The term “new normalization” has been used to describe the current environment for auto deanships after the drop-off from pandemic profit highs. But what does that normal look like in 2025?
According to The Presidio Year-End 2024 Dealer Direction Survey, respondents are optimistic about being more profitable following the conclusion of the 2024 election and expect parts and service to be the biggest driver of their businesses in the coming year. The reported detailed normalization of profits from pandemic highs could be approaching a tail end, and the new normal looks like it will be higher for many than pre-2020.
The survey reports 65 percent of dealers expect profitability to stay the same or improve in 2025. By contrast, just 37 percent of survey takers in Presidio’s midyear 2024 survey had the same expectation for the following 12 months. Respondents’ three-year outlook in the latest survey was more optimistic than both their current 12-month view and their three-year view from the prior survey.
Growth in Service Shops
The Presidio Dealer Direction Survey is conducted twice a year to provide a view into dealers’ outlook on profitability, valuations and the buy-sell market. The latest survey ran from Nov. 15 through Dec. 31, 2024 culled from responses of 175 dealers and top dealership group executives representing nearly 3,000 franchised stores.
About 85 percent of dealers selected parts and service as one of the biggest drivers of business expected for 2025. Repair volume and industry labor rates are up across the industry in recent years, and several survey takers reported expanding their parts-and-service businesses with expectations for further gains.
“We are preparing to grow our shops,” one dealer wrote.
Dealerships Value Growing
There was a more positive outlook on the valuations of their dealerships, as nearly two-thirds of dealers expect values to stay the same or improve over the next year, up from less than half in last summer’s survey.
As for why, the report quoted one dealer as stating “there will always be more buyers than sellers for the right brands in the right markets.
The outlook around buying and selling dealerships shifted slightly, with 65 percent now interested in buying compared with 69 percent in the summer. The share interested in selling rose, to 13 percent now from nine percent in the mid-year survey as dealers appear to be taking a more strategic, taking a more selective approach to M&A rather than pursuing growth for growth’s sake, according to the authors of the survey.
That taps into a key tenet the Presidio team is seeing in the marketplace: Brand and geography are more important than ever as the industry normalizes post pandemic. The profitability and value of dealerships representing top-ranking brands in great locations continues to be strong; struggling brands located in less desirable markets have largely experienced bigger declines in operational performance and value.
“With three different franchises, I have three different expectations,” a respondent wrote.
Trump Effect?
Dealers’ concern about inflation, interest rates, regulatory scrutiny and the chance of recession have eased with the election of Donald Trump. Just over 72 percent said they are more optimistic in the wake of the election and the Trump Administration change is expected to produce a more business-friendly climate.
Toyota and Lexus again topped the Presidio Brand Desirability Ranking. But Subaru’s rise continued, entering the top echelon for the first time at the three spot on the list and pushed Honda down to No. 4. Rounding out the top 10 in order were Porsche, BMW, Mercedes-Benz, Kia, Hyundai and Chevrolet.
“Seven brands have consistently led our ranking since we began surveying dealers in 2023,” said George Karolis, president of The Presidio Group. “These Magnificent Seven brands have maintained their dominance, even as the overall market has seen significant changes.”
Deals to be had for Nissan, Stellantis
The most recent ranking reinforced many of the dynamics the by Presidio dealership buysell team is seeing in the market: Top-tier Japanese makes are most desired by dealers, followed by elite German luxury brands and then South Korean brands. Stronger domestic brands such as Chevrolet and Ford rank near the middle of the pack.
The improvement by Subaru and the steadiness of Mercedes-Benz corresponds with interest levels among potential buyers observed by the Presidio team. Subaru’s ranking jump was the biggest among all brands.
Dealers’ views of Nissan and the Stellantis‘ American brands may have bottomed out. Presidio officials are hearing more neutrality and even the occasional positive outlook on these brands, due in part to Nissan’s possible tie-up with Honda and recent leadership changes at Stellantis.