Reports: Dealership profits will fall, but dealers still optimistic about 2025

Dealership profits are expected to fall in 2025 — but franchise dealers are still bullish on what’s ahead this year.

That’s one finding of a pair of reports issued this month by buy-sell advisory firms based on survey data and projections for the coming 12 months.

The 2024 Kerrigan Dealer Survey, a survey of more than 635 franchise dealers conducted by Kerrigan Advisors late last year, found an equal number (43%) believe their profits will sink and remain flat in 2025, while just 14% expect their profits to grow from the previous year.

That said, a majority of those dealers (51%) said their dealerships’ valuation will remain at their current high level and another 17% are expecting their valuation to increase. Kerrigan said that continued optimism is likely driven by the normalization of dealership profits experienced by many franchises in 2024.

Haig Partners’ 2025 auto retail outlook report also said profits are expected to decline this year from 2024, when average dealership profits were about twice those before the COVID pandemic, as new-vehicle profits fall and expenses rise. Even so, the report projected average profits will remain at least 50% higher than 2019 levels due to stronger fixed operations and F&I performance.

The same will hold true for dealership blue-sky values, the report predicted, with values down slightly but still 50% higher than before the pandemic.

Haig said dealers and investors are optimistic about 2025 because of the outcome of the presidential election, noting the average U.S. auto retail stock rose 9% from Nov. 1 to Dec. 31, a sharper increase than S&P 500’s 3% bump.

According to the Haig report, dealers entered the new year with high confidence that business conditions will improve, expecting the incoming administration’s pro-business stances and easing of electric vehicle mandates to offset potential trade tariffs for a net positive effect.

Of course, there are nuances to the numbers. For example, Kerrigan’s survey showed the percentage of dealers expecting lower profits rising from the 2024 survey, while those expecting the same or rising bottom line were both down. The same was true for dealership valuations.

Dealers also displayed some pessimism regarding EVs, with 68% of respondents saying they see EVs negatively impacting their profitability in 2025 — the only area of the dealership with a majority negative expectation — while 48% said OEM-required investments in real estate and property are likely to be a drain on their financial performance.

On the other hand, 73% expect hybrid new-vehicle sales to boost earnings, followed on the positive side by parts and service (75%), used-car sales (52%) and sales of new gas-powered vehicles (51%).

The survey’s results point to another busy year for dealership buy-sell activity, with 49% of respondents indicating they expect to add one or more dealerships in 2025, up two percentage points year-over-year, and 7% intending to sell one or more locations, up from 6% the previous year — reflecting the slight increase in dealers with a negative outlook on profits and valuations. The 44% that expect no change in their number of dealerships is down from 47%.

“Despite a moderation in profits, auto dealer sentiment remains upbeat on 2025’s valuations, directly impacting acquisition activity in the coming year,” Kerrigan Advisors founder and managing director Erin Kerrigan said. “As the survey reveals, compared to last year, more dealers are expecting an increase in overall buy-sell activity, with more anticipating adding one or more dealerships to their portfolio in 2025. That aligns with the industry’s view that scale will be crucial in the evolving auto retail landscape, prompting enterprises to either expand or sell as consolidation continues.”

The Haig report said consolidators have confidence and “substantial liquidity” to drive acquisitions, noting “many have been waiting for prices to fall, but due to strong earnings, dealership values will remain well above 2019 levels.”

Haig projects some 450 dealerships will change hands in 2025, down about 10% from its estimate of 500 transactions in 2024 — 90% of which were acquisitions by privately-owned dealerships.

“We are bullish on 2025,” Haig Partners president Alan Haig said. “Many dealers we have spoken with reported a very strong Q4 2024, and they are interested in growing their companies through acquisitions.

“Top brands will continue to be highly valuable, while challenged brands will provide many opportunities for buyers who focus on value. Auto retail still provides a higher return on invested capital than just about any other industry we can identify.”

Those top brands are led by Toyota/Lexus, which led all automakers in percentage of dealers expecting its valuation to rise this year. Toyota also led the poll of dealers as the most trusted OEM — 83% reported a “high level of trust” — and as the franchise they most want to add to their portfolio in 2025 at 45%, followed by Honda, which improved 14 percentage points year-over-year to 31%, Subaru (27%), Kia (24%), Chevrolet (23%), Ford (22%) and Hyundai (21%).

“Toyota and Lexus are by far the most requested brands in our buyer database and in this year’s survey,” Kerrigan Advisors managing director Ryan Kerrigan said. “The measured approach the OEM takes to network size, EV strategy and inventory management are highly attractive to dealers today. Dealers are seeking to invest in franchises they trust, and Toyota and Lexus continue to reign supreme in that category.”

The “challenged” brands include those from Stellantis — Chrysler, Dodge, Jeep and RAM — which 76% of dealers predicted will lose value, Volkswagen, which was last among non-luxury franchises dealer are seeking to own at 6%, and Infiniti, which ranked above only Stellantis in level of distrust (59%) and expected valuation decline (67%), and tied with Lincoln for last in franchises dealers want to add (3%).

Nissan was also near the bottom in all categories, and its 58% “no trust” responses joined Stellantis (72%), Infiniti (59%) and Lincoln (53%) with more than 50% – all breaking than the survey’s previous record of 48%.

“A significant number of dealers will look to acquire dealerships in the year to come, indicating a positive industry outlook overall,” Ryan Kerrigan said. “Nevertheless, dealers have distinctly varying views on specific franchises, with certain OEMs eliciting a lack of trust and confidence, while others earn a high level of trust and strong profit expectations.

“Based on those results, Kerrigan Advisors believes 2025 will be a robust year for buy-sell activity with buyers seeking the most trusted brands and continuing to divest of those they find more challenging.”