The U.S. auto retail sector is coming off of a somewhat uneven third quarter. While new vehicle sales showed surprising strength, growing concerns in the used vehicle market dragged down the overall performance of publicly traded dealership groups. The Kerrigan Index™, a proprietary metric tracking the seven largest public auto retail companies, ended the quarter at 934, marking a 5.8 percent decline quarter over quarter and significantly underperforming the S&P 500’s 7.8 percent gain during the same period.
The index’s performance was heavily weighed down by the struggles of its sole used-only retailer, CarMax, highlights a growing divergence between the new and used car markets heading into the final stretch of the year.
A Tale of Two Markets
The third-quarter performance of the Kerrigan Index™ was a story of contrasts. While the overall index fell, four of the seven companies actually posted gains. AutoNation led with a 10.1 percent increase in its stock price, followed by Asbury Automotive Group at 2.5 percent, Penske Automotive Group at 1.2 percent, and Group 1 Automotive at 0.2 percent.
However, these gains were overshadowed by the significant drop in CarMax’s stock, which plummeted 32.6 percent in the quarter. This decline was accelerated by a weak earnings report in September, where the company missed revenue and profit expectations. CarMax also surprised investors by increasing its loan loss provisions, signaling a deterioration in the credit quality of its customers. The performance of Lithia & Driveway, down 6.5 percent and Sonic Automotive, down 4.8 percent, also contributed to the index’s overall decline.
Excluding CarMax, the new-car-focused public retailers were collectively flat for the quarter, posting a modest gain of 0.8 percent. While the used vehicle segment is not the only place seeing headwinds right now, in Q3 it was far more concentrated than in the new vehicle market.
Struggles in the Used Car Market
The struggles at CarMax are indicative of broader challenges facing the used car market. After reaching peak pricing three years ago, the market is now contending with rising interest rates and persistent inflation. This has strained the finances of many consumers, particularly in the subprime category.
This was underscored by the recent bankruptcy and liquidation of Tricolor Holdings, a used car dealer specializing in subprime auto loans. The company’s failure, along with Automotive Credit Corp pausing all originations, has amplified concerns about the stability of the subprime auto loan market. With these loans representing over 13 percent of all auto loans as recently as August 2025, any instability in this area could lead to tighter credit conditions across the entire industry.
New Car Sales Still a Bright Spot
In sharp contrast to the used market, new vehicle sales demonstrated remarkable strength in the third quarter. New car deliveries rose 5.6 percent year over year, driven in large part by the expiration of the $7,500 federal EV tax credit at the end of September. This deadline created a pull-forward effect, with consumers rushing to purchase eligible vehicles before the incentive disappeared.
As a result, EV sales accounted for 10.5 percent of all new car sales in the quarter, helping to push the seasonally adjusted annual rate (SAAR) to a strong 16.4 million in September. This rush demonstrated retailers’ ability to efficiently sell down their EV inventory ahead of a major policy change. However, it also raises questions about the future of EV demand.
“The training wheels are coming off,” said Stephanie Valdez Streaty, Director of Industry insights at Cox Automotive. “The federal tax credit was a key catalyst for EV adoption, and its expiration marks a pivotal moment.” Cox Automotive now forecasts a notable drop in EV sales through the first half of 2026, as the market must learn to thrive without the support of this key incentive.
A Optimistic Outlook for Year-End
Despite the quarterly decline, the outlook for auto dealers brightened as the quarter closed. Two major sources of uncertainty that weighed on the market earlier in the year have been reduced. First, the tariff situation has become clearer, with most light vehicle tariffs settling at 15 percent, a lower rate than initially feared. This has helped stabilize supply chains and restore some confidence among dealers and consumers.
“More tariffed products are replacing existing inventory, and prices are expected to be pushed higher as automakers pass along higher import costs,” said Charlie Chesbrough, senior economist at Cox Automotive. “Still, the market’s strength in Q3 has improved our overall outlook.”
Second, the Federal Reserve cut its benchmark interest rate by 25 basis points in September, marking the first rate reduction of the year. This move is expected to gradually improve financing affordability, though the full effects will unfold through the end of the year.
Public dealership groups also continued their aggressive acquisition strategies, with Asbury, AutoNation, Group 1, and Lithia all completing significant purchases in the quarter. So, while Q3 proved to be a small step back overall, plenty of dealers are still positioned to capitalize on what should be an improving market as they head into 2026.
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