Mixed outlook for U.S. auto dealers

Car dealerships, after a boom period, now face rising financing costs and lower profit margins.

On the road to profit growth, auto dealers have passed many green lights during the epidemic. Still, the signals look mixed this year.

AutoNation (AN), the auto dealership giant, said on an earnings call on Friday that same-store revenue rose 1.2% year-over-year in the fiscal fourth quarter. Net profit fell 26%. Lithia Motors (LAD) said on Wednesday that same-store sales rose 0.8% and net profit fell 15%. This relative slowdown comes after some heady growth: Lithia’s annual revenue has more than doubled since 2019, driven in part by acquisitions, while AutoNation’s has grown 26%.

A blinking signal is inventory. Profit margins for dealerships and automakers have hit record highs during the pandemic as a global chip shortage has limited the ability to produce cars. While inventories are still well below pre-pandemic levels, rising inventories have reduced dealers’ gross margins, and it’s unclear how disciplined automakers will be in production this year.


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