Dealer profitability continued its recovery in the second quarter of 2025, bolstered by new-vehicle sales, higher-margin business segments, and a resurgence of mergers and acquisitions (M&A), according to the Presidio Q2 2025 Quarterly Report.
The report revealed that dealership transactions picked up significantly in Q2 after a slow start to the year, with 208 buy-sell transactions involving 285 stores recorded in the first half of 2025. This matches 2024’s first-half transaction volume but reflects fewer stores changing hands due to a stronger focus on high-value acquisitions rather than pursuing sheer volume.
“We continue to operate in a seller’s market, with active buyers widely outnumbering the volume of opportunities,” said George Karolis, president of The Presidio Group. “We are seeing more of a flight to quality with buyers targeting top brands in large metro markets.”
Profitability Climbs
The Presidio-NCM Average Dealership Profitability Index—a benchmark measuring average pre-tax profitability—reached a milestone score of 200 at the end of Q2, doubling pre-pandemic profit levels from 2019 and improving from 180 in Q1 2025. This increase marked the first sequential quarterly gain in new-vehicle gross margins since their peak in 2022.
“Dealers are demonstrating their ability to drive earnings growth through their higher-margin business lines,” Karolis said. “This new level of equilibrium is driving positivity in the M&A market.”
Public dealership groups also saw a 17.7 percent collective rise in adjusted net income during the quarter, with new-vehicle sales supported by consumer demand ahead of potential tariff-related price increases. Gains stemmed not only from new vehicles but also from robust performance in used vehicles, finance and insurance (F&I), and fixed operations (parts and service). The profitability rebound was also seen across all segments—luxury (+31.7%), import (+33.9%), and domestic (+23.5%)—a rare three-way positive shift not observed since the pandemic.
M&A Activity Resurgent
M&A activity surged in the second quarter, with transactions prioritizing premium brands and stores located in growing metropolitan areas. Transaction highlights included a $1.45 billion acquisition of 33 Herb Chambers dealerships by Asbury Automotive Group and Lithia Motors’ steady expansion into the Southeast and South-Central U.S. Private dealership groups accounted for 96 percent of the buy-sell market in the first half of 2025, although public groups were increasingly active, representing the largest share of public transactions since 2022.
“After a slow first quarter tied to the uncertainty around the 2024 election, activity has picked up significantly. With the new-vehicle business stabilizing and clarity on U.S. tariffs emerging, dealership M&A prospects are strong,” said Karolis. “Presidio closed six transactions from early June through early August, and our pipeline of pending deals is at an all-time high.”
What’s motivating buyers? Karolis underscored the “flight to quality”: leaders are zeroing in on top-performing brands and large-market dealerships, with Florida and Texas surfacing as especially coveted locations. The Presidio Midyear 2025 Dealer Direction Survey found 60 percent of dealers listed the Southeast as the most desirable region for expansion, followed by the Southwest at 40 percent. Booming populations, business-friendly regulations, and absence of state income tax are driving demand for Sun Belt store acquisitions, pushing premiums on valuations.
Conversely, while higher-tax regions such as the Northeast and West present added costs, dense vehicle populations still support strong operations, and states like California remain among the top for transaction counts. Interestingly, the Midwest, buoyed by business-friendly environments, now sits in third place for dealer interest in expansion.
Brand Performance and Valuation
Dealership valuations were further shaped by brand performance and blue-sky multiple adjustments. Presidio’s valuation index, updated for Q2, shows top Asian brands (Toyota, Lexus, Honda, Subaru) maintaining dominance in desirability rankings. However, this quarter’s regulatory and tariff shifts have altered the landscape for foreign luxury brands.
Tariff exposure drove a reduction in blue-sky multiples for Porsche (down 50 basis points to 8.5x–9.5x) and Audi (down 25 basis points to 6.0x–6.75x), reflecting challenges around U.S. import exposure and tight inventory. By contrast, Mercedes-Benz saw multiples raised to 8.0x–9.25x, due in part to a greater U.S. manufacturing presence and renewed dealer enthusiasm. Cadillac, Chevrolet, and Buick-GMC also received bumps, reflecting positive dealer sentiment, rising inventories, and robust sales gains. Cadillac was up 16.5 percent in volume in the first half and Chevrolet increasing sales by 9.6 percent.
Profitability Details: Departmental Analysis
Delving deeper into operational benchmarks, the Presidio-NCM data presents strong gains across key dealership departments:
- Average dealership revenue climbed 8 percent to $22 million in Q2, with new-vehicle volume up 8.3 percent and used-vehicle volume up 3.7 percent year over year.
- Gross profit per new vehicle retailed rebounded to $2,128 (up 6.1 percent from Q1), ending a period of sequential decline.
- Used-vehicle gross profit per unit reached $1,567, a 10.7 percent year-over-year gain, attributed to ongoing supply-demand tightness and dealer discipline in inventory management.
- F&I income per retail unit rose 5.6 percent, reaching $1,688, as customers continued to finance higher-value transactions.
- Parts and service gross profit increased by 6.2 percent, sustaining its critical role in dealership financial health.
Tariffs and EV Policies Shape the Landscape
The report also explored the impact of shifting U.S. trade and electric vehicle (EV) policies. Automakers have absorbed most of the cost increases stemming from new tariffs but expect these costs to eventually pass on to consumers, further pressuring vehicle affordability. GM, for example, projects a $4–5 billion earnings hit in 2025 due to tariffs, costs not likely to be contained within manufacturer margins indefinitely.
Meanwhile, the rapid winding down of federal EV tax credits, combined with a rollback in zero-emission targets, has forced dealers to re-examine electrification investments. Some are paring back EV inventory ahead of the September 30 tax credit cutoff, while others are focusing resources on combustion-engine vehicles and high-turn inventory.
“Now that the federal subsidies are vanishing, we’ve slowed our ordering of EVs given the uncertainty around pricing and incentive support,” Mike Maroone, a dealer with stores in Florida and Colorado said. “Our EV sales today have limited, if any, profitability. We are working aggressively to minimize inventory until we get more clarity on customer demand and OEM support.”
The report notes that 42 percent of planned BEV product programs have already been canceled and warns of a coming “product void” affecting both EVs and ICE vehicles over the next several years. Dealers have invested heavily in new infrastructure, such as charging stations, service bays and showrooms, may see it now go underutilized.
Dealer Sentiment Turns Optimistic
Despite these headwinds, dealer sentiment remained optimistic, with 72 percent of survey respondents in Presidio’s Midyear 2025 Dealer Direction Survey predicting steady or improved profitability over the next 12 months up from 65 percent at year-end 2024. Respondents highlighted consolidation opportunities and the resilience of high-margin operational segments as sources of confidence. Only nine percent of respondents have plans to sell a store in the next year, while nearly two-thirds are eager to buy
Still, dealers remain vigilant about unpredictability around tariffs, regulatory change, and consumer affordability. Adapting operational discipline—managing expenses, optimizing inventory, and investing strategically in technology and high-margin business lines—will be essential for the remainder of 2025.
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