Public dealer groups see profitability headwinds in Q2

Public dealership groups saw better revenues during the second quarter thanks to higher sales volume. Profitability, on the other hand, is taking a considerable hit.

Big picture: Big dealer groups recorded strong revenues throughout the quarter, even setting new records in some cases.

• Lithia did very well this quarter. It generated $9.2 billion in revenue, up 14%, and saw a net income of $216 million, down 28%. The company acquired the U.K.-based Pendragon group, earlier this year, adding to its earnings potential.

• Asbury’s revenue was drastically improved this year, hitting $2.16 billion. However, its net income took one of the steepest dives we’ve seen this year, falling 86% to $28.1 million.

• Penske’s revenue defied the odds as well, rising 3.1% to hit $7.7 billion in Q2. Profits, however, were still down roughly 20%, resting at $242.9 million.

• Group 1 posted revenues of $4.7 billion, also up 3%, setting a new Q2 record. Net income was $138.2 million, down 19%.

• AutoNation had one of the weakest performances in this year’s roundup, earning roughly $6.5 billion in revenue, down 6% from last year, and $130 million in net income, down a staggering 52%.

Driving the news: What drove these shifts in performance? Why did some automakers, like AutoNation, see big drop offs in profits while others are holding out?

• Sales and pricing: Most dealer groups saw higher sales this year, driven by more affordability. Yet, while cars are getting cheaper, that doesn’t explain the profit declines we’re seeing. In June the average new vehicle transaction price was down only 0.6% from 2023.

• CDK Global: Virtually all of the big dealership groups were hit in some way by the CDK Global cyberattack. That being said, some companies used the platform less, resulting in some uneven effects.

• Inventory and interest rates: This is the big one. Banks are charging more to finance loans and dealers are taking on more inventory, driving up floorplan costs. For instance, Penske reported a 51% jump in floorplan costs, and Group 1 saw a 60% increase.

Bottom line: What we’re seeing is the cost of business escalating for dealerships and offsetting gains in other areas. This isn’t necessarily a bad thing, although it can seem that way compared to recent years. While profits might not be as healthy, demand isn’t fluctuating as much as it was. That means dealers can anticipate the market better and make operational improvements to keep their finances balanced.

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