Presented by:
Hey everyone,
As a reminder… You can bookmark CDG's Dealership Buy/Sell Tracker to stay in the know on all things merger- and acquisition-related.
Have a great week!
— CDG
Margins keep coming up when dealers visit our Daily Dealer Live show, and third-quarter numbers are showing just how tight things have gotten.
What we’re seeing: The average dealership’s net pretax profit fell 9.9% from a year earlier, according to the latest Presidio-NCM Average Dealership Performance Benchmark, which tracks more than 4,000 franchised stores.
New-vehicle gross per unit also slid for a fifth straight quarter, even though dealers spent more on advertising.
So… We put the report next to what dealers have been telling us and pulled out three truths about operating in a tight-margin market.
Increased ad spend isn’t guaranteeing increased sales.
Advertising expense rose 5.0% in Q3, and ad cost per vehicle sold climbed 6.3% to about $411, according to the Presidio-NCM report.
But the report found that new-vehicle volume fell 1.8%, and used fell 0.7%.
Part of that is a tough comparison, the report noted, since Q3 2025 volume spiked thanks to buyers rushing to buy before the federal EV tax credit expired on Sept. 30, 2025.
Still, Kevin Tynan, director of research at The Presidio Group, called it “a notable development” that dealers “spent more to sell and still sold fewer vehicles.”
“Discounting, incentives and advertising are no longer buying volume the way they were,” Tynan said in the report.
Kevin Tynan
The Presidio Group
On Presidio’s related Drive-In Live webinar, Tynan said he wonders whether that’s simply inflation or money going to the wrong places.
“…I would think we have the software and the tools, or at least the dealers do, to focus that advertising a little bit more and get better results from it,” he shared during the webinar.
Put it in play: Tynan’s point is to lean on the targeting tools dealers already have to focus ad spend, rather than just spending more.
A quick word from our partner
Every dealer feels it: leads are coming in, but closing them is getting harder.
Podium's AI fixes that. Its agent, Jerry, works every lead until the appointment is booked, sending walkaround videos of the actual car and re-engaging shoppers when a price drops or a new incentive hits.
1 in 4 dealerships use Podium, converting leads 40% above industry average.
Buying more leads won't fix a follow-up problem. Agentic workflows can.
Service departments are (still) carrying the store.
Fixed ops gross profit rose 5%, making up 54.2% of total dealership gross, up from 52.0% a year earlier, according to the report.
What’s driving it:
Warranty repair orders jumped 20.5%, rising in every brand segment.
Customer-pay repair orders dipped 1.0%, while revenue per customer-pay repair order rose 7.1%.
In other words, fewer customers pay out of pocket, but each one spends more.
(F&I is helping, too. Income per vehicle sold rose 3.5% to $1,738, according to the report, though it slipped 1.4% from the second quarter.)
Tynan expects the warranty work to stick. “Warranty and recall work in my mind are not going anywhere,” Tynan said on Presidio’s webinar.
He also noted on the webinar that dealers have a fixed number of bays and techs, so they’re steering the highest-paying jobs to them.
That said: Scoring customer-pay work with steep discounts can backfire, Damon Egan, service director of Sherwood Ford in Alberta, Canada, said on an Oct. 16 episode of Daily Dealer Live.
He said local Ford stores tend to drop to “the lowest common denominator” to compete.
“…Once you start giving that 10 or 15% discount, that is critically hurting your margins,” Egan said.
Damon Egan
Sherwood Ford
Others are adding capacity instead.
Michael Meisinger, CEO of Mauer Auto Group in Minnesota, said on an Oct. 19 episode that hiring technicians has been the biggest driver of his service growth.
His group has also leaned into mobile service. Asked about concerns that it keeps customers out of the store, Meisinger said it does the opposite.
“…We’re giving back their time and they see the value of that and when we do see a recommendation, they follow through with it and they say yes and they bring their car back, or we bring it back for them,” Meisinger said.
Michael Meisinger
Mauer Auto Group
How Mauer has built it out, according to Meisinger:
Mobile service grew from one unit to four, three of them now operating, in about a year.
The work mobile techs find in the field is part of the gross profit coming back to the dealership, he said.
Point being: Egan’s store found its money by not discounting, while Meisinger’s group grew by adding techs and mobile units.
Cost cuts are only paying off when they don’t cost volume.
Floorplan interest expense fell 35.8% in Q3 on lower rates and faster turns, according to the report, though that relief may fade after the Fed’s September rate increase.
Meanwhile, inventory is building at some automakers.
Industry supply was about 56 days in early October, according to Presidio’s webinar.
Tynan said on the webinar that some automakers were “a little bit heavy on inventory” heading into the new model year, and the push to clear it “rings the sales bell, not the profit bell.”
Margins keep sliding, the report said, especially at domestic stores. New gross per unit fell 18.8% to $1,281 at domestic-brand stores and 11.3% to $1,363 at import stores. Luxury stores rose 4.4% to $5,193.
With gross hard to grow, Tynan said the lever is costs.
“…you are going to be able to control your operating profit and your net profit a little bit more, and I think that’s where dealers have to focus,” he said.
Cut with care: Kip Miles, director of automotive operations at Tom Wood Group in Indianapolis, said on an Oct. 26 Daily Dealer Live episode that his group leaned too hard on expenses in Q4 last year.
“So, our profitability was actually OK in Q4, but we lost a lot of ground in volume, especially new cars,” Miles said.
Kip Miles
Tom Wood Group
The group went back on offense in February, he said, and its new and used volumes are both up this year.
One change: Tracking trade-in rates down to the individual salesperson, which lifted the group’s trade-in rate from 42% two years ago to a projected 54%-plus this year, he said.
On the flip side, other dealers are trading inventory.
Benjamin Cartaya, general manager of Kunes Hyundai of Sycamore, Ill., said on a Nov. 4 Daily Dealer Live episode that his store has a lot manager who trades with other dealers all day long.
He found his store had 150 days’ supply of Tucson hybrids, which don’t sell in his market, so he swaps them for Elantras, which do sell.
“…We stocked a lot of cars that we don’t sell in Sycamore,” Cartaya said. “So our day supply was all wonky on the inventory.”
Benjamin Cartaya
Kunes Hyundai
Bottom line: Profit is still “materially above pre-pandemic levels,” and Q4 sets an easier bar, according to the report.
The test is whether dealers can “rein in expenses and build sales momentum without sacrificing additional front-end gross profit.”
