Presidio’s latest quarterly publication highlights acceleration of profit decline

DENVER/ATLANTA — May 29, 2024 — Profitability for the average U.S. auto dealership remains well above pre-2020 levels, but the profit erosion from pandemic highs is accelerating to start the year, according to the findings of The Presidio Group LLC’s latest quarterly publication focused exclusively on automotive retail performance, technology and M&A trends. 

The latest edition of “Presidio Perspectives: A Quarterly Outlook on Auto Retail and M&A Trends” sums up the industry’s performance in the first quarter of 2024 and provides a glimpse into the ongoing normalization in the industry.

The report is the third release by The Presidio Group, an independent merchant banking firm focused on mergers and acquisitions, capital raising and investments in the automotive retail and consumer mobility sectors.

Net pretax profit for the average franchised store slid 32.4 percent in the first quarter of 2024 compared with the same period in 2023, according to the Presidio-NCM Average Dealership Performance Benchmark. The average store had posted a drop of 20.5 percent in last year’s first quarter, a rate of decline generally carried throughout 2023.

Despite the continued profit erosion, the average dealership’s net pretax profit in the first quarter was still around 1.8 times 2018’s level, according to a Presidio analysis.

The Presidio-NCM Average Dealership Performance Benchmark is based on aggregated financial results of more than 4,300 U.S. franchised dealerships of all brands and sizes that work with NCM Associates, which provides 20 groups, consulting and training to dealers across the country. The number of outlets contributing to the data represent nearly a quarter of all 18,000-plus dealerships in the U.S.

As Presidio examines data summarizing the first quarter of 2024, “it’s important to view those results through the lens of normalization,” said George Karolis, president of The Presidio Group. “The declines aren’t extreme. It’s the profits at the height of the pandemic that were extreme. They’re just normalizing now.”

During this time of change, dealers should be getting their businesses ready for whatever the new normal ends up being, NCM Associates CEO Paul Faletti said. 

“As vehicle gross margins and total store profitability ebb, it is crucial that dealers take a close look at every aspect of their operations to make sure they have the right cost structure, the right people and the right processes and practices,” Faletti said. “Having a strong playbook in place is how the best-performing dealership groups will ride out this normalization period.” 

Some other notable retail themes in the first-quarter report: 

  • Luxury stores remain more resilient overall to the downward pressure of normalization. Average gross profit per new vehicle for the luxury segment came in at a very healthy $5,589, albeit down from the average of $6,538 for all of 2023. 
  • Metrics on pre-owned operations are much closer to pre-pandemic levels of profit than the new-vehicle side, while expenses such as floorplan interest and marketing have increased, adding to profit pressures
  • While 2023 was clearly among the top three years on record for dealership transaction volume, the pace of deals appeared to slow from the frenzied volume seen in 2021 and 2022. The 2023 count is still subject to change as news of more deals trickles out. 

More than two-thirds of 285 dealers representing about 3,100 franchised dealerships who took the most recent PresidioDealer Direction Survey in January and February said they expect dealership profitability will decrease over the next 12 months. But while it’s not yet clear where profits and other key performance metrics will settle out, dealers and Presidio experts expect auto retailing to generally remain a profitable and robust business for the long term.  

Presidio’s third quarterly report also offers a robust look at the profitability and performance of public dealership groups; further analysis of M&A trends and outlook; auto retail technology trends; and an examination of disruptive forces at play in the industry. 

To download and read the report, go to: https://thepresidiogroup.com/news-insights/#quarterly-report

About The Presidio Group LLC 

The Presidio Group was founded in 1998 with the simple mission to relentlessly put the interests of our clients first. By steadfastly adhering to this philosophy, the firm has earned the trust of clients throughout the United States. During their careers, the professionals at Presidio have collectively done more than 275 transactions totaling approximately $18.5 billion. The Presidio Group is based in Denver and Atlanta. Presidio Merchant Partners LLC is a subsidiary of The Presidio Group LLC and is a member of FINRA and SIPC. For more information on Presidio, visit www.thepresidiogroup.com.

Contacts

Brodie Cobb
(720) 844-3151 
bcobb@thepresidiogroup.com

George Karolis
(678) 831-5520
gkarolis@thepresidiogroup.com