Industry expertise | January 2025 10 auto retail projections to guide your 2025 strategy

Many dealers should see solid organic growth in 2025, with variation based on brand and individual store performance. High demand for new and used cars, along with a normalized market, bodes well for profitability. Manufacturers are building for overall market demand rather than production capacity. Our data shows that the sweet spot for a healthy margin on new car sales is a 65-75-day supply of vehicles, and November 2024 closed with a 79-day supply. (Compare that to the 110-115-day supply in 2019.) This “just-right” stock of new cars will help protect dealer margins in 2025. We expect total dealership profit to stabilize at around 4% of sales—twice the historical pre-COVID levels.

Brand value is typically quite stable, something retailers can take as a given. However, this past year Nissan and CDJR have dropped in blue-sky multiple values. Subaru and Ford are down as well, while Toyota has increased significantly. Besides several outstanding products that generate high-volume sales, Toyota now offers a hybrid-heavy lineup to better meet shifting demand, along with a transparent dealer-manufacturer relationship that provides a clear rationale behind their strategy. These factors combine to bring Toyota to a premium brand value level. Mazda, Volvo, and Audi blue-sky values are recovering from recent slippage. Chevrolet, on the other hand, has never lost ground but is enjoying rising brand value based on a superior product mix and go-to-market strategy, with Honda moving up as well. 

We anticipate even more dealer transactions in 2025 than we saw in 2024, one of the top three years from a volume standpoint. The forces driving M&A to new highs in recent years are still in play, bolstered by new geographic trends.

• Dealers are sitting on capital built up through the COVID-19 boom times, and they’re motivated to grow. In this consolidating market, they can see the urgent need to scale for maximum efficiency.
• Both international and large domestic institutional investors have renewed their interest in automotive retail. A number of financial investors, including marque private equity firms and family offices, see opportunity in franchised auto retail and are pursuing dealership investment strategies.
• What’s more, after years of struggle to fully staff management positions, most owners finally have capable executive teams to facilitate efficient expansion.
• While dealers have traditionally aimed to scale for five to ten stores in a specific market, technology now enables multi-store efficiency gains beyond a contiguous geographic area. In response to that new capability, we’re seeing a definite trend toward less-localized growth, with dealership expansions finding scale in systems and processes.
• Less favored markets, including California, Minnesota, Illinois, and the Northeast, are now becoming M&A targets. Reduced dealership values in California make it an enticing market for M&A value investors; Thirty-nine million Californians still need to buy and service vehicles.

If you’d rather go than grow, 2025 should provide ample opportunity to make your exit while the going is good. The rising tide of M&A activity puts owners in the driver’s seat, with more buyers than sellers in the market. With growth-minded dealership groups coming off strong-performing years and capital available for promising acquisitions, you couldn’t ask for a better time to explore offloading non-strategic stores or putting your transition plans into motion. 

Stores with specific strengths will command a premium in the rush to snap up solid auto dealerships. Whether they’re private investors, growth-focused auto retailers, or other interested parties, buyers are looking for stores with the characteristics that maximize potential for continued growth and profitability. That translates to strong service retention rates following vehicle sales, fully staffed and highly capable management teams, desirable brands, and updated facilities that meet manufacturer standards for image and capacity. Businesses that know how to tap the potential of F&I programs to generate profits will have an edge. Dealers who deferred capital investment, or can’t meet these buyer expectations for any reason, will have to sell their stores at a discount.