After three years of decline, dealership profitability is finally on the rise again. In today’s episode of Inside Automotive, Keith Style, chief operating officer of The Presidio Group, discusses the Q1 2025 Presidio-NCM Average Dealership Performance Benchmark report results.
The Presidio-NCM Average Dealership Performance Benchmark report consists of data from roughly 4,000 dealers, representing approximately 20% to 25% of the U.S. dealership market. The report depicts a timely and comprehensive snapshot of the industry’s health, and the data is collected and released ahead of public companies to offer early insight.
Dealership profitability trend in Q1 2025
Dealership profitability rose 4% quarter-over-quarter, and several distinct factors have contributed to this turnaround.
New-vehicle gross profits have stabilized, and for the first quarter, they were down only 1%. In addition, dealerships are making excellent strides forward in fixed operations, with a 6% quarter-over-quarter increase.
As of 2024, fixed operations accounted for over 50% of the dealership’s gross profit. On average, dealers are also demonstrating more discipline in cost management, as there was an overall improvement in personnel, advertising and floorplan expenses.
Segmented brand performance
Style emphasizes that all brands aren’t created equally, and overall brand performance in the first quarter diverged by category.
Luxury brands’ gross profit hit an all-time low during the third quarter of 2024. However, they have rebounded, experiencing a surge in profitability and growing by 18%.
Mid-line imports bottomed out during Q4, but they’re experiencing a surge in profitability, rising by 6%.
Unfortunately, the domestics experienced a drop in profitability by 4% to 5% and had a decline in overall gross profit. Style explains the root cause as simple as Econ 101: supply and demand. Domestics are currently experiencing an oversupply of inventory, leading to lower gross profits.
Tariff-induced demand spike
New unit sales were relatively flat in January and February but surged 15% in March due to consumers rushing to the showroom in anticipation of auto import tariffs. This temporary boost significantly boosted the first-quarter figures.
The unexpected impact of supply constraints on profitability
A surprising aspect that Presidio’s Dealership Profitability Index revealed is that tight supply isn’t always bad for profitability. Oftentimes, dealers believe that if they don’t have cars, they can’t sell cars, which leads to them not being profitable.
Presidio benchmarked its Dealership Profitability Index to 2019 pre-pandemic profitability and found that profitability has moved. Between 2021 and 2022, profitability was up 300%. It’s leveled out and is now up 180% from 2019, revealing that dealerships, in general, are highly profitable despite inventory concerns.
New and used vehicle profits
Gross profits for new vehicles continue to decline but are showing signs of stabilizing. For Q1 2025, they dropped 20% quarter-over-quarter.
The overall gross profit per used vehicle increased by 1.3% to $1,400. However, The Presidio Group foresees significant challenges on the road ahead. Off-lease vehicle supply has halved from 5 million between 2018 and 2022 to 2.5 million units forecast. Combining the pricing pressures from tariffs and tightening the new car supply may drive up used car prices again.
M&A market outlook
The first quarter of the year saw fewer closings due to the uncertainty caused during the presidential election. Activity has rebounded, and The Presidio Group forecasts a strong 2025 for dealership M&A as dealers become more strategic and opportunistic in pursuing attractive assets.
Style reveals that the hottest franchises in demand currently are Mercedes-Benz, Subaru, Porsche and Toyota.
He reveals that there will likely be increased M&A activity among public companies in 2025 as they continue to increase their cash flow, grow their balance sheets, and increase their abilities to borrow.
Looking forward to the rest of 2025
Style believes that 2025 will be an outstanding year filled with incredible opportunities and growth for the industry. While the tariff situation and political volatility have created uncertainty, he anticipates this issue will eventually stabilize. He advises the dealer community to remain focused on fixed operations and identify areas within their business to increase profitability. One promising area that dealers should consider exploring is mobile service.
In addition, recalls will prove to be another significant source of revenue. Approximately 70 million vehicles on American roads have open recalls, representing a service revenue potential of $50 billion.
“There's one thing I know from this industry… never undermine or discount the entrepreneurial spirit of the dealer body. They always figure it out, and this will be the same case.” – Keith Style
