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AN Driver Seat - Truist - 022123 (3).mp4

Automotive News [00:00:06] Hi, everyone. In the Driver's Seat today, we're talking about M&A trends for 2023. Joining us today is JT Taylor, managing director of automotive for Truist Securities. JT has more than 30 years of experience in the automotive industry, working in both retail and manufacturing and developing deep relationships throughout the U.S. and Canada. He joins us today from south Florida. Welcome back to In the Driver's Seat, JT!

JT Taylor [00:00:29] It's great to be back and thanks for letting me join the Automotive News team today and look forward to the conversation.

Automotive News [00:00:36] Yeah, it's great to have you here. So, it looks like it's going to be another active year for dealership M&A. There's a lot of growth minded dealers out there. What do you see changing in 2023 compared to last year?

JT Taylor [00:00:49] That's a great question, because last year was a very active year for dealership buy-sells. One of the biggest years for us to sign up new transactions and giving advice to our dealer clients. The biggest change in '23 is the likely return of the public auto retailers to the acquisition marketplace. '22 is a really busy year for buy-sells, but private companies were the dominant players. The public were somewhat on the sidelines. Now, five of the six publics are an all-time high share prices, and most purchase opportunities make more economic sense than the stock buybacks they were doing last year. Prices are going to continue to feel high, but they are going to come off their '21-'22 peak. That's a big change. But still, we've never had so many transactions for dealerships.

Automotive News [00:01:36] Okay, JT, so how long do you see this hot buy-sell market lasting?

JT Taylor [00:01:41] Well, you know, that's a that's a timing issue. And everybody likes to pretend that they're great market timers, but our encouragement for dealers is if you're ready, you're ready. If you're not, you're not. But the dominant rationale for selling a dealership remains a desire to retire. With the majority of dealerships owned by baby boomers, the current pace of consolidation is likely to continue for many years. Now, blessedly, the auto retail business model is sound, still very attractive to investors, both strategic and financial. We'll talk about that a little bit more later. Last year, I shared with your publisher, KC Crain, that we're likely in the golden age of auto retail right now. And most prognosticators agree that auto dealers, they're going to enjoy historically elevated profits for the next couple of years, but they're also in the golden age of auto innovation. There's a plethora of technology advances that are going to build efficiencies in their businesses, they're going to enhance customer experience, and lower costs. The next five years, Emma, look really strong for car dealerships.

Automotive News [00:02:45] This golden age of automotive retail and this desire to retire. When we look at dealerships, consolidation overall, is there acquisition opportunity for all sizes of dealerships?

JT Taylor [00:02:56] Well, there is. No matter what the size of the dealership group, those opportunities are the same across the board, and also those realities of life. You're going to get older and the realities are the business is changing. Right now, pretty much for the good. Now, remember that of the 7,300 plus owners of car dealerships in the U.S., over 80% of those owners have three or fewer stores. So that means there's a lot of room for growth. Those smaller groups are either in a position to grow or go. I'm not going to say that they're fuel for consolidation. But at the same time, they're the ones may be lighting the fire of consolidation as they seek to go out and raise ample capital to fund that growth. By the way, lenders have a strong appetite for dealer business, particularly here at Truist Bank. And more investors are coming from outside the industry. That bodes well for car dealers who are looking to exit or looking to grow. At Truist Securities and Truist Bank, we're going to continue to provide advice and capital to dealers who are looking at increasingly sophisticated approaches to funding acquisitions. So when you have capital coming from outside the industry, there's an education level that has to happen for those new investors. Likewise with sellers when they bring on partners from outside the business. Consolidation is a reality. It's going to continue and it bodes well for the industry and for consumers.

Automotive News [00:04:35] It's all really positive, JT. You work in investment banking side of the business, but Truist is also a major commercial and consumer bank with visibility into every part of our economy. What are you hearing internally and seeing across the industry in the economy overall: headwinds, tailwinds and how Truist is handling all of it across its business lines?

JT Taylor [00:04:56] Great question and thank you for noting that. Truist Bank, with its size and its scope today, and how we reach deeply into all aspects of of our clients and their communities, it's important for us to pay attention. And thankfully, we've got those resources to do so. What are we hearing and what are we saying? How are we acting? All great indications of where we are. Headwinds? We get those, you know, the clickbait and all the things that come at us as we seek to be well-informed folks. But the truth is the headwinds are real when it comes to the near term with the effects of monetary policy trying to slow inflation. Kudos for that going on, but it has, particularly for large consumer good purchases, slowed things down a little bit. There has to also be a recovery from the elevated retail pricing for automobiles, particularly on the new side. That's driven shortages of critical parts, and assemblies have driven manufacturers to shrewdly build higher content products. Higher content means higher price. So we're seeing record prices paid for retail by consumers. That's going to wane and slow down. While that sounds like it's going to compress gross profit margins for dealers -- true -- it's also going to give an opportunity to increased volume. So we see offsets to some of these headwinds that we're experiencing today. Used car pricing, very big deal. They collapsed pretty significantly in the fourth quarter of 2022. We really looked at that as a rationalization, normalization. But in December, January, and now February, used car prices are increasing again. Now we're going into the selling season for used cars traditionally and that there's likely to be, at the wholesale level, some increases. But behind the scenes there's fewer used cars. Rental car agencies and lease returns are virtually nonexistent compared to what it's been in the past. There's going to be an effect on the used car availability for years to come because of those two issues: no leasing on the new car side and rental car companies being forced to participate in the used car market in order to keep their supply ample. When we take a look at tailwinds, the biggest one is jobs. It's great and it's awesome. Consumers, when they're working, they typically behave very well, personal consumer debt, while it is increasing some during this inflationary time, it's still at historic lows. We are seeing some increase nationally, across the board, all lenders are seeing increases in delinquencies in some of their auto consumer loans, but still not at levels that's given anybody undue concern. Commercially, auto dealers still have ample opportunity. They have great balance sheets. If they want to grow, banks love car dealers, the capital is there from a debt standpoint. And we've already talked about outside investors looking to invest in the business in order to propagate and participate in this great industry that we get to enjoy. You know, generally, Truist is here to help build better life in communities across our footprint. We're going to continue to do that. Our auto lending teams for consumer and commercial are focused on enabling clients that have ample capital to enjoy what looks like a great future. Keep in mind there's some short term turbulence with inflation, but once that's harnessed and the job market continues to grow, the overall health of the consumer is going to be solid. And that bodes well for dealers.

Automotive News [00:08:54]  Yeah, I think there's a lot of moving parts, but it all sounds really positive, JT. And I got to say, it's been great to have you with us. As you know, it's a tradition to close out each episode with our 0 to 60 challenge over the next 60 seconds. We'd like to give our viewers a chance to get to know you a little better. So you ready for the challenge?

JT Taylor [00:09:12] Oh, yeah.

Automotive News [00:09:14] Okay. Question number one: Who is the most important mentor in your career?

JT Taylor [00:09:20] That's an easy one for me. It's my dad. He was a successful business executive and owner, blessed to have in my life still. Sage advice, godly encouragement, all delivered with a father's love.

Automotive News [00:09:36] Doesn't get any better than your dad. Question number two: If you could have one business meeting with anyone past or present, who would it be?

JT Taylor [00:09:43] I'd want to hear from J.P. Morgan, the guy who put together financing for some of the biggest changes ever done in the United States. Huge risk and a huge success.

Automotive News [00:09:55] We'll see you all next time for In the Driver's Seat.

In the Driver’s Seat

Truist Securities weighs in on dealer buy/sell market

JT Taylor, head of Automotive Retailing at Truist Securities, talks dealership M&A changes, the current hot Buy/Sell market and dealership acquisition opportunities.

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