Dealership groups across the U.S. broke multiple performance records in the third quarter, highlighting retail automotive’s unanticipated resilience in the post-pandemic era.
Lithia & Driveway posted a third-quarter revenue of $8.3 billion, an increase of 13% or $1 billion from the prior-year period. The amount represents a new record for the months of July, August and September. However, the company’s net income dropped nearly 20%, sliding from $330.3 million in Q3 2022 to $264.9 million in Q3 2023. Lithia & Driveway’s current $23.4 billion in annual revenue is ahead of last year’s $21.2 billion, but shrinking profit margins, a hindrance encountered by many dealership groups this year, have prevented the brand from surpassing last year’s net income.
Asbury Automotive Group generated $3.7 billion in revenue in the third quarter, approximately $2.9 billion of which was earned through sales of new and used vehicles. Although new car sales rose from the previous year, the company recorded declines across multiple segments. Its Q3 revenue fell 5% from last year, with gross profit descending even faster at a rate of 12%. Nevertheless, Asbury Automotive’s digital retail platform, Clicklane, saw sales of 11,600 units, the highest in its three years of operation. The brand has continued to accelerate its growth efforts throughout 2023 and will soon acquire Jim Koons Automotive Companies, one of the largest non-public dealership groups in the U.S.
Penske Automotive successfully maintained its momentum in the third quarter, allowing it to score year-over-year increases in revenue, profits and sales. By the end of the period, the group’s quarterly revenue totaled $7.4 billion, an increase of 8%. From July through September, the company sold a combined 114,069 new and used vehicles through its retail operations, representing a 3.7% increase from Q3 2022. The increase arrives in spite of an early-year transition to an agency model for some of its U.K. storefronts, which siphoned a small number of sales from Penske’s retail segment. Like other dealership groups, the brand continued to face profitability pressures in the third quarter and ultimately ended the period with $264.4 million in net income, a decline of 22.6%.
AutoNation earned $6.9 billion in revenue in the third quarter, an increase of 2.9% from the previous year. Like other dealership groups, this increase in revenue was unable to offset an industry-wide trend of declining profitability. The company’s net income of $243.7 million for the period represents a 31% decline from 2022. However, while AutoNation’s profit margins were challenged across most channels, some saw substantial improvements. Gross profit from after-sales operations reached a record $546 million, an annual increase of 14%. Sales of new vehicles improved by 12% year-over-year but were outpaced by the used car segment. Although pre-owned vehicle sales rose 5.4% from the April through June period, they completed the quarter slightly behind last year’s total.
Sonic Automotive’s revenue improved 6% year-over-year to a record $3.6 billion. Retail sales of new and used vehicles also grew from the 2022 period, increasing 3% to 52,410 units. Unlike last year, preowned sales were outpaced by new models in the third quarter. As expected, the dealership group continued to face profit margin pressures throughout the period, even with improved sales and revenue, resulting in a sharp 22% decline in net income. However, the company emphasized that its operations were becoming more efficient and profitable, pointing to its EchoPark division as an example. Although several EchoPark locations were shut down earlier this year, the segment accounted for $626.7 million of Sonic Automotive’s total revenue, translating into a growth of 6%.
Group 1 Automotive also broke its quarterly revenue record, finishing September with $4.7 billion in earnings. The number represents an impressive 13% increase from Q3 2022, which company president and CEO Daryl Kenningham attributed, in part, to “Consolidated parts and service revenues and gross profit…” and a “…sizable increase in vehicle sold…” Nevertheless, net income declined 16.7% from last year to $164.1 million. New and used vehicle sales rose 15.6% and 4.9%, respectively. On a per-unit basis, new vehicle profitability saw a steep decline of 18.6%, even as it improved 2% for the preowned segment.
Conclusions
Declining profits and record revenues have been constant themes throughout the year among both OEMs and dealership groups. Although the speed with which earnings have decelerated may alarm some, the shift is largely unrelated to any significant change in demand or stability.
In 2022, new vehicle shortages caused by the COVID pandemic heavily contributed to price inflation, drastically increasing profit margins for manufacturers and retailers. At this point in 2023, that scarcity has largely been resolved, although there are certainly still models that continue to see low supply. As a result of this and relatively stable demand in the market, car prices have started to normalize back to pre-2020 levels.
The return of 2019 pricing levels, however, is still far off. As consumers continue to face intensifying economic pressures, this may eventually cause demand to slow, especially if affordability does not improve in the near future. Nevertheless, dealers can ultimately rest assured that the third quarter was an overall success for the retail automotive sector, allowing them to feel more optimistic about the remaining months of 2023.
