling off onesies.

And this is true with the public companies too.

And they buy a Herb Chambers, for instance.

There are going to be a couple of those stores at Herb Own that don't fit.

So they're going to divest those.

Some of this is just investments.

But I think also there was a significant pulling forward of sales of these larger groups.

Because if you had a group pre-COVID that was worth $200 million,

and during COVID it became worth $400 million,

even if somebody wasn't really ready to retire, they might say,

this is a once in a lifetime opportunity.

It makes financial sense for me to sell these assets, even if I'm not quite ready.

Because there's so much downside risk.

There's not much upside for keeping it.

I've doubled the value of my company or the market has.

So I think a lot of large groups were pulled forward and sold during COVID.

And now we're seeing a little bit more.

So a lower percentage of those, which even if single store remains the same,

still increases the percentage.

That's right. So some of the divestitures of one-offs that came from acquisitions,

and then fewer big group sales in 2025 compared to previous years.

You also mentioned we know that profits, single store profits,

have roughly doubled from pre-COVID were at around $4 million.

Yet new vehicle profit, PVR keeps declining.

It was down 10.7% last year to $3,023 per vehicle.

And here, we are projecting that to go even lower this year.

Now, yes, that's just one part of the dealership, obviously.

Do you see that impacting blue sky?

Or the market's already priced it in, it's an expectation,

no negative impact to blue sky?

I think it definitely impacts pricing,

because that's part of the profit driver for the dealership.

We saw profits per vehicle probably quadruple during COVID.

They went from maybe 1,518 to over $6,000 per car,

as dealers were charging full sticker,

and maybe some were charging over sticker.

And so it was an incredible run of profitability during COVID.

And then as production returned, we saw the margins slip down.

Now we're seeing the rate of decline slow.

So we're seeing a leveling off of front-end gross profits.

And we still have some brands that haven't really leveled off at all.

I would say Toyota and Lexus.

And I think I read this quarter, Toyota sales were down several percent

because of production issues.

So I know when you go into a dealer that has a Toyota store,

a Lexus store, and you look out on their lot,

what you're seeing are used vehicles.

The new ones are almost all gone or spoken for.

So certain brands haven't really suffered

as we've moved away from COVID.

They've just, I don't want to say they've accelerated,

but they are just rock solid.

And then we have some other brands where we've had significant decline

as the product has gotten stale, or they've canceled products.

And certainly Nissan suffered this while it's recovering.

I would say Audi's been suffering from this recently, too,

where their sales have dropped quite a lot

because the product they have was just getting kind of stale.

Mm-hmm.

On the other side of the equation,

F and IPVR in 25 hit a record $2547 per vehicle.

So that was an all-time record.

How do you see that trending?

Because we also know negative equity is also at all-time highs.

Interest rates, everyone projected them to come down.

They've been pretty stable.

We know we're not seeing that.

Do you think this is something that has staying power?

Will F and IPVR stay consistent, come down?

How are you projecting that?

I think it'll stay the same.

It usually tracks the value of the vehicles that are being sold.

So inflation pushed F and IPVR a lot.

We were financing and ensuring more expensive vehicles.

So some of that was dealers not getting better.

Just the market.

But now that we're seeing new gross compression,

my days at AutoNation, what I recall is when we were buying a store,

one place that AutoNation really excelled was in F and IPVR.

And we could acquire a store.

And pretty quickly, within a month or two,

bring in some training to that store and increase the F and I profits

per vehicle retail by several hundred dollars pretty quickly.

Really by focusing on the bottom 25% performers, F and I people in the store.

So if I'm a dealer today and I'm concerned about my new vehicle gross is going down,

I really think a smart thing they can do is to focus on

bringing in more training for their F and I people.

It's not very expensive to bring in F and I trainer.

It's not disruptive.

It takes a few days.

And if you can just lift your bottom performers,

your bottom quartile up to average, it has a big lift on the bottom line.

I have noticed lots of dealers putting attention there.

