In this week's post, we cover what auto retailer executives had to say during the Q4 2025 earnings calls. We noted major themes from last quarter’s calls, which include trends in new, used, and fixed operations. We also discuss public auto groups repurchasing shares and looking at long-term investments in technology, including AI.
Theme 1, New Vehicle Sales Face Tariff, EV, and Affordability Pressure
New vehicle results remain difficult to interpret due to tariff-related pull-forward demand, the expiration of EV incentives, and ongoing affordability pressure. Several executives noted that while recent comparisons have been distorted, 2026 should be steadier, but still uncertain. From a valuation perspective, pricing discipline, brand mix, and consumer sensitivity to monthly payments are likely to matter more than headline SAAR.
“The industry faced tougher sales comparisons to last year when post-election sales surged driving a Q4 2024 light vehicle SAAR of 16.7 million. Sales were also negatively impacted [earlier in the year] by the strong pull ahead as consumers reacted to the tariff announcements and purchased vehicles prior to the expiration of government incentives for electric related powertrains. We felt these impacts across most brands with the biggest impact on premium luxury.” – Michael Manley, CEO of AutoNation
“We saw a lot of BEVs because of the tax credit going away in the third quarter, that significantly dropped. And we'll see what happens in this upcoming calendar year, but maybe settle in, in the 5% to 7% range. […] I am concerned about what is going to happen, how much elasticity can we deal with or can the consumer deal with from a new car perspective. The prices are just getting too high.” - Jeff Dyke, President of Sonic Automotive
I am concerned about what is going to happen, how much elasticity can we deal with or can the consumer deal with from a new car perspective.
“New vehicle revenue declined 6.6% on an 8.3% unit decline as industry demand softened and supply normalized. New vehicle GPU was down $300 over last year. Performance varied by brand with luxury brand revenue down 12.7% year-over-year. Domestic and import brands were also soft, particularly late in the quarter when sales promotions didn't materialize.” – Bryan DeBoer, President & CEO of Lithia
“We're forecasting to go slightly backwards in SAAR [in 2026], but SAAR is an overall number that includes fleet and wholesale. And I think it's going to vary by brand. We have a lot of Stellantis stores that were a percentage of our business that were challenging for us in '25. All brands are cyclical, and we believe Stellantis will come back. I don't know that the tariffs have fully settled across all brands. There's still movement on pricing, and it's yet to be known what incentives will look like in the future.” – David Hult, President & CEO of Asbury Automotive Group
Theme 2 Used Vehicles Are Increasingly a Sourcing and Pricing Story
Used vehicle performance is increasingly driven by sourcing strategy, pricing discipline, and inventory mix, rather than broad market headwinds and tailwinds. Executives emphasized a shift away from auction dependence toward trade-ins and direct consumer sourcing, alongside a greater focus on maximizing gross profit per unit rather than chasing volume. At the same time, limited supply, particularly from lease returns, has kept acquisition costs elevated, reinforcing the importance of pricing precision and inventory selection. From a valuation perspective, dealerships that demonstrate superior sourcing capabilities and disciplined pricing strategies are better positioned to sustain margins in a tighter used vehicle environment.
"We continue to stick to our strategy of not chasing volume and maximizing gross profit, […] limiting the number of acquisitions through the auction and improving the number of cars that we take through the trades or that we purchase directly from our guests. […] The average cost of our used car being over $30,000 is definitely something that we're focused to bring down [leading to] faster inventory turns. […] In the second half of the year, as lease turn-ins start to come in, we have better availability of inventory. "– Dan Clara, COO of Asbury Automotive Group
We continue to stick to our strategy of not chasing volume and maximizing gross profit
"The biggest single [pricing] delta was in our value auto cars, [over 9-year-old cars] that we had a 12% to 13% delta between what the marketplace was selling the cars for. […] What we're trying to do is reeducate store leaders to inflate the pricing on those cars and understand that it's not necessary that the velocity of that car turns within 4 days. It's okay if it turns in 24 days. Because that scarce car will bring in additional traffic. If our average value auto car is around $16,000, an extra 12% is an extra $2,000 a deal. The other soft spot that we have in pricing is what we would call scarcer late-model used cars, [driving 4,000 or 5,000 miles a year instead of 10,000 to 12,000 miles a year] that we're underpricing those cars by almost 8%. - Bryan DeBoer, CEO of Lithia Motors
"There has been increased competition really across all sourcing channels. [...] We've been able to offset some of that cost pressure through mix changes as well in terms of how we source vehicles. […] [Trade-ins] are great and an often undervalued channel because it is still the best channel to source excellent used car vehicles "– Michael Manley, CEO of AutoNation
“Used vehicle sales continue to be constrained by fewer lease returns and affordability. Lease returns bottomed in 2025 and are expected to begin improving in 2026.” - Richard Shearing, North American Operations of Penske Automotive Group
Theme 3 – AI and Technology Investment Are a Priority, but Long-Term Practical Application of AI Remains Unclear
Public dealership groups continue to emphasize investments in AI, digital retail tools, and next-generation DMS as a path to improved efficiency and customer experience. These initiatives are often tied to long-term margin expansion through better labor productivity, lower cost per transaction, and improved data utilization.
