Average Dealership Profits Decline 23% - But Still Double That of 2019!

We estimate the average public company-owned auto dealership made $5.0M of pre-tax income in 2023, a 23% decrease from the year before. The performance of stores owned by private dealers likely had the same outcome in 2023 on an overall basis, although we expect there would have been much more variation amongst the dealers.

For instance, a dealer that owns a single Toyota store might not have seen any decline at all, as compared to the owner of a single Stellantis store that could have seen their profits shrink all the way back to 2019 levels or even worse.

In 2024, we predict another year of double-digit declines in profit for the industry. Dealers tell us they are concerned that new vehicle gross profits will likely fall further, at the same time that floorplan and advertising expenses will increase. These are the opposite conditions that we enjoyed from 2020 to 2023. Despite these declines, the current level of profits is still elevated compared to pre-pandemic times. The pre-tax profit for the average publicly traded dealership in Q4 2023 was $1.0M, which is 31% below Q4 2022 but 78% higher than the average profit in Q4 2019, just before the pandemic hit.

One way that we see some dealers working to maintain their profits is through their acquisition strategies. Some buyers are increasingly focused on higher quality franchises, particularly Toyota, Lexus and BMW. And some dealers are working to divest dealerships that they believe will struggle in the future. Divestitures free up cash and management talent and allow dealers to focus on larger and more profitable dealerships. Why fight to make another $100K at a store that is struggling, when the same effort could yield you $500K at another dealership? Why continue to put talent into a location that will provide little to no profit? Portfolio management is an important aspect of owning a group of dealerships. We have written before that as dealers grow, they evolve from being operators to being investors.

For more about dealership profits or trends impacting dealership values, download the Q4 2023 Haig Report?.

If you are interested in diversifying your group through acquisitions or fueling growth through divestitures, please contact me or any member of our team. We frequently discuss both growth and exit strategies with clients around the nation, and it would be our pleasure to learn about your goals and how we can help you maximize the value of your life's work.