You know, we partnered with some companies and I've just seen more of a conversation

because there was a period over the last 18 months where there was a lot of focus on

you saw many dealers in the service department voice AI and many of these AI tools that were

focused on, let's say the customer, customer facing and you're seeing more happening behind

the scenes now, which I think is exciting.

I think there's, you know, lots of opportunity there, whether it be in the accounting office

or in the F and I office, there's tons of opportunity out there.

You mentioned AI and I'd be curious to get your perspective on this because you talk

with a lot of operators.

I was meeting with a dealer friend in Texas about a year ago and he says, you know,

um, my salespeople used to make, sell 10 cars a month and make $60,000 a year.

Then during COVID, they were selling 30 cars a month, making 150,000, you know, or that's kind

of where their income jumped to.

And now it's gone back down where they're selling 10 cars a month and they're making $65,000,

but now they can't afford the cars that they're selling.

So in his opinion, that his salespeople had gone backwards, pre-COVID versus post-COVID.

I gave that, I told that story to another dealer friend of mine,

Mark McClarty, whom hopefully you'll speak to if you haven't before.

And he said that he's now seeing in his, uh, dealership groups that the sales per sales

person has gone up about 30% because of AI tools.

So that's something that's encouraging to me, not just because salepeople can make

more money, which means they'll stick around longer, but it also is a lot more profitable

for auto dealers, have fewer expenses, less insurance, less turnover, less training, etc.

So I don't know that we've really seen the impact of AI in this business

in a meaningful way.

I don't know if you've heard the other people say that, but those types of numbers are encouraging.

So we kind of think about COVID being the best era ever in our business,

but is it possible that by choosing a better inventory, spending our advertising dollars

more wisely, pricing our vehicles more effectively, developing better relationships with that customer

to bring them back for service, not just during the warranty period, but for that tail,

where the spending usually goes up significantly for the vehicle as it ages.

Could AI bring a better future for retailers than we've ever had?

I mean, you're hitting the thesis of, of these tools, right?

This is why there's so much venture capital going into this space because

the whole idea that's exciting for these types of investors is that you are able to

either replace one of the biggest expenses in a dealership, which is people,

or you're able to capture value that otherwise is being lost because you don't have the people,

right? And that was the entire, or there's many AI tools out of that.

That's literally what they did. They're here to, you know, staff you with these virtual agents.

What I'll say is from conversations I've observed in circles and our peer groups,

you see that, let's say I call the power users, you have the dealers who have done a very good

job at implementing and integrating these tools and some pointing to capturing 30% lift and sales,

which is obviously extremely meaningful in service because you're simply able to be a

lot more efficient. On the variable side, I don't have any anecdotal numbers or benchmarks,

but it's definitely, I've definitely seen the success stories out there.

So I think that tells you that it's possible and you can get all that added operating leverage

if you're, you know, you implement the right tool at the right store.

Right. You know, basically you see if dealers keep that savings and put in the profits or

they pass it on to consumers in the form of lower prices to gain more share. I guess there's a lot

of options here. You know, also some of these tools are not cheap. Some of them are very expensive.

In many cases, they know the value they're driving and if, you know, you don't have to hire

two people through, I mean, whatever the number is, they know what that's worth. Now,

you know, technology is deflationary and enough competition will bring the prices down and some,

I've noticed, already are more reasonable, but I think all that's a factor at play. Well, they're

not cheap. I mean, you know, you have certain tools that are tens of thousands. And again,

we're not talking about single rooftop, but it's all relative, but I've seen, you know,

they know the value they're driving. So that's an important play, an area to keep in mind and

just keep following because as it gets more integrated into the DMS and to the day-to-day

operating of the dealer, it should, it will likely see, hopefully see that sales per salesperson

rise because, you know, I always go back to the Steve Greenfield stat, which, you know,

I wouldn't say it's over the last 80 years or so, the sales per salesperson hasn't climbed yet.

