Stock prices for public dealership groups took a hit Wednesday after Morgan Stanley equity analyst Adam Jonas released a research note expressing caution.
In his report, Jonas downgraded Penske Automotive Group Inc. and Sonic Automotive Inc. "as a reflection of secular industry headwinds despite peak earnings."
On Wednesday, share prices fell by 10.4 percent for Penske, 8.6 percent for Sonic, 11.5 percent for Group 1 Automotive Inc., 9.7 percent for AutoNation Inc., 9 percent for Lithia Motors Inc. and 8.5 percent for Asbury Automotive Group Inc., according to MarketWatch. Share prices for those companies improved slightly on Thursday.
Jonas expressed concerns about the pressure franchised dealerships face as Tesla Inc. and other electric vehicle makers expand and likely increase the volume of direct-to-consumer vehicle sales. EV startup Rivian also is planning direct sales, and Vietnamese startup VinFast recently said it plans 60 direct-to-consumer EV dealerships in California.
The Morgan Stanley report positioned the inability of legacy automakers to control the consumer experience in a direct-sales model as one of the biggest threats facing automakers — "even bigger than the threat of electrification itself."
He acknowledged that it's a "highly complex issue" involving regulatory, legal and even social factors that could take years to play out.