We’re not even halfway through calendar 2024, yet the year is already revealing as much about the future of the industry as it is the present. As a business owner, you should be fully attuned to what it is saying.
You can drop the word “new” from the term “new normal.” What you see is what you’re going to get for the foreseeable future. We abide by the saying “A rising tide will life all boats,” but regardless of your aphorism of choice, the fact of the matter is the tide is quite high. If your dingy is plodding through mud, so to speak, it could be an indication that your business is missing out on the best of times.
The talk of recession has dimmed to a whisper. Why? Despite inflation’s stubborn insistence and the Federal Reserve’s decision to hold off on an interest rate cut, corporate profits are quite lucrative. Earlier this week, the Wall Street Journal published an article that chronicles billowing profitability. It noted “Corporate profits are important because they show the U.S. economic engine continues to purr. While some other economic indicators, such as consumer-sentiment readings, have been downbeat, and inflation has ticked up, a strong U.S. profit performance typically points toward continued expansion.”
High Times
Granted, the S&P 500 and the Elite Dealers list are not one and the same. But I’m not here to play economist. I’m here to quote Jack Nicholson. “What if this is as good as it gets?” he opined in a movie with the same title. If “this,” the volume of business, doesn’t get any better—and there’s actually room for it to get worse—will you be OK with that? Or are you still banking on better times?
Anecdotally, the news is good. A vast majority of the dealers we talk to from month to month have been deluged with orders. Some are in dire need of more employees to shoulder the load. Some are working on adding warehouse capacity. And while it’s not human nature to confess, “Business is down sharply—we’re in a world of trouble” there are usually minor clues: voice inflections, subtle sighs and hopeful language that indicate times are not as good as they could or should be. For the most part, we’re not sensing disappointment cloaked by optimism.
But if the economic engine continues to purr, as the WSJ suggests, and the motor isn’t revving for you, it may be in indication that it’s time to sell. You want to look out for the best interests of your clients and employees. If a master plan is not generating positive results during prosperous periods, it’s certainly not going to flourish during the next economic downturn.
The M&A market in our industry has tracked downward during the past 18-24 months. The appetite for acquisition is voracious among the large national dealers, major regionals and even the smaller players. While companies aren’t realizing the EBITDA multiples from three years ago, there’s still an opportunity for structurally-sound dealers to reap a strong return on—what is for some—a lifetime investment. It smacks of a seller’s market, at least in this estimation.
The “old norm” isn’t returning anytime soon, if at all. If that’s bad news, plan accordingly.