Right. You know, the SaaS expense per dealership or vendor expense has gone up like 10-fold,

right? So, I mean, it's gone up astronomically higher. Well, let's, let's talk a little bit

about the brands. You mentioned a couple in this conversation already. And as I was looking through

your report, first thing that stood out to me was Mercedes-Benz. You had, or in your most recent

report, they were one of the only brands that moved their blue sky evaluation. What changed?

What is it? I mean, we know there's of course a new CEO, but tell us more like why is Mercedes

going up? Why is demand or, you know, why is it more desirable in your mind?

Part of this is wrapped up in the EV story where Mercedes-Benz is a global manufacturer and had

to comply with regulations around the world, but also the United States in terms of producing EVs

to hit certain minimum sales figures. Carb in this country was going to require, I think, 35%

of the vehicle sold this year had to be zero emission vehicles. So, they were producing vehicles

which they thought consumers would buy and would help them meet these regulations. But the vehicles

that they designed had a different style than their other vehicles and they were quite expensive

and they were horrible sellers. Dealers had to discount them heavily. Mercedes had to put

heavy incentives on them. It was a drag on the earnings of Mercedes-Benz. Also, the former

administration had a policy where they wanted to restrict who could acquire a Mercedes-Benz

dealership. They wanted to only allow existing Mercedes-Benz to acquire other Mercedes-Benz

dealerships, which to me cuts the demand for Mercedes-Benz. Of course. You know, now there

may be 100 or 200 Mercedes-Benz dealers that want to grow every year. That could be a buyer for the

store. And if you told the other thousand people out there that would want to buy a Mercedes-Benz

where they're not allowed to, then if I'm selling a Mercedes-Benz store and I went from a thousand

buyers to a hundred buyers, and if Mercedes is going to take any transaction and maybe

rofer it to their favorite dealer, who's going to make the first offer on a Mercedes-Benz store?

Everyone's going to stand around the room and wait for someone else to make the first bid.

So I think it devalued the brand because it reduced demand for the brand. Now we have a new

administration there, a new executive team. Adam Chamberlain has come in. He led Mercedes

at a time where it was performing much better. Then he went into retail. He worked with Lithia

for a number of years. So I think he has a greater understanding of the opportunities and challenges

that exist for Mercedes at the retail level. So it's a perfect experience for him to come back in

and he's going to launch or he is launching products that are better suited for U.S. customers.

He's adopted the same thing with Toyota did years ago, which is I'm going to make

the same vehicle and the consumer can decide what powertrain goes into it. But they're all

going to look alike. We're not going to have EV looking vehicles and ice looking vehicles are

going to be the same. So if you want to have an internal combustion engine and an E350, you can

have it. You could also have a plug-in hybrid or a hybrid or full electric vehicle. So coming up with

felt it as a retailer. Yeah. So it's great training I think and I hope that other manufacturers

will consider the knowledge that retailers have that help them sell vehicles. So the products

are going to be better suited for U.S. customers. The pricing is going to be better suited. He's

focused on volume again. He wants to go from 300,000 units to 400,000 units and try to reclaim that

luxury crown that was taken by BMW and Lexus. And he's opened it up to non-Mercedes dealers

to acquire Mercedes Benz stores. So the combination of better performance at Mercedes stores because

you're no longer suffering from these EV losses. Now you have better products and you're going to

have more of them. Mercedes apparently North America got money from Germany to provide incentives

and advertising to promote these vehicles to U.S. consumers. So we're going to have more sales

and we're going to have more buyers. That means more better valuations in my opinion.

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siro.ai slash cdg to learn more or click the link in the show notes below. Let's let's stick to the

same geography. Let's stick to Germany a little bit here. Okay. So Mercedes seems to be on the

upswing. Yeah. Audi. This was your franchise spotlight. Yeah. Down to about four to four and a

half turns. Compare that to BMW who's about eight and a half. Yeah. So very big difference there.

