Buy-Sell Market Heats Up As Dealers Face New ChallengesBuy-Sell Market Heats Up As Dealers Face New Challenges

As 2025 unfolds, dealers are again facing a volatile retail market that includes possible vehicle and parts shortages due this time to President Trump’s proposed tariffs.

In my reporting about the buy-sell market, I have built strong relationships with dealers, manufacturers, merger and acquisition (M&A) experts and industry insiders.

Through that reporting, I’ve found five strong trends affecting the U.S. auto retail vehicle market and, by extension, the buy-sell market for dealerships that are expected to last throughout 2025.

1. U.S. new-vehicle sales rise – enabled by higher inventory, higher factory incentives, dealer discounts and lower interest rates.

2. Gross profit per vehicle declines – the downside to better affordability.

3. Post-election optimism – the resolution of the U.S. presidential election has left consumers more confident, and dealers are hopeful regulators may soften their stance on automotive markets.

4. Dealerships cut costs and maximize fixed operations – these moves are designed to boost dealership profits as new vehicle profits dip.

5. The buy-sell market gets pickier – Top consolidators buy and retain big dealerships in major markets, which may create an opportunity for small groups or first-time dealer principals.

U.S. New-Vehicle Sales Rise

It’s a well-established trend that as new-vehicle inventory has recovered, factory incentives and dealer discounts have grown, making the average new vehicle more affordable. That’s good news for dealership returns overall and, therefore, for dealership values.

According to a joint forecast from J.D. Power and GlobalData, U.S. new-vehicle sales in February 2025 are on track for about 1.2 million, an increase of 3.5% vs. a year ago on an average selling-day basis.

Meanwhile, Erin Kerrigan, managing director of the sell-side advisory firm Kerrigan Advisors of Irvine, CA, says dealership mergers and acquisitions were at a record pace through the first three quarters of 2024 at an estimated 330 transactions, representing 544 franchises and that the high pace of dealership M&A continues.

“We don’t see this activity abating any time soon,” Kerrigan says in a January webinar sponsored by the American International Automobile Dealers Assn.

Gross Profit Per Vehicle Declines

The downside to better affordability is an ongoing decline in per-vehicle profits, and that’s expected to continue in 2025, too, says George Karolis, president of The Presidio Group, Atlanta.

He calls this trend “The Great Normalization,” considering per-vehicle profits and dealership profits in general were hugely inflated during the early pandemic and continued during acute supply-chain shortages of components like computer chips.

According to Cox Automotive, U.S. new-vehicle inventory as of Feb. 3 was 2.92 million units, an increase of just 1.2% vs. a month earlier but up 14.2% vs. year-ago.

The good news for dealers is that total dealership profitability is showing signs of leveling off at a much higher level – almost double – than before the pandemic instead of going all the way back down to 2019 levels, Karolis says.

In a year-end Dealer Direction Survey, Presidio reports, “Many dealers view the worst of the drop-off from pandemic profit highs as being behind them.” The survey shows about 65% of dealer respondents say they expect profitability to stay the same or improve in 2025, up from 37% in a midyear 2024 survey.

Post-Election Optimism

Having the U.S. presidential election in the rearview mirror reduces uncertainty somewhat, and for some auto shoppers, that might be enough to get them off the fence and shopping for a vehicle, Kerrigan says.

“Both consumers and dealers are feeling more confident with the election behind us,” she says. “Dealers feel like they might not be as hamstrung by regulations.”

That is, dealers may be encouraged by the return of a Trump administration, which promises to soften business regulations and to hit the brakes on the controversial switch to electric vehicles.

Dealerships Sharpen Their Pencils

With new-vehicle profits down, dealerships turn to fixed operations to compensate. The six big, publicly traded new-vehicle retailers report total fixed-operations revenues of $4.2 billion for the fourth quarter of 2024, up 6% vs. a year ago. It was $16.4 billion for the entire year, up 3.6%.

Publicly traded dealer groups report they have increased headcount for service and parts technicians, invested in service capacity, and, in many cases, raised labor rates.

In addition, dealerships in the current environment should consider cutting costs in areas like advertising and personnel – and excluding service and parts technicians, who should remain a high priority, says Presidio’s Karolis.

Buy-Sell Market Shifts

Alan Haig, president of Haig Partners, Fort Lauderdale, FL, tells WardsAuto that with inventory rising and with profits normalizing, dealership buyers can afford to take a closer look at possible dealership acquisitions with less fear of missing out.

“During the pandemic, every dealership – every dealership, for every brand – sold every new car for a really high profit, including charging over sticker. Every franchise was doing well, Nissan and Stellantis included,” Haig says.

“When the pandemic ended, and supply came back for a number of these brands, profits dropped very quickly. If it was a weak brand, or if they weren’t being operated well, a lot became less profitable, or even losing money,” he says.

“We’re still selling dealerships for strong prices,” Haig says. “With good brands that are being operated well.”