A recent review of auto dealerships found that while profitability for the average U.S. auto dealership remains well above pre-2020 levels, the profit erosion from pandemic highs accelerated to start the year.
The findings are part of Presidio Perspectives: A Quarterly Outlook on Auto Retail and M&A Trend, the latest quarterly publication focused exclusively on automotive retail performance, technology and M&A trends. The report sums up the industry’s performance in the first quarter of 2024 and provides a glimpse into the ongoing normalization in the industry post-pandemic
According to the Presidio-NCM Average Dealership Performance Benchmark, net pretax profit for the average franchised store slid 32.4 percent in the first quarter of 2024 compared with the same period in 2023 The average store had posted a drop of 20.5 percent in last year’s first quarter, a rate of decline generally carried throughout 2023.
Profits Above 2018 Levels
Despite the continued profit erosion, the average dealership’s net pretax profit in the first quarter was still around 1.8 times 2018’s level, according to a Presidio analysis.
George Karolis, president of The Presidio Group, notes that while digesting the data summarizing the first quarter of 2024, “it’s important to view those results through the lens of normalization. The declines aren’t extreme.
“It’s the profits at the height of the pandemic that were extreme. They’re just normalizing now.”
The Presidio-NCM Benchmark is based on aggregated financial results of more than 4,300 U.S. franchised dealerships of all brands and sizes that work with NCM Associates, which provides 20 groups, consulting and training to dealers across the country. The number of outlets contributing to the data represent nearly a quarter of all 18,000-plus dealerships in the U.S.
Inside the Numbers
According to the report, the average gross margin per new vehicle retailed slid sharply by 31.8 percent to $2,524. That gross, however, is still well above the $1,300 to $1,500 typically recorded in the years leading up to the pandemic.
The domestic segment posted the next best gross profit per new vehicle, averaging $2,278. That was down from an average of $3,132 for all of 2023. The average import- brand store recorded a per-new vehicle gross profit of $1,940, down from $2,694 for all of 2023.
The Presidio Brand Desirability Ranking is determined by survey takers who rate the desirability of owning dealerships representing specific brands. Toyota and Lexus continued to hold the top two spots in the most recent ranking. Honda and Subaru made significant gains near the top of the ranking with Honda at No. 3, up four spots, and Subaru at No. 4, up two spots.
Luxury Market Remains Strong
Some other notable retail themes in the first-quarter report:
- Luxury stores remain more resilient overall to the downward pressure of normalization. Average gross profit per new vehicle for the luxury segment came in at a very healthy $5,589, albeit down from the average of $6,538 for all of 2023.
- Metrics on pre-owned operations are much closer to pre-pandemic levels of profit than the new-vehicle side, while expenses such as floorplan interest and marketing have increased, adding to profit pressures
- While 2023 was clearly among the top three years on record for dealership transaction volume, the pace of deals appeared to slow from the frenzied volume seen in 2021 and 2022. The 2023 count is still subject to change as news of more deals trickles out.
More than two-thirds of 285 dealers representing about 3,100 franchised dealerships who took the most recent Presidio Dealer Direction Survey in January and February said they expect dealership profitability will decrease over the next 12 months.
Prepare for a New Normal
But while it’s not yet clear where profits and other key performance metrics will settle out, dealers and Presidio experts expect auto retailing to generally remain a profitable and robust business for the long term.
During this time of change, dealers should be getting their businesses ready for whatever the new normal ends up being, NCM Associates CEO Paul Faletti said in a press statement with the release.
“As vehicle gross margins and total store profitability ebb, it is crucial that dealers take a close look at every aspect of their operations to make sure they have the right cost structure, the right people and the right processes and practices,” Faletti said. “Having a strong playbook in place is how the best-performing dealership groups will ride out this normalization period.”
The Presidio Group is an independent merchant banking firm focused on mergers and acquisitions, capital raising and investments in the automotive retail and consumer mobility sectors.