Where's Audi? Is this the bottom of the cycle? Is this a good time to buy? How do you feel about

Audi? American dealers are really frustrated with Audi and they have been for years but they've been

kind of biting their tongues or tolerating it for a while. But it's been difficult for them to

hold their tongues now because I think sales have fallen so much. And Audi was always selling fewer

units per dealership than BMW and Mercedes stores were. So it was always smaller in terms of the

profitability. But in terms of their facility requirements and the challenges of being an

Audi dealer, they were difficult. The facility costs were really expensive in some ways needless.

Like they required there to be a wall in the showroom that leaned outwards, which is very

expensive from an engineer. You don't like the perforated aluminum? I like the perforated aluminum.

Well, they also required all these dealers to build these second floor mezzanines

that were never used by consumers. They didn't take feedback from the dealer. One dealer told me

he had a phrase that Audi insists on making all the decisions and they make all of them wrong.

So there's this frustration of what it's like to be an Audi dealer and then there's the frustration

with the product not being competitive with its peers. And so there's no US production for any

Audi products. There is for BMW. There is for Mercedes. I don't think there is for Lexus yet.

I can't remember if they're producing any Lexus vehicles and I think they produce them in Canada

perhaps. But there was no ability really to produce them. When the tariffs hit, Audi got hit

worse than its peers. And so at the same time, the product was aging. The Q5 was old and the A6

and some of the products were old. So we believe that now might be a really good time to buy an

Audi store because they have declined in profits, but also the multiple on those profits,

whereas dealers get fed up with with the company and they're really. So it's a double hit.

It's a double hit. So Audi is easily the least expensive German brand. I don't even know what

the factor is. It could be between five and 10 times less valuable than a Mercedes store

sitting right next to it or a BMW store sitting right next to it. But what's the zeitgeist right

now? You know, what do you think when you speak with dealers is a, hey, we're catching a falling

knife or, you know, I'm open to it. Well, people are buying Audi stores. We've been involved with

the sale of two Audi stores so far this year. One was up in New York State and one was here in

Florida. And people see that still as a premium brand. I mean, the products are beautiful.

My wife drives an Audi. You know, it's really nice vehicle. And now they're kind of re-entering

some of their core products are being launched again. So the Q5 came out last year, I think the

Q3 comes out this year. John Murphy on my team has been studying product cycles over his 26 years

in this business and product drive sales. And so it could be that Audi has really hit bottom

and now is the time to buy an Audi franchise. The tariff situation is still unresolved.

Here's where Audi could make a good decision to just say, we're going to produce

Audi's in the United States. That would eliminate the whole tariff question. It would eliminate

the long-term question about Audi's commitment to this market. I mean, if the US is the best

automotive market, why aren't they producing Audi's here? You've got a Volkswagen plan,

which is underutilized. You have a scout factory, which in my opinion is going to be

underutilized. They could very easily claim, okay, we're going to fix this problem for North America

permanently by building Audi's in the US and consumers will buy them. There's no issue with

consumers buying Mercedes built in Tuscaloosa or BMW's built in Spartanburg. Those are high quality

products. There's no differentiation between the European manufactured vehicle and a domestic

manufactured vehicle. So this is an example where I would hope Audi would realize that it's in its

best long-term interest to commit to this country and really build their products here.

Are you seeing any positive signals from your conversations?

I'm not close enough to Audi management to hear that. Clearly, they've suffered from this

tariff. They've been bearing the burden of the tariffs themselves. They haven't been passing

on to dealers and consumers as much. So the profits of the Volkswagen corporation as a whole have

been badly hit the last 18, 24 months. I would hope that they would choose to build here, but

they're still messing around with Scout. They're still messing around. They put this investment,

I think it's $500 million into Rivian. Why they didn't put $500 million into an Audi factory

in Chattanooga, Tennessee, that to me would have been a better investment in their future.

Speaking of Volkswagen, after the Volkswagen dealer meeting, I mean, I heard a lot of

stories. I mean, dealers were not happy, seemed like it was very contentious. What was your take

on the Volkswagen dealer meeting during NADA and then since your conversations with Volkswagen

dealers? Well, we had a conference at NADA, which you came in just to be here at our Maximizing

Value Conference. Thank you for that. And it was right the day after the Volkswagen dealer meeting.

And we had some leading Volkswagen dealers in attendance and they're not able to share everything,

but they basically said it was the worst manufacturing ever attended in their careers,

where the Volkswagen management team was all new. None of them had a history there. Nobody really

knew them. And they weren't really able to share a vision for the future that made Volkswagen

dealers encouraged. They said some of these decisions were up to Germany, you know, this is

the core market for them, et cetera. And so they're like, where are the Germans? Why are there no

Germans here? This is such an important brand. So I feel like if there's been one significant

underperformer in our industry for the past few years, it would be the Volkswagen Corporation

as a whole. And I think they've also been badly impacted by the EV push. I mean, they got hit

with diesel gate, whatever that was now, eight years ago, 10 years ago, I can't remember.

Part of their penalty was they were supposed to be investing in all these electric vehicles.

They should have had a head start on everybody in the industry. But you look around and the latest

EV that I think that they launched was the ID Buzz, this van, which now is I don't even think it's

for sale anymore. They spent hundreds of millions of dollars on or billions of dollars on these EV

products. And I don't think they ever had any meaningful market share. So I'm not an expert on,

I'm not an analyst on automakers, you know, but if I look globally and you say, hey, that's,

I think that might be the world's largest automaker and compare their profitability versus Toyota.

There's really no comparison. Toyota far out earns them. And when you out earn your competitors,

it allows you to have more money for research and development to build better products and

support those products in the marketplace. So there's that physics saying a body in motion,

you know, tends to stay in motion. And this is why so much of the buying attention has gone

towards Toyota and Lexus. And those brands, in my opinion, have never been more valuable than they

are today. And they're gaining value. The last Toyota transaction I heard about, and unfortunately,

once we weren't involved in, but I know who the buyers of the store, the store is making,

I heard three and it sold for 44 in blue sky. Wow. That's a 15 multiple. Now,

the nice thing about buying a Toyota store is if the store that you're buying is underperforming

in terms of their sales effectiveness, Toyota will allocate you enough inventory in your first

year to become 90% sales effective. So if the store is a 60% sales effective, and you get to 90%,

that's a 50% lift in new vehicle sales in your first year. So that's another reason why we're

seeing some of these Toyota stores sell for such high values is because it's possible. There's value

at to crank that needle up on the new vehicle sales, which turbo charges everything else that

brings in the trades and Toyota trades are usually pretty good. So now your used vehicle

department is gaining and your FNI department's gaining because you're selling more and more

used. And your fixed ops is booming because you're reconditioning all the trades you're

taking in. And maybe you're able to buy some more trades because you have more customers coming to

you. It's a virtuous cycle. Yeah, there you go. There you go. You see that? Great minds,

single like. Well, let's talk about the other side of the spectrum, Lincoln and Infinity.

This was, I mean, is it surprising? No, but to see the number zero is surprising, specifically

referring to in some cases, these stores being sold for effectively zero blue sky.

What is, and by the way, it feels like this has been for, this is in like the last 12 months,

this has been for years, it feels like, and especially I would say Infinity feels like it's

been a steady decline. What is the end game with these brands? I mean, is there any demand for

them? Are these just like a terminal decline? What's your take on Infinity and Lincoln?

Well, Infinity is the luxury version for Nissan. Lincoln is the luxury version for Ford.

You can keep going. Acura is the luxury version for Honda. Genesis is the luxury version for

Hyundai. The near luxury category as a whole is tough. So it's, they're starting off in a highly

competitive segment where you don't get a lot of volume and you don't make a lot of gross.

But Infinity has been a particularly abysmal performer. I think they've lost two thirds of

their market share in the last five years or six years. And so as an Infinity dealer, I feel

terrible for people who build these really pretty buildings back in the 2000s, 2010s.

