Blue Sky: The New Normal

The Boom

Blue sky values have officially settled. Shortly after the COVID-19 pandemic, car dealers’ profits soared due to inventory shortages and steady demand. With many realizing this was not going to be a quick fix, a buying frenzy began, and the values of dealerships increased dramatically. According to the Haig Report there were 707 and 634 dealership buy/sells in the U.S. in 2021 and 2022, respectively. For comparison, 299 buy/sells occurred in 2019, so you can see the large variances.

The Decline

On the downside, 2023 and 2024 profits decreased dramatically due to the higher supply of new vehicles, resulting in a significant drop in gross per vehicle sold.  The supply of new vehicles also drove down the prices of used vehicles. Dealers who did not manage their inventories closely experienced significant losses on used cars due to the drop in prices. Some dealers were stuck with cars they had paid market price for a month earlier, only for those vehicles to depreciate by thousands of dollars in a matter of weeks. 

There was also a 38% decrease in rooftops sold the first three quarters of 2025 compared to the same quarters in 2024 per the Haig Report. This steady decline in profits convinced buyers that the “covid bump” to blue sky prices is over.

Outlook

Settled blue sky values indicate several things for prospective buyers, including:

1. With less demand causing a decrease in value, buyers will have more options
2. There will be a large focus on pre-pandemic profits and 2024/2025 profits as these appear to be closest to the expected future cash flows.  In many cases, deals are being priced based on the trailing twelve months of operations.
3. Due diligence and quality of earnings reporting are becoming a more significant portion of the transaction process as dealers want to kick the tires before proceeding with a transaction.
4. Buyers will be looking for stores that make the most sense for their footprint, as well as focusing on stores that have an opportunity for improvement
5. The recent interest rate cuts and potential future rate cuts, combined with settled blue sky values, will attract more buyers to the market

With declining profits, blue sky values are expected to remain the same or decline for most brands. Dealers are focusing on fixed operations opportunities in both their current and prospective stores. With the used car and new car markets being largely affected by the new increased supply, the fixed operations side of the business is just now starting to see the “covid bump.”  With low new-vehicle supply for over two years, the average vehicle age is much higher than it was pre-pandemic. This is causing additional maintenance needs for consumers, allowing dealers to experience significant growth in their fixed operations.

Though on the decline, the buy/sell market and dealer profits are still trending above the pre-pandemic levels.   While expected further rate cuts and opportunities in fixed operations may improve bottom lines, it is more of a buyer's market for the first time in years.

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