much they can contribute toward their next car purchase. Clearer and more precise, “no-haggle” pricing also helps dealers consistently protect their margins. These policies build trust in the buying process, which bolsters consumer relationships that extend beyond the initial sale, ideally into servicing. EVs PERSIST, ESPECIALLY IN 12 STATES EV sales will continue to grow, albeit not at the pace some predicted a few years ago. Currently, buyers of commercial vehicles (e.g., Amazon vans) are the fastest adopters of EVs. Over time, we expect this trend to drive down EV prices, which will encourage more widespread adoption. Hybrid vehicles, including plug-in hybrids, are a popular alternative that helps bridge the move to fully electrified vehicles, which we expect to represent 40% of the market within the next five to 10 years. Continued headwinds to EV adoption include lagging development of charging infrastructure, consumer anxiety around trip planning due to battery range and subpar battery performance in cold climates and disaster situations (e.g., floods, hurricanes and evacuation scenarios). The used car market for EVs has been marginal at best, but some 70% of EV buyers report plans to purchase another one. In fact, 92% of EV owners in a recent survey by Global EV Alliance said they would never own another internal combustion vehicle.1 The interesting growth story will be in the 12 states phasing in EV vehicle mandates starting in 2026, 2027 or 2028. Given the current climate, we can expect many of those requirements to be reduced or rescinded, but California, Colorado and possibly Oregon are expected to stick to their commitments. These mandates will require much of the EV and hybrid output to be directed to states with EV mandates, leaving a shortage of those vehicles in the remaining states. SERVICE BUSINESS RISES AS A ROBUST CENTER OF PