Auto Dealership Profits Normalize as OEMs Change Strategies

Blog / Auto Dealership Profits Normalize as OEMs Change Strategies

Now that 2025 is in full swing, the auto industry appears to have settled back into pre-pandemic norms. Many questioned OEMs would continue running lean, as they were compelled to during the epidemic and microchip crisis, throughout the past four years of increased dealership profitability. Reviewing important automobile statistics, though, it appears OEMs are going back to old approaches and returning more profit back to their share.

In this article, I will review and discuss several key metrics:

New vehicle profitability
Supply of new vehicles
Average trade-in equity of used vehicles
Vehicle miles traveled

New Vehicle Profitability

Total retail profit per unit realized by auto dealers has continued to decline and normalize since an industry peak of $5,258 per unit in December 2021. The current October 2024 figure of $2,245 per unit, has almost normalized to pre-COVID levels of $2,053 per unit.

Total Retailer Profit Per Unit

Source: JD Power – LMC Automotive Monthly Forecasts

For background, JD Power notes that although 27.1% of new vehicles sold in October 2023 are selling over MSRP, just 12.71% of vehicles are selling.

Supply of New Vehicles

The lack of inventory in car dealers’ lots throughout the nation indicates evidence of a limited supply of new vehicles during the epidemic and periods of recovery. According to JD Power’s monthly projections, new cars have average days of sitting on a dealer’s lot at 50. This value is far higher than a low of 17 in December 2021. Pre-COVID levels rested around 72 days; some OEMs are approaching these numbers now.

Average Days on Dealer’s Lot

Source: JD Power – LMC Automotive Monthly Forecasts

Down from a peak of 58% of new vehicles sold in March 2022, JD Power notes that 29.7% of new vehicles will sell within 10 days after arriving at the dealership.

Average Trade-In Equity Used Vehicles

Like new vehicles, used vehicle transaction prices have continued to cool and decline in 2024. Since fewer new vehicle units have been available to sell over the last few years, fewer used vehicles have been traded into the dealer for reselling. As a result, increased demand for used vehicles led the average trade-in equity value for used cars to climb during that same period. Additionally, the average trade-in equity continues to stabilize, just like the other measures that have already been examined. This number peaked in December 2021 at $10,199, then according to JD Power, it dropped to $7,909 in October 2024.

Average Trade-In Equity

Source: JD Power – LMC Automotive Monthly Forecasts

Customers are starting to pay more attention to their monthly payments as interest rates start to fall. If both interest rates and transaction prices continue to fall, people may choose to purchase new and used automobiles rather than continue to keep their current vehicles for a longer period.

Vehicle Miles Traveled

The number of kilometers driven or vehicle miles traveled (“VMT) shows yet another important metric reflecting the state of the automotive sector.

Like the quantity of vehicles in use, the mileage driven affects the fixed operations of an auto dealer since automobiles will need more components and servicing depending on their frequency of use or distance traveled.

VMT has been tracked since 1971, and a graphical view of the rolling 12-month average from 2002 through the present can be seen below:

Moving 12-Month Total Vehicle Miles Traveled

The current rolling-12 month total of 3.280 trillion miles is as close to the pre-COVID level of 3.285 trillion miles as we have seen, signaling almost a full recovery since people were shuttered at home and off the roads during the early months of the pandemic.

Dealerships have to keep abreast of these changes to maintain their profitability when the auto industry stabilizes and OEMs return to traditional strategies. Understanding key financial metrics, from trade-in equity to new car profitability, as well as vehicle kilometers driven will help dealers in the future.

Scott Womack and the LBMC team specialize in valuation services that provide auto dealers with the insights they need to assess their financial standing and make informed business decisions. Expert advice guarantees that dealers may confidently adjust to changing market conditions whether assessing dealership performance, making succession plans, or getting ready for a purchase.

Contact Scott Womack to get deeper into how these changes affect the value of your dealership.

Content provided by Scott Womack, LBMC Shareholder, Valuation and Litigation Support Services.

New Vehicle Profitability

Supply of New Vehicles

Average Trade-In Equity Used Vehicles

Vehicle Miles Traveled

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