Most of 2025 has been an absolute rollercoaster for U.S. franchised auto dealerships. Every few weeks seems to bring a different form of upheaval that dealers must adapt to. Tariffs are here to stay, and the EV tax credit is officially gone. So, while profits are still in a good spot at the end of Q3, not all is positive as we enter the holiday season.
Overall profitability continued its upward trend, but the rate of growth slowed significantly, and key metrics like vehicle margins and departmental gross profit saw declines. This mixed performance, detailed in the Q3 2025 Presidio-NCM Average Dealership Performance Benchmark report, reveals an industry navigating tough year-over-year comparisons, and evolving consumer behavior.
Despite these challenges, the average dealership still demonstrated remarkable resilience, posting a 7.0 percent increase in net pretax profit compared to the third quarter of 2024. This continued growth reinforces a new, higher standard for dealership profitability in the post-pandemic era. However, a closer look at the data shows a more nuanced story, with performance varying significantly by brand and department.
Slowing Growth and Shifting Dynamics
The 7.0 percent profit gain in Q3 is still great for dealers, but it does mark a significant slowdown from the robust 27.1 percent increase seen in the second quarter. This deceleration appears to be shaped by two unusual, one-time factors. First, the industry was up against a tough comparison with Q3 2024, a period that saw inflated business due to the CDK Global system outage, which pushed some service and sales from June into July of that year.
Second, the expiration of federal EV tax credits at the end of September created a dramatic pull-ahead effect. Consumers rushed to purchase EVs, and dealers responded by increasing discounts to clear out inventory before the incentives disappeared. This surge in low-margin EV sales had a profound impact on departmental gross profits. The average gross profit per new vehicle fell 15.7 percent to $1,840, dropping below the $2,000 mark for the first time since 2020. Gross profit per used vehicle also dipped 9.2 percent to $1,666.
“Dealers moved a record number of EVs during the quarter, often by cutting prices and lowering profits to clear out inventory quickly before the tax credit expired,” said Kevin Tynan, Presidio’s director of research. “The uncertainty now is how demand and sales unfold in the quarters ahead — dealers will be closely watching the real-world interest in EVs and adjusting strategies as the market resets without the support of federal incentives.”
Quarterly Performance Varies by Brand Segment
Average dealership profit may be up, but it was not distributed evenly among dealerships. Domestic-brand dealerships were the standout performers, achieving a strong 14.7 percent increase in net pretax profit compared to the prior year. This robust growth is, in part, due to fewer issues with import tariffs.
In contrast, import-brand dealerships saw a much narrower gain of just 1.9 percent, while luxury-brand dealerships experienced a slight dip in profitability, down 0.1 percent. These variations underscore the importance of brand-specific strategies and market conditions.
“These results reinforce how resilient dealerships are, even with all the recent market shifts,” said George Karolis, president of The Presidio Group. “We’re seeing the industry’s average profitability normalize at a much higher level than before the pandemic. That said, it’s important to remember that outcomes still depend greatly on the brands a store represents and the region where they operate. Not every dealer shares the same experience, and local factors remain a big influence on results.”
Despite the varied results, the bigger picture shows that overall dealership earnings remain strong. The Presidio-NCM Average Dealership Profitability Index stood at 195 at the end of September. This indicates that the average store’s profit is nearly double its 2019 level, confirming that profitability has stabilized at a significantly higher baseline.
Fixed Ops and F&I Tell Different Stories
The fixed operations department, often the bedrock of dealership profitability, posted a surprising 8.6 percent decline in gross profit for the quarter. However, this figure is largely skewed by the tough comparison against the artificially strong third quarter of 2024, which was inflated by the resolution of the CDK outage.
A more telling measure is the year-to-date performance. For the first nine months of 2025, fixed-ops gross profit rose just 1.8 percent. While still positive, this much slower growth rate is a potential area of concern for dealers who rely on service for consistent earnings. This trend bears close watching in the coming quarters.
On a brighter note, the finance and insurance (F&I) department was a source of strength. Average F&I income per retail unit rose 6.9 percent year-over-year to $1,306. This gain, coupled with a significant 55.2 percent quarterly drop in floorplan interest expense, helped bolster the bottom line and offset some of the margin compression seen in the new and used vehicle departments.
Strategic Takeaways for a New Reality
As the auto retail industry moves forward, the Q3 results offer several key lessons. The volatility surrounding EV demand highlights the need for a measured and data-driven approach to inventory management. With federal subsidies gone, dealers must now gauge the market’s true, unsubsidized interest in electric vehicles and adjust their stocking strategies accordingly.
“Dealers who focus on managing costs, keeping accurate and timely data and adjusting inventory and pricing based on current demand will be in the best position,” said Paul Faletti, CEO of NCM Associates. “The market is still finding its footing on real demand for EVs, so it’s wise to take a measured approach, watch how customers respond and adjust stocking decisions as new trends emerge.”
The slowing growth in fixed operations also calls for a renewed focus on a critical department. Dealers should explore new strategies to drive service traffic and enhance customer retention to ensure this profit center remains strong.
While profitability remains historically high, the easy gains of the post-pandemic boom are over. Success in this new environment will depend on strategic agility, operational efficiency, and a deep understanding of local market dynamics.
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