Q2 new-car gross profits drop for 6 public auto dealers

Five of the six major publicly traded franchised dealership groups reported double-digit percentage declines on new-vehicle gross profits during the second quarter, as inventories grew and rising interest rates cut into shoppers’ buying power. That came as all of the publics except Asbury Automotive Group Inc. posted new-vehicle sales gains in the quarter.

The six publics — Penske Automotive Group Inc., Sonic Automotive Inc., Asbury, Group 1 Automotive Inc., Lithia Motors Inc. and AutoNation Inc. — collectively averaged about $5,000 in profit on each new vehicle sold during the second quarter, compared with about $2,000 in the second quarter of 2019, before COVID-19 disrupted the industry in 2020.

All of the publics except Sonic also experienced year-over-year drops in second-quarter gross profit per used vehicle, but the group’s combined average profit of about $2,000 was about $500 higher than the average in the second quarter of 2019.

Today’s new-vehicle profits are likely to fall further, analysts expect, though auto retailer CEOs predict the “new normal” gross on each new vehicle is likely to remain above pre-pandemic levels.

“It will be inversely related with inventory,” Stephens analyst Daniel Imbro said of the rate that gross profit would fall on new vehicles. Stephens projects gross profit per new vehicle at the end of 2024 will remain a few hundred dollars higher than pre-pandemic amounts.

“At least for the near term, it feels like the backdrop is much better than feared,” he said.

Jefferies analyst Bret Jordan said he expects a decline in new-vehicle gross profits will accelerate at the end of 2023, with profits dipping below $3,000 by the end of 2024. Rebounding supply and affordability issues posed by higher interest rates and the economy will continue to push figures down, he said.