Dealership Profits Continue to Decline: What This Means

Source: The Q3 2024 Haig Report?

In Q3 2024, the automotive retail industry continued to grapple with declining profits. Publicly owned dealerships reported an average pre-tax income of $1.0M per store, representing a 7% decrease from Q2 2024. When viewed over the last twelve months (LTM), the picture becomes even clearer: average pre-tax income fell to $4.1M per store—a 22.8% drop compared to the same period in 2023.

Since the record-breaking profits of 2022, the average pre-tax income of publicly owned dealerships has dropped by 35.5%. While this decline has slowed in Q3 2024 compared to the earlier quarters of the year, many dealers are beginning to ask critical questions about the future of their businesses. If you’re considering selling your dealership, these trends should prompt you to explore what your business might be worth in today’s evolving market.

Why Are Dealership Profits Declining?

The reasons behind the contraction in dealership profits are multifaceted:

1. Normalizing Market Conditions: The post-pandemic auto sales and profits boom has largely subsided. While some franchises have maintained stronger profit margins, others are experiencing sharper declines.
2. Consumer Behavior: The average age of vehicles on U.S. roads is at a record high, as many consumers have delayed upgrading their vehicles. However, this trend suggests a potential rebound in new vehicle sales as aging cars inevitably need replacing.
3. Economic Pressure: Rising interest rates, tighter lending standards, and persistent inflation have added pressure on consumer spending, further softening demand for new vehicles.

Despite these challenges, it’s important to note that current profits remain 100% higher than pre-pandemic levels in Q3 2019. This resilience highlights the unique value of dealerships, even in a challenging environment.

What Does This Mean for Your Dealership’s Value?

For dealership owners contemplating a sale, understanding the current valuation landscape is crucial. While average profits have declined, they are still significantly higher than pre-pandemic levels, making this an opportune moment to evaluate your business's worth. Additionally:

• Franchise-Specific Performance: Some franchises have been less affected by profit declines than others, and buyers are keenly aware of these dynamics.
• Regional Variability: Market conditions differ by location, influencing demand and valuation significantly.
• Future Growth Potential: Savvy buyers are looking for dealerships with strong market share and growth potential in regions poised for economic recovery.

The reality is that a one-size-fits-all approach to valuation doesn’t work. Each dealership is unique, and understanding the nuances of your specific business is essential to securing the best outcome in a sale.

The Time to Act Is Now

While Q3 2024 shows signs of stabilization in profit declines, uncertainty remains about when and how the market will recover. For many dealership owners, now is the ideal time to assess their options and prepare for the future. By understanding your dealership’s true value, you can make informed decisions that protect your legacy and maximize your returns.

If you’re curious about what your dealership might be worth or want to explore the sales process further, contact a team member at Haig Partners today. Let’s discuss how we can help you navigate these uncertain times and secure a brighter future for your business.

Read more in The Q3 2024 Haig Report?.

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