Paul Daly: 0:02You're listening to a soda con sessions by effective live from a soda con 2023.
Michael Cirillo: 0:13
Welcome to this episode of asoto concessions for effective I'm Michael Cirillo sitting down with Alan hag. Thanks so much for joining me here today.
Alan Haig: 0:19
Thanks for having me, Michael.
Michael Cirillo: 0:21
Okay, so I asked you the question as I do most guests, what are you vibing on and you said something about mergers and acquisitions. I gotta get into this when I see headlines, like Asbury Auto Group, but as you know, dropping another few billion on a dealer group in Utah, and then turning around and buying a new dealer group over here and over here, and I go, first of all, maybe I'm a simple 10 And I can't comprehend billion. What are you seeing from your vantage point? What's happening right now?
Alan Haig: 0:52
I think those deals are going to continue to happen. I think that the publicly traded auto retailers have discovered that their investors like growth, and it's difficult to grow an industry organically. So the way that larger retailers are growing is through acquisitions. And just about every dealership group, now, publicly traded is acquisitive. Right now we have a bidding war going on for a dealership group in the UK called pin dragon. Oh, where Penske is bidding on it. Lithia is bidding on it. And now AutoNation has entered the bidding as well. What is
Michael Cirillo: 1:24
the implication of such large acquisition? I mean, it almost seems kind of like a Russian nesting doll of, you know, small dealer group, maybe one or two stores buys up to more becomes, you know, to get swallowed up by the slightly larger group swallowed up by the slightly larger group, and then the publicly traded or maybe the larger privately owned, but what's the, in your opinion, what's the larger implication of such large acquisitions on the industry as a whole?
Alan Haig: 1:54
Well, if we start at the beginning of it, I think that the typical dealer today has about two stores, they're probably in the same town, one might be a Ford, one might be a Nissan, for instance. And I think that the larger groups are betting that their size is going to help them to out compete smaller dealers. If you look at Lithia, they've got driveway.com. If you go online, they have over 50,000 vehicles available for purchase there. They'll bring those vehicles to you for a fee. So the selection that Lithia can offer almost on a nationwide basis now is far greater than any local dealer can offer. So if you're a dealer, and you have one or two stores, and you think you want to stay in this business a long time, you've got to start to be able to match that selection. At least on the local level, you don't have to compete nationally, there's a phrase that local scale is greater than national scale. So if you're a dealership group and you have 10 stores in a market, odds are you're gonna have more vehicles available for sale locally than a national company will. So we see smaller dealers growing as well. It's not just national firms growing interesting. The majority m&a is private dealers buying other private dealers, probably 80% or 90% of the rooftops at trade this year, will be private to private dealer groups.
Michael Cirillo: 3:09
Let's just say, for instance, and I won't mention any names. But if there's a guy whose name is right, Cole Morello, and he wanted to buy a dealership, what does he have to actually like? What like what does he need to line his pockets with in order for a private deal to happen?
Alan Haig: 3:29
dealerships have gotten expensive, sure refer to dealerships as sticky assets they're hard to get and hard to get rid of. But in terms of capital, a dealership today might be selling for 20 million and goodwill, the real estate might be another 12 million, you might need another four or $5 million in working capital. So you get up to $40 million pretty quick for a good store. Wow. There are other dealerships that are less expensive, you know, a Nissan store Mazda store those brands are typically less profitable and lower multiple for Goodwill. That's a good starter store for somebody's coming in. Perhaps they're an independent dealer and they want to get their first franchise dealership. Those are the kinds of businesses that I would target for them and trust if they're interested in becoming a franchise dealer.
Michael Cirillo: 4:12
Do you see any potential shift maybe Hey, you know what, the franchise thing No, but maybe a surge of independence or RV or any sorts of other I guess vertical aligned industries growing in the light of that or do you see a steady growth trajectory for franchise?
Alan Haig: 4:36
I think the majority of auto dealers want to buy more auto dealerships. Lithia is experimenting now with buying non auto dealerships are looking at power sports and heavy truck and RV I believe and I'm sure they'd be successful in that area but I think the vast majority their capitals can go back into auto retail. The if you look at a dealership statement for a car dealership RV heavy truck powersports they look identical, but the profit centers are all very different, you know, an automotive, it's pretty balanced and RV, it's all on the sale of a new and heavy truck used to be all in the fixed now you can make a lot of money on the front end too. So there's slightly different profit centers, although comparable business models into it, I think most auto dealers are gonna stick in their lane and buy more dealerships. And frankly, that's what I recommend.
Michael Cirillo: 5:23
It's it's interesting. And I guess the reason I ask is because typically, historically, a lot of the narrative is always doom and gloom, all these things happening in the industry. But I can't help but wonder, going back to my original question, well, if it's really that doom and gloom, why in the world are these these publicly traded groups trying to acquire more? They're obviously seeing something. And of course, we have dealers here that are saying, No, I'm, I'm going to be buying more dealerships over the next 510 years. What are they seeing that the narrative, in general is not understanding?
Alan Haig: 6:02
dealerships or historically have been an excellent investment. The return on investment from a dealership exceeds almost any other asset class that I know of, I did a little research here. Over the past year, the stock values of the publicly traded auto retailers have gone up 20% More than the s&p 500. So compared to most investments out there, auto retailers have outperformed. If you look back over a 10 year period, the auto retailer stocks are trading 31% higher than if you'd invested in the s&p. So they're excellent investments.
