The Presidio Group Q4 Report: Dealer Profit Erosion, Falling Store Valuations

Presidio’s latest quarterly publication highlights acceleration of Great Normalization

Financial performance of the average U.S. auto dealership is declining and certain store values are under pressure as normalization from the industry’s pandemic-era highs continues, according to the findings of The Presidio Group’s latest quarterly publication focused exclusively on automotive retail performance, technology and M&A trends.

The Q4 2023 edition of “Presidio Perspectives: A Quarterly Outlook on Auto Retail and M&A Trends” sums up the industry’s performance in 2023 and provides an outlook on trends happening in 2024. It follows December’s release of the inaugural version of the report 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.

Presidio’s debut report highlighted a new short-term era dubbed the Great Normalization — the retreat of record profitability that occurred during the peak of the coronavirus pandemic. Presidio’s newest report details how macroeconomic, OEM and consumer trends are impacting the outlook for the retail automotive industry.

Key data about the average U.S. dealership’s performance comes from the exclusive Presidio-NCM Average Dealership Performance Benchmark and underscores the normalization trends happening in the industry. In the Presidio-NCM benchmark’s first full-year results, the average U.S. dealership saw additional profit declines as 2023 ended, with the average franchised store posting a 20.4 percent decline in net pretax profit for all of 2023, an acceleration from the 19.5 percent drop recorded through the first nine months of the year.

The report is based on aggregated financial results of 4,000-plus U.S. franchised dealerships of all brands and sizes that work with NCM Associates, a provider of 20 groups, consulting and training to dealers across the country.

“This year will be choppier and will likely trend down overall,” said George Karolis, president of The Presidio Group. “But brands and geography matter much more than ever during this period of normalization.”

“As dealerships’ operational metrics continue to decline from the extraordinary levels of the first few years of the pandemic, they will benefit by looking at how their results stack up to their peers,” NCM Associates CEO Paul Faletti said. “Dealers also need to examine their pre-pandemic operational baseline so they can best position themselves for the more traditional retail environment we're starting to see come back into play. That in part means going back to the basics — in a lot of areas, we took our eye off the ball during COVID.”

Despite the declines, auto retailing continues to be a generally robust business with profits still well above pre-pandemic norms. Even with 2023’s earnings drop, the average dealership’s net pretax profit last year was still more than 2.5 times 2018’s level, according to Presidio’s analysis of benchmark metrics.

The report also contains the results of the second quarterly Presidio Dealer Direction Survey.

Survey results showed that dealers generally understand that profits aren’t staying at the peak levels of recent years. More than two-thirds of 285 survey takers representing about 3,100 franchised dealerships said they expect dealership profitability will decrease over the next 12 months. The decline, while “not a falling knife,” is impacting dealership valuations.

Toyota and Lexus continue to lead the Presidio Brand Desirability Rankings. Both brands saw throughput, or sales of new vehicles per dealership, soar in 2023 as inventory levels continued to recover. Perhaps more notably, Honda and Subaru made significant gains near the top of the ranking with Honda at No. 3, up four spots, and Subaru at No. 4, up two spots.

Presidio’s second report also offers a robust look at the profitability and performance of public dealership groups; M&A trends including transaction pace 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: http://thepresidiogroup.com/wp-content/uploads/2024/03/Presidio-Quarterly-Report-Q4-2023.pdf

To register for future publications, go to: https://thepresidiogroup.com/news-insights/#quarterly-report

About The Presidio Group

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 nearly 275 transactions totaling nearly $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.

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