However, while executives consistently highlight the potential of AI, most of the actionable implementation discussed today relates to broader technology upgrades rather than discrete AI-driven use cases. As a result, there remains limited clarity on how private dealership owners can directly apply these tools in the near term. It also remains to be seen whether these capabilities will be developed internally by the largest groups or become more widely available through third-party solutions.
"There’s a massive difference between our current DMS and Tekion, and there’s a learning curve there. Our original stores that went on it a year ago are performing better than most of our stores in our company because of the efficiencies and benefits of the software. But when these stores transition, it takes them a few months. […] I look at '27 as a really efficient, productive year for us in both our production [and] our cost control as well.” – David Hult, President & CEO of Asbury Automotive Group
“We're executing structural improvements across our network, raising productivity through performance management and technology solutions including early investments in AI-powered chatbots and customer service automation, simplifying the tech stack and retiring redundant systems, renegotiating vendor contracts at scale and automating back-office workflows. These efforts are building momentum quarter-by-quarter with benefits from our Pinewood AI investments expected to materialize over time as we scale deployment and realize efficiency gains.”– Tina Miller, SVP & CFO of Lithia Motors
We're executing structural improvements across our network, raising productivity through performance management and technology solutions including early investments in AI-powered chatbots
"We're excited to pilot the Pinewood AI DMS in our first North American store soon creating a single modern platform and reducing complexity, accelerating workflows and placing our team members in the same systems as our customers to deliver faster, more seamless customer experiences." – Bryan DeBoer, President & CEO of Lithia Motors
"We are using AI in customer interface as well as in our back office. [...] We’re seeing lower cost per transaction on virtual F&I. And we are using AI in our sales operations with lead management and CRM control. We're using it in parts and service and in marketing and reaching out to customers and using more predictive analytics in that area. […] we're now owning our own data, managing our own customer data, it's going to allow us to be much more efficient with how we reach customers and what our costs are and we hope in a more productive way than in the past. And offline, I'd be happy to talk to you more specifically about that." – Daryl Kenningham, President & CEO of Group 1 Automotive
Theme 4 – Fixed Operations Growth Is Now Driven by Demand Capture and Pricing Discipline
While technician shortages were a key constraint in recent years, public dealership groups now indicate that capacity has largely improved. The focus has shifted toward driving customer retention, increasing service traffic, and managing pricing in an increasingly cost-conscious environment. Executives highlighted that a significant portion of customers still do not return to franchised dealerships for service, representing a meaningful opportunity to grow market share. At the same time, higher repair costs are beginning to pressure consumer spending, requiring a more disciplined approach to pricing, parts selection, and service offerings. Going forward, fixed operations growth is expected to be driven less by capacity expansion and more by the ability to attract and retain customers while balancing affordability and productivity.
"I think since March of ’24, when we started our technician focus, we're now plus 400 technicians from that original date that we started talking about this. […] There’s just too many customers for the industry that don't come back to a new car store to have their vehicle serviced. It's like 50-50. And we think we can attract a lot of customers. We've got the time to sell. We've got the base. We've got the technicians, and we're going to take advantage of that."– Jeff Dyke, President of Sonic Automotive
“We have seen much more attention to the cost and pricing of service and parts. And we know we compete with non-franchise providers of service and parts because our growth really is targeted on improving our penetration in the 3-year-old plus After-Sales market. […] You obviously have to provide great convenience, great service, but you've got to be very competitive on price. […] There is no right to that business. We have to conquest it and to do that, it's the combination of price and service. So they're much, much more price sensitive particularly as the vehicle gets a bit older. […] I think what that means is that hourly rate, obviously needs to be competitive. We do think that there's opportunity for us with different products that we can offer and different ways of communicating with the customer that we can provide more work on a per RO basis. That doesn't necessarily drive up margin per se, but it does help us a lot with regard to the productivity that we have in our business” – Michael Manley, CEO of AutoNation
"In previous quarters, and I think it's the case for our peers, the growth in Parts & Service has been more top heavy on dollars than actual cars coming through the service drive or repair orders [...] the traffic counts were okay and normal for us. And based upon that, we should have been higher on the dollars. We saw less dollars being spent for the consumer. So it wasn't so much the traffic that took a hit as much as it did what the consumers were willing to spend. […] when we talk about how much we're generating per ticket, combustible engine is over $550. These numbers keep going up, which is great, but it also puts a limit a little bit on customers. But I was shocked to see the pullback in October and November with the dollars being spent. It rebounded in December and January is starting off, the dollars are pretty good again. So I can't explain what happened in October and November.” - David Hult, President & CEO of Asbury Automotive Group
We saw less dollars being spent for the consumer. So it wasn't so much the traffic that took a hit as much as it did what the consumers were willing to spend.
"We’re evaluating what we can do from a labor rate perspective, what we can do from a parts pricing perspective, whether it's offering an alternative part to make that repair, so that the customer has a choice and can decide how they want to spend their money."– Richard Shearing, COO – North American Operations of Penske Automotive Group
Theme 5 – Capital Allocation Remains Disciplined, with Buybacks Competing with M&A
Public dealership groups continue to emphasize disciplined capital allocation, balancing acquisitions, share repurchases, and balance sheet management. While M&A remains a core growth strategy, executives consistently highlighted selectivity, focusing on transactions that add scale and density and meet strict return thresholds. At the same time, several groups repurchased more than 10% of their shares, reflecting both perceived undervaluation and the relative certainty of buybacks compared to acquisition execution risk.
For private dealership owners, this dynamic is notable. Unlike public companies, private operators do not have the option to repurchase shares as a capital allocation lever, which may increase the relative importance of transaction timing. The willingness of publics to deploy significant capital toward buybacks may also suggest that acquisition pricing expectations remain elevated, as sellers hold out for higher multiples. Additionally, in markets where public companies already have scale, those buyers may be able to justify higher valuations due to expected synergies, which can influence competitive dynamics for private sellers considering a transaction.
"We really want to grow the company through acquisition. We are not going to, however, buy stores that aren't instantly accretive to us as a company in terms of EPS, and we're not going to overpay for acquisitions whenever you look at the valuation of our company in terms of where it's currently sitting. We were very active in terms of buybacks last year, buying back over 10% of the company."– Daniel McHenry, SVP & CFO of Group 1 Automotive
"We accelerated repurchases this year, returning 3.8% of our shares in the quarter and 11.4% of our shares in 2025. [...] Going forward, we'll maintain this balanced capital strategy between buybacks, selective M&A, organic investments and balance sheet strength."– Bryan DeBoer, President & CEO of Lithia Motors
"We continue to actively explore M&A opportunities to add scale and density to our existing markets. In 2025, we repurchased 10% [of shares outstanding]. […] We saw a number of opportunities in 2025. I think we were selective. And we ended up with some very high-quality brands in territories where we have density, where we think we can create operating synergies. And I'm confident that 2026, there will be continued opportunities for us in the dealership space. And we'll remain disciplined."– Thomas Szlosek, EVP & CFO of AutoNation
"We divested 4 stores in the quarter and are on track to divest another 9 stores by the end of the first quarter. These 13 transactions will further accelerate our path to reducing our leverage, giving us additional flexibility to pursue share repurchases. We expect to continue our repurchasing activity in 2026, the pace of which will be dictated by our share price, leverage profile, economic conditions and trade-offs with strategic tuck-in acquisition opportunities."– David Hult, President & CEO of Asbury Automotive Group
"We will continue to look for strategic areas in markets where we have scale. I don't see any markets that we're going to break into today, unless we buy another big group. […] We're going to be very selective as we go forward."– Roger Penske, Chairman & CEO of Penske Automotive Group
Conclusion
At Mercer Capital, we follow the auto industry closely to stay current with marketplace trends. These give insight into the market for a private dealership, which informs our valuation engagements. To understand how the above themes may or may not impact your business, contact a professional at Mercer Capital to discuss your needs in confidence.