The Infinity showroom, I don't know if you remember, looks like it's kind of white and swoopy on the

outside. For some reason they have a screen that covers out the car so you can't really see them

from outside. But they're nice looking buildings and they're expensive and they've just seen a

decline in their new car volume and that begins to trickle down to everything else. So if you're

an Infinity salesperson and you're looking your showroom there's no one to take care of and you

look across the street at the Honda store or the Toyota store and there's a stream of customers

coming in and out. You're a flight risk. You're leaving. Mike Jackson had that phrase,

there's a battle for talent and capital on auto retail and the best talent leaves the

Infinity stores and it goes across the street to somewhere else where they can turn wrenches,

sell cars, manage, whatever. So as Infinity had fewer products being purchased, the whole business

model shrinks. So new cars shrink, there are fewer trade-ins, used cars shrink, there's less

fixed ops, fixed ops shrinks, to the point now where it's difficult to cover your fixed costs as

an Infinity dealer. And so many Infinity stores today are making nothing or in fact losing money.

So some of them have said, okay, I've had enough on here. I can't recruit management to turn this

around. If you're really good on the used car side, you can treat an Infinity as a way to sell

a lot of used cars in a good location. You can almost put that new franchise in there,

maybe you get a floor plan from NEMAC to help finance your used vehicles. So you can make

a go out of it. But it's turned in from a premium brand to unfortunately kind of a bargain brand

where many people, if you're looking for your first franchise, Infinity could be the one.

Are you seeing that? There are people buying these stores for the first time. And there are also

people closing them and converting their real estate to something else. Interesting.

Yeah, it was just not worth it. You know, you're sitting and you have three or four acres on a

dealer row and you've got a 15,000 square foot facility and you're losing money. Someone's

going to take that and turn it into a used vehicle operation for Toyota or for some other brand where

they need more space because it's growing. You mentioned floor plan. You had this other note here

about lower value dealerships being at risk because smaller buyers can't get floor plan financing.

Yeah. What's up with that? I haven't heard about this from you before.

Yeah. So if you are an independent dealer and you weren't an independent dealer, so of course.

So, you know, I'd like to hear your opinion here and you're going to acquire a new vehicle business

and you go to NEMAC or to a bank and you say, hey, I want to buy this company over here.

It's losing $2 million a year, but I'm going to turn it around. And I'd like you to loan me money.

I don't need money for the, for Blue Sky, but I want you to loan me money to buy the building

and then to give me some inventory financing. I'm a lender. I'm thinking about that business

saying there's a chance that Nissan terminates Infinity as a franchise. And so then what have

I done? I've loaned money on a building that might not have any value or if this guy is going to

continue to lose money, is there a chance that he could go out of trust and my floor plan loan

might be at risk? Well, my counter argument to that would be five, 10 years ago, you wouldn't

have even, have even had that shot at net. Like that's a whole new, you know, you would be looking

at a Mitsubishi store as a starting store, maybe, maybe Nissan. Yes. So to even have Infinity in

the conversation. Yeah. It's a different. It's gone from a near luxury brand in the eyes of many

dealers. It was never a big profit generator compared to, you know, Lexus or BMW, but it was

solid. But when you lose two thirds of your volume, it goes from being a nice contributor to

a liability for many owners. Yeah. When I think of Infinity today, I think of classic, you know,

New York off lease deal where it's just like you said, it's very, it's not mainstream, but it feels

like it's become more of that. Yeah. Yeah. I mean, I think the products that they make are nice.

I like the Nissan products, their derivatives of those. So to me, it's not so much the individual

products they have, but I think as Nissan focuses on its survival and its renaissance,

it's going to focus on its core brand first, you know, because it sells more Pathfinder than

converting that to a QX, whatever. And they're going to spend a lot of money on designing a

slightly different vehicle and the volumes would be a lot less. So it's logical that

Nissan would focus on its core brands first. So, you know, you're sort of the,

there's a phrase I learned in the South, like redheaded stop trial. Yeah, there's probably

worse one that a little more graphic than that, but you're not a favorite child, right? You're,

you're, you get the least of what's left. And that's where Nissan Infinity is today.

