COVID-19 supply chain problems helped drive dealership new-vehicle gross profits to record highs. As the pandemic fades into memory, those numbers have tumbled down to earth.
After months of declines, same-store gross profit per new vehicle has dropped closer to levels last seen before pandemic-related vehicle supplies began to distort the market in 2021, sending gross profits to peak levels a year later. The average now is about a third of its peak,Tyson Jominy, vice president of data and analytics at J.D. Power, told Automotive News.
“Dealers had several years in a row where they had a massive windfall,” Jominy said. “Like anyone, when your income drops to athird of what it was, it’s going to hurt.”
Results through the third quarter this year from the six public auto dealership companies — Asbury Automotive Group, AutoNation Inc., Group 1 Automotive Inc., Lithia Motors Inc., Penske Automotive Group Inc. and Sonic Automotive Inc. — bear this out, with all reportingdouble-digit percentagedeclines in same-store gross profit per new vehicle from the same period in 2023.
However, their third-quarter numbers, while down from the first half, remain higher than nine-month figures from J.D. Power and an analysis from Presidio Group, an investment banking and buy-sell advisory firm in Denver and Atlanta, with NCM Associates, a dealership training and consulting company.
Some of the public groups expect their figures to continue to decline over the next few quarters.
J.D. Power’s data, which covers 16,000 franchised dealerships, shows gross profit per new vehicle through nine months is now about $1,200, down $1,000 or more from 2023 and a drop of two-thirds from peak levels of $3,600 in 2022, Jominy said. Those numbers compare with $300 to $500 per new vehicle sold before the onset of COVID.
Presidio Group and NCM Associates, in a third-quarter report, found that levels of profit per vehicle appear to be normalizing but remain higher than before the pandemic.
The Q3 Presidio/NCM Average Dealership Performance Benchmark, which includes aggregated financial data from 3,900 dealerships, concluded that net pretax profit for dealerships dropped 30 percent in the first nine months of 2024 compared with the same period last year. That decline represents a slight moderation from the 33 percent drop in the first six months of 2024.
If the trend holds, the new normal “is well above what was typical before the pandemic,” Presidio-NCM said.
Average gross profit per new vehicle was $2,326 in the first nine months of 2024, Presidio-NCM said, down 33.5 percent from last year.
A gradual moderation toward normalization should culminate by the end of 2025, a few months later than previously estimated, J.P. Morgan analystRajat Gupta said in a Nov. 5 note to investors. He said that average new-vehicle gross profit in the third quarter for the public auto retailers was down $250 per vehicle. It should dip $100 more in the fourth quarter, he added, tempered in part by a “higher luxury mix for the industry.”
Presidio-NCM said dealerships are working to preserve the elevated income they generated during the pandemic through services outside of car purchases. Fixed operations during the third quarter helped narrow the drop in overall gross profit, the report said.
New-vehicle sales peaked in 2016 at more than 17.5 million, according to the Automotive News Research & Data Center. The number has declined in fits and starts since then, hitting a low of nearly 13.9 million in 2022 before bouncing back somewhat to 15.6 million in 2023. For the first nine months of 2024, 11.8 million new vehicles have been sold.
Below are highlights from the six public dealership groups and their declines in same-store gross profit per new-vehicle retailed.
Asbury
Asbury’s same-store gross profit per new vehicle through the first nine months of 2024 dropped 24 percent to $3,725. It fell 24 percent to $3,512 in the third quarter.
That was less than Asbury expected when compared with the second quarter, Dan Clara, Asbury’s senior vice president of operations, said in an Oct. 29 earnings call. In the second quarter, Asbury averaged $3,649 in same-store gross profit per new vehicle.
Asbury’s gross-profit performance could be attributed to its portfolio of brands, particularly Toyota and Lexus, CEO David Hult said on the earnings call. Those makes, which represented 29 percent of Asbury’s revenue, are high-margin vehicles with low days’ supply, he said. Hult also said the only domestic brands with a gross profit decline during the third quarter were from Stellantis.
Asbury, of Duluth, Ga., ranks No. 5 on Automotive News’ list of the top 150 dealership groups based in the U.S., retailing 149,509 new vehicles in 2023.
AutoNation
For AutoNation, same-store gross profit per new vehicle through Sept. 30 dropped 33 percent to $3,093. For the third quarter, it fell 30 percent year over year to $2,810. CFO Thomas Szlosek said the results were a more moderate decline than expected.
