Average dealership profit falls again in 2023, report from Presidio and NCM Associates shows

The average franchised dealership in the U.S. saw net pretax profit decline 20.4 percent in 2023, according to a new report from Presidio Group and NCM Associates.

Presidio Group, a buy-sell advisory firm in Denver and Atlanta, published the report based on the financial results of more than 4,000 franchised dealerships of all brands and sizes that work with NCM Associates, a dealership training and consulting company in Kansas City. The stark decrease in profit also will likely bring dealership valuations down, said Steve Hall, NCM U.S. vice president.

Though the 2023 profit decline was sharp, the average dealership's net pretax profit was still more than 2.5 times the 2018 average, according to Presidio. Looking ahead, experts expect dealership profit to continue to move closer to pre-pandemic levels.

"As rates have increased and as inventories have increased, the business is normalizing," said George Karolis, president of Presidio Group. "That trend is continuing some. It is leveling off but continuing."

Average dealership net pretax profit grew 111.8 percent from 2020 to 2021, the Presidio report said. Meanwhile, the 2023 decline represents an acceleration of the 5.1 percent decrease from 2021 to 2022. In this environment, brand and geography will be key to success, Karolis said.

And dealerships should be "focusing on the business, following best practices, benchmarking their dealership and ensuring they are managing expenses properly," he said. "The business is a little bit more challenging than it has been in the last few years."

Average gross profit per new vehicle retailed also took a hit in 2023, falling about 27 percent to $3,354 from a peak of $4,603 in 2022. Gross profits are down while expenses are on the rise, Hall said, so dealerships need to adapt.

"You have got to increase sales volume, and so they are going to need to go to the customer on the customer's terms," he said. "If the customer wants to buy online or go through more of the buying process before ever showing up at the dealership, the dealership is going to need to move to that."

In 2023, average dealership revenues inched up 1.1 percent to $83.2 million, while the average number of new vehicles retailed increased 6.7 percent to 859, according to the Presidio report.

Other values shared showed declines in 2023:

• Used vehicles sold fell 5 percent to $729.

• Gross profit per used vehicle sold dropped 21.8 percent to $1,663.

• Finance and insurance income per retail vehicle fell 7.4 percent to $1,577.