December 30, 2025 • 6 mins
Car dealerships don’t sound exciting, but they can be extraordinary wealth generators. Sean Aylmer is joined by Gaurav Sodhi, Deputy Head of Research at Intelligent Investor, to unpack the Eagers Automotive story. Gaurav explains why car dealerships are widely misunderstood by markets and how Eagers has quietly built a dominant position in Australia: everything from land ownership to electric vehicles brands like BYD.
This is Fear & Greed's summer series - all-new short episodes every day, with regular news back from January 12. All information is general in nature. If you want to invest, we recommend you visit a financial advisor who can tailor investments to your needs
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Welcome to the Fear and Greed summer series. I'm sure, Alma.
Today I'm talking to goreav Soodi, Deputy head of Research
at Intelligent Investor, and it's all about Australia's largest listed
car dealership, Eagers Automotive. Remember this is general information only
and you should always see professional advice before making investment decisions. Graf,
Welcome to Fear and Greed.
Speaker 2 (00:24):
Thanks Shan. Great to be with you.
Speaker 1 (00:26):
This has been quite the ride and part of the
pun given it's a car dealership. Eagers over the past
twelve months or so more than double its share price,
although sort of October or so it is even high.
I think it's off about thirty percent. Since it's high
as in October, tell me the Egers Automotive story. Why
has it done so well this year?
Speaker 2 (00:43):
Eiggers is a stock we've owned for a bit over
a year or so. It is a it is as
you say, it's show's largest car dealership. And I think
there's car dealerships in general are not well understood, not
just in Australia but overseas as well. If you look
at car dealerships that are privately owned, these things are
(01:05):
incredibly incredible generators of wealth. There was a survey done
earlier in or earlier this decade. It was in the
twenty tens or twenty twenties. It was done, and it
was a survey of how wealth was accumulated in the
United States, and the number one way thember, the most
predictable and assured way of getting rich in the United
(01:27):
States was to own a car dealership. Group they are
I think that it's the number one profession for yacht
owners in the US, and in this survey it came
out number one as well. So and public markets, stock
markets all over the world tend to value these things
at very low multiple. So the way we came to eagers,
(01:49):
we saw this great disconnect. Actually, to be honest with you, Sean,
I was watching Cobra Kai on Netflix, and I noticed
that they wanted to show, you know, the main character,
Daniel Son as a wealthy, successful person, and then his
character changes, so they made him a car dealer, and
I just that's what clicked with me. I thought, there
is something wrong with the way car dealers are in
(02:10):
real life, how successful that in real life, and how
they're treated on the share market. Now, on the share
market they're treated as low multiple cyclical, capital intensive businesses
because the accounting is particularly complicated. And if we can
dig through that a complex accounting, what we get to
is a wonderful business that's dominated by land ownership. A
lot of dealers actually make their money over time through
(02:32):
the increase in the land value, because these things are
essentially land banks that sell decent margin product on top
of their land, and over generations they make a lot
of money. So when we invest in eagers, we're looking
for a very long dated return that pays regular dividends.
As they move cars and it's not just about moving cars.
(02:52):
When a car is sold, there's often a trade in
that that gets bought in. A car is often financed.
Eighty percent of all vehicles in Australia gets finance, and
that gets actually a higher margin than the retail sale
of the car itself. And then there's insurance on top
which collects the margin as well. So at multiple points
of the retail chain, the car dealer is there to
collect a margin and the total margin is actually far
(03:16):
better than you would expect just from the retailing bit itself.
And to dispel this myth that they are very capital intensive,
and they have to hold all this stock. They actually
don't own any of the inventory. The inventory is owned
by a finance company and they pay couple hundred dollars
a month to hold each car, and as that car
is sold, they pay off the debt group and they
(03:38):
collect the margin. So it's actually a very capital light model.
When we did the numbers, we could see that Eagles
was generating about a twenty percent return on capital, even
though the reported earnings were a lot lower than that.