“We are encouraged by the relative stabilization,” Szlosek said during the company’s third-quarter earnings call Oct. 25.
Szlosek said revenue per new vehicle retailed dipped 2 percent during the quarter, while new-vehicle unit costs ticked 1 percent higher, contributing to the moderation of new-vehicle gross profit.
Szlosek was generally bullish about new-vehicle volumes, which he said “were a strong point during the quarter” and recovered well from the impact of the CDK Global cyberattacks June 19. He said new-vehicle sales increased 2 percent overallcompared with last year and also grew versus the previous quarter, “reflecting strong supply, better incentives and good performance by our commercial teams on a same-store basis.”
All segments improved, he said, including domestic brands.
Overall, new-vehicle inventory was 46,000 at the end of September, or a 52 days’ supply, versus 67 days at the end of June. The number is up from 44 days at the end of March.
AutoNation, of Fort Lauderdale, Fla., ranks No. 2 on Automotive News’ list of the top 150 dealership groups, retailing 244,546 new vehicles in 2023.
Group 1
Group 1 ’s same-store consolidated gross profit per new vehicle dropped 22 percent through the first nine months of 2024 to $3,533. The figure was down 19.5 percent to $3,449in the third quarter.
Global stop-sales on certain BMW and Lexus vehicles impacted sales during the quarter, the Houston auto retailer said.
Some of those stop-sales affected models with a higher-than-average gross profit per vehicle, Group 1 CFO Daniel McHenry said in a call with investors Oct. 30. The loss of those sales suppressed average gross profit per vehicle in the third quarter, McHenry said.
Group 1 ranks No. 4 on Automotive News’ list of the top 150 dealership groups, retailing 175,566 new vehicles in 2023.
Lithia
Lithia’s same-store gross profit per new vehicle dropped 28 percent to $3,331 through the the first three quarters of 2024. For the third quarter, it fell 27 percent year over year to $3,188.
“We are pleased by the ongoing strength in new GPUs,” CEO Bryan DeBoer said during an Oct. 23 earnings call. He said gross profit per vehicle is falling by $60 per month, and the company might have a “nice soft landing” over the next few quarters. Lithia in an investor presentation Oct. 23 predicted its stores would ultimately level out at $2,500 to $2,700 in gross profit per new vehicle on a same-store basis.
He said he hoped for a return to automakers offering a traditional amount of incentives instead of the lower level of sweeteners available today.
“That helps make the soft landing for retailers even a little bit better,” DeBoer said.
Lithia, of Medford, Ore., ranks No. 1 on Automotive News’ list of the top 150 dealership groups, retailing 314,116 new vehicles in 2023.
Penske
Penske’s overall same-store gross profit per new vehicle retailed through the first nine months was $5,176, down 15.5 percent. In the third quarter, it was $5,037, down 13 percent from a year earlier. CEO Roger Penske pointed out during the company’s Oct. 29 earnings call that the number, while a decline, is still higher than pre-COVID results.
“It remains nearly $2,000 higher than in 2019,” Penske said of the third-quarter figure, excluding its agency sales in the United Kingdom.
Rich Shearing, COO of North American operations for Penske, said the rate of gross profit decline has slowed, though consumers are still challenged by high vehicle prices.
The company said its new-vehicle transaction price, excluding agency sales, was $57,879 in the third quarter, 2.2 percent higher than the year before. Shearing said interest rate cuts should help trigger more sales and leasing in the U.S.
Penske Automotive ranks No. 3 on Automotive News’ list of the top 150 dealership groups, retailing 229,942 new vehicles in 2023.
Sonic
Sonic’s same-store gross profit per new vehicle retailed through Sept. 30 this year totaled $3,446, down 32 percent compared with the same time in 2023. The figure was $3,049 during the quarter, down 35 percent from a year earlier.
CEO David Smith said during the group’s Oct. 24 earnings call that the third-quarter drop was because of troubles “from electric vehicle sales compared to the second quarter, and also adverse effects from stop-sale orders on certain high-margin models.”
Sonic expects gross profit per new vehicle will stabilize in the $2,500 to $3,000range in 2025, something that Smith said will still be “structurally higher than it was prepandemic.”
Sonic, of Charlotte, N.C., ranks No. 6 on Automotive News’ list of the top 150 dealership groups, retailing 107,257 new vehicles in 2023.
Gail Kachadourian Howe, John Huetter, Paige Hodder and Julie Walker contributed to this report.
Source: Automotive News, November 7, 2024