Michael Cirillo: 6:41
Cash, Courtney buy me some stocks today and
Alan Haig: 6:44
their return on investment for the publicly traded dealers has been very positive. And so investors are seeing that and they're encouraging dealership groups to buy more dealerships?
Michael Cirillo: 6:54
Is that the path to keep those numbers growing as just more more more and more? Or? Or do you see a point where they may be plateaued? A little bit like what what's the, I guess the data set your set trend? Or is that steady over? How many years
Alan Haig: 7:08
so there are limits on how many dealerships that public companies can acquire, they all have framework agreements with with the OEM, certain OEMs, Toyota, Mercedes, etc. That has limited their ability to grow as many as they want, for instance, but I think there's going to become a virtuous circle where the larger you get, the more opportunities you have for consumers and more options you have for vehicles, the more services you can provide to those customers, you can just afford to do them versus if I had one or two stores, I couldn't have pickup and delivery within a giant region, for instance, I might be able to do within 10 miles of my store. And I think you also began to attract and retain more talent. So for instance, if you go and join a larger organization, your ability for upward movement may be greater than if you went to a dealership group and has two stores. The two general managers there and they're both in their 40s odds of them leaving the time are low. If you went to Lithia, that's growing quickly. In your sales manager, they've got 400 locations, right odds of an opening appearing in the next five years are extremely high. So I could see how larger retailers if they can out compete a smaller one in terms of providing better service to customers, better opportunities, more selection, more convenience, perhaps eventually lower pricing, then you start to attract and retain the best people, you have more options, customers gravitate towards you, you can more easily retain those customers. Because you have a full selection of brands you can offer those customers when they're ready to trade Yeah. Then the I think the factories will see hey, the sales performance of these orchard groups could be better than independent dealers in the future. So far it has not smaller dealers have been able to out compete alternation or the other mega dealers. But if technology has the impact that I think many people believe it will, and allows larger dealers to have to be smaller dealers, then the factories are going to look around saying hey, rather than putting up roadblocks for large dealers to own our dealership, right, we're gonna have began assisting them to own more of our dealerships.
Michael Cirillo: 9:01
Yeah. Two questions. First one is how in the world did you get into doing what you do? Second kind of slight off sighted question there is, when are you going to turn your brain into AI? Because I have no idea can just boom know as much as you know about this industry?
Alan Haig: 9:21
Well, so I started my career doing investment banking, okay. And that job is all about money, you know, how much are we going to raise? What's the interest rate going to be? What's our fee gonna be? What's my bonus is going to be? And that is a great way to learn about business, but it's a little bit boring in some ways. So when I got out of business school, I wanted to go join a real company that had operations and HR and real estate and it and everything else. So I joined the blockbuster family of businesses when housing Oh, and we sold blockbuster to Viacom and Wayne started AutoNation so I took my little MBA hat and wrote a business plan for the new car company at AutoNation. They already had about 100 people working on the use car concept, which is basically like a car Max. Yeah. And the board said, Okay, that sounds good go buy dealerships and I didn't know a single auto dealer. So that teed me up with somebody from southeast Toyota. And then eventually Mike Maroney joined auto nation that team the two of us up and we were able to acquire acquire quite a lot of stores. And since then, that's been my career has been a mix of auto retail, and investment banking. And it's been a lot of fun, I would say that the best part of my job is being able to work with entrepreneurs and to serve them and their families. Because you know, if you're working as a as a, an employee of a dealership group, a large dealership group, it's a job. And it's one job on the way to the next job, right? But when you're working for an entrepreneur or someone who owns the business, it's their life's work. It matters tremendously to them. So we have had great success representing our clients and it's fun to bring them the offers and see them smile and see their see their family smile. And at this point in the cycle, we're dealerships are worth twice as much as they were before the pandemic, the kind of offers that we're bringing to our clients are providing generational wealth to their families and unreal, they're going to have a challenge of how do I invest that capital as opposed to go into work every day on the service drive.
Michael Cirillo: 11:14
It delights me and enrages me at the same time because I'm like Dad, why dad you had to do phonebooks like you couldn't have been a dealership now getting Alan has been tremendous. I'm so glad that we got to share some time together. How can those listening or watching learn more about you and your company and and connect with you?
Alan Haig: 11:33
Well, we issue a quarterly report called The Hake report. It's available for free on our website that tracks trends in auto retail and their impact on viewership values. And they can reach out to me directly at Allen which is Al A n at Haig partners.com
Michael Cirillo: 11:48
I love it, Alan Hey, thanks so much for joining me on a certain concessions. Thanks for having me.
Paul Daly: 11:56
Thank you for listening to this so to concession by effective if you want more content like this, you can check out our other podcasts we have a daily show called The automotive troublemaker Monday through Friday. Here on podcasts also live streamed on YouTube, and LinkedIn and Facebook. We also have a long form podcast called Auto collapse auto collapse. And if you just want to go a little deeper into this community, you should sign up for our regular email we put our heart and soul into it. You can get it for free by going to a sotu.com We'll see you next time.