So, so where do we go from here? Tell us what are your conversations like, you know, you were

on the phone before we came in here and there's some conversations like what's, what's the,

what's the vibe in the car market right now from your perspective and, and overall in the

market? I mean, it's very active. I would say just about every week I got contact by a new buyer,

somebody's not even in their business who wants to get into it. And we don't really encourage that

that much because it's, they don't understand how challenging it is to find an opportunity and

get approved. We get a lot of those emails, the private equity firms and everyone's looking,

you know, to buy. Yeah. So I'm polite, but I don't spend much time there. But then, you know,

a lot of the calls are from, I've got a group in the Northeast and I'd like to have a BMW in

Florida. Could you help me find that please? And the answer is you have a long line of people in

front of you brother who have been, you know, shopping in this market for, in some cases, decades.

Wow. So it's really a challenge to buy a top brand in a top market today because there's so much

demand for it. And I used to think that dealers would always want to have kind of a 15, 18 December

return on investment and a car dealership. But the prices where Lexus stores are trading today,

you know, it's a high single digit return is what you can expect unless you believe Lexus is

going to continue to accelerate. I think people are buying some of these brands today because

they're so rock solid. It's almost blue chip. It's blue chip. It's like buying a bond instead of a

stock. So they'll buy a nice Honda store, Korean brands are I think pretty good return on investment

value. Some of the larger domestic stores the same where you can get 15, 20% return on investment

without too much difficulty before leverage with leverage, maybe you're in the high teens, low 20s,

which is, you know, pretty good. Where else are you going to consistently be able to do that in

industry? So the return on investment is still strong for dealers. There's some markets that are

really hot. The Southeast is hot. Florida is hot. Texas is hot. Fortunately, we've seen a return of

interest to California and other carb states where we had seen a diminution of value there

because people were saying like, if I buy that Mazda store and carb continues to stay in effect,

what products will Mazda have to sell its customers in California? And we would look at the Mazda

product pipeline and we didn't see very much. They didn't have a bunch of EVs coming or plug-in

hybrids. Today you look at the requirement to sell vehicles in California and they're not

different than they are in Florida or Texas. And so Mazda doesn't have to have, you know,

full complement of EVs to be successful there. So we were involved in the sale of two dealership

groups last year in California and we marketed them at the beginning of the year and we weren't

in love with the offers we got. They were low, lower than what we thought. Then carb goes away,

we re-marketed and we in one case got 25% higher offer and the other one's a 30% higher offer.

Same brand, same location, about the same performance. Less risk. Less risk. Less risk.

Each was higher demand. And did you intentionally wait to re-market them

due to carb? So that was a plan? Yeah. Sometimes, you know, in a process, if you don't get what you

want, there are things that can change. Could be the performance, your individual performance,

could be the performance of the brand, could be the market conditions. And so sometimes our advice

is we didn't get what we wanted. We should get more for these. Let's wait, either make change

ourselves or in this case, we just waited for the president to come and terminate that exemption

that he'd given or the EPA had given to certain states. And had a big impact. Excellent. Well said.

Alan Haig, Haig partners, always a pleasure. Alan, thanks for sharing with us your wealth of

insights and I'm sure it'll be an exciting quarter to come with everything happening in the world

and oil prices and whatever else will pop up. So we'll do our next conversation next quarter

and it's going to be a great one. Well, I look forward to that very much, Yossi. Thanks for having me.

All right. Hope you enjoyed that episode. Please give the podcast a rating. Consider

subscribing to the show and check the show notes for links to what we talked about.

Thanks for tuning in. I'll see you guys next time.

"Blue Sky is at Risk!" The New Threat to Dealership Values (and the Brands to Buy Now) | Alan Haig, President of Haig Partners

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