Because of the way the inventory and debt is treated
by accounting standards. It's all dense, it's all complicated, and
that's why there's an opportunity.
Speaker 1 (03:59):
Okay, so the shap price has jumped hugely over the
past twelve months or thereabouts, though it has come off
as I mentioned, what is the outle I mean, ken
have people caught on to this idea that Eager's automotive
is actually I mean, exactly what you're talking about. It
did have a few announcements during the year which people
seem to like, including some of the brands it was
dealing with. But can it keep running?
Speaker 2 (04:21):
Yeah, there's a couple of big changes going on on
the automotive industry. One is the rise of these Chinese brands,
and BYD's the largest of those. Now Egers initially had
a monopoly on BYD on dealerships, and so all the
new BYD sales are actually going through Egers and so
you could see those numbers really pile up on Egers books,
(04:43):
so that caused a bit of excitement. They are no
longer in a monopoly position, but they do own eighty
percent of BYD sales still, so we still see volumes
increasing through BYD sales. The other thing is the electrification
of cars as well, and that can mean a change
in the sales model, so certainly more cars being sold
(05:04):
on leases which actually increases margin for the dealer group,
or it can mean more turnover of cars as well,
which again increases the margin for the dealer group, or
an introduction of new brands. And Eagers has been particularly
aggressive in attracting new OEMs to Australia and being the
sole distribution point for those OEMs, and it's because they
(05:24):
handle the most volume. So size has been a huge
advantage for this business and you can see of the
last few years it's market share for new cars has
increased from about nine percent to almost fifteen percent. They're
taking market share from others. Even as newcast sales grow
and as volume grows, margins are actually expanding. It now
(05:45):
earns almost three times as much margin as the next
dealer group in Australia and I think that's a sustainable
lead that may even get larger.
Speaker 1 (05:55):
Fantastic or thank you for talking to fearing Green summer.
Speaker 2 (05:58):
Series pleasure Sean, Thank you that was a.
Speaker 1 (06:00):
GOREV Sadie, Deputy head of Research at Intelligent Investor. Don't
forget to follow on the podcast. New episodes every day
during our summer series and regular shows are back from
January twelve. I'm Schanelma and this is Bearing Greed.
Welcome to the Fear and Greed summer series. I'm sure, Alma.
Today I'm talking to goreav Soodi, Deputy head of Research
at Intelligent Investor, and it's all about Australia's largest listed
car dealership, Eagers Automotive. Remember this is general information only
and you should always see professional advice before making investment decisions. Graf,
Welcome to Fear and Greed.
Speaker 2 (00:24):
Thanks Shan. Great to be with you.
Speaker 1 (00:26):
This has been quite the ride and part of the
pun given it's a car dealership. Eagers over the past
twelve months or so more than double its share price,
although sort of October or so it is even high.
I think it's off about thirty percent. Since it's high
as in October, tell me the Egers Automotive story. Why
has it done so well this year?
Speaker 2 (00:43):
Eiggers is a stock we've owned for a bit over
a year or so. It is a it is as
you say, it's show's largest car dealership. And I think
there's car dealerships in general are not well understood, not
just in Australia but overseas as well. If you look
at car dealerships that are privately owned, these things are
(01:05):
incredibly incredible generators of wealth. There was a survey done
earlier in or earlier this decade. It was in the
twenty tens or twenty twenties. It was done, and it
was a survey of how wealth was accumulated in the
United States, and the number one way thember, the most
predictable and assured way of getting rich in the United
(01:27):
States was to own a car dealership. Group they are
I think that it's the number one profession for yacht
owners in the US, and in this survey it came
out number one as well. So and public markets, stock
markets all over the world tend to value these things
at very low multiple. So the way we came to eagers,
(01:49):
we saw this great disconnect. Actually, to be honest with you, Sean,
I was watching Cobra Kai on Netflix, and I noticed
that they wanted to show, you know, the main character,
Daniel Son as a wealthy, successful person, and then his
character changes, so they made him a car dealer, and
I just that's what clicked with me. I thought, there
is something wrong with the way car dealers are in
(02:10):
real life, how successful that in real life, and how
they're treated on the share market. Now, on the share
market they're treated as low multiple cyclical, capital intensive businesses
because the accounting is particularly complicated. And if we can
dig through that a complex accounting, what we get to
is a wonderful business that's dominated by land ownership. A
lot of dealers actually make their money over time through
(02:32):
the increase in the land value, because these things are
essentially land banks that sell decent margin product on top
of their land, and over generations they make a lot
of money. So when we invest in eagers, we're looking
for a very long dated return that pays regular dividends.
As they move cars and it's not just about moving cars.
(02:52):
When a car is sold, there's often a trade in
that that gets bought in. A car is often financed.
Eighty percent of all vehicles in Australia gets finance, and
that gets actually a higher margin than the retail sale
of the car itself. And then there's insurance on top
which collects the margin as well. So at multiple points
of the retail chain, the car dealer is there to
collect a margin and the total margin is actually far
(03:16):
better than you would expect just from the retailing bit itself.
And to dispel this myth that they are very capital intensive,
and they have to hold all this stock. They actually
don't own any of the inventory. The inventory is owned
by a finance company and they pay couple hundred dollars
a month to hold each car, and as that car
is sold, they pay off the debt group and they
(03:38):
collect the margin. So it's actually a very capital light model.
When we did the numbers, we could see that Eagles
was generating about a twenty percent return on capital, even
though the reported earnings were a lot lower than that.
Because of the way the inventory and debt is treated
by accounting standards. It's all dense, it's all complicated, and
that's why there's an opportunity.
Speaker 1 (03:59):
Okay, so the shap price has jumped hugely over the
past twelve months or thereabouts, though it has come off
as I mentioned, what is the outle I mean, ken
have people caught on to this idea that Eager's automotive
is actually I mean, exactly what you're talking about. It
did have a few announcements during the year which people
seem to like, including some of the brands it was
dealing with. But can it keep running?
Speaker 2 (04:21):
Yeah, there's a couple of big changes going on on
the automotive industry. One is the rise of these Chinese brands,
and BYD's the largest of those. Now Egers initially had
a monopoly on BYD on dealerships, and so all the
new BYD sales are actually going through Egers and so
you could see those numbers really pile up on Egers books,
(04:43):
so that caused a bit of excitement. They are no
longer in a monopoly position, but they do own eighty
percent of BYD sales still, so we still see volumes
increasing through BYD sales. The other thing is the electrification
of cars as well, and that can mean a change
in the sales model, so certainly more cars being sold
(05:04):
on leases which actually increases margin for the dealer group,
or it can mean more turnover of cars as well,
which again increases the margin for the dealer group, or
an introduction of new brands. And Eagers has been particularly
aggressive in attracting new OEMs to Australia and being the
sole distribution point for those OEMs, and it's because they
(05:24):
handle the most volume. So size has been a huge
advantage for this business and you can see of the
last few years it's market share for new cars has
increased from about nine percent to almost fifteen percent. They're
taking market share from others. Even as newcast sales grow
and as volume grows, margins are actually expanding. It now
(05:45):
earns almost three times as much margin as the next
dealer group in Australia and I think that's a sustainable
lead that may even get larger.
Speaker 1 (05:55):
Fantastic or thank you for talking to fearing Green summer.
Speaker 2 (05:58):
Series pleasure Sean, Thank you that was a.
Speaker 1 (06:00):
GOREV Sadie, Deputy head of Research at Intelligent Investor. Don't
forget to follow on the podcast. New episodes every day
during our summer series and regular shows are back from
January twelve. I'm Schanelma and this is Bearing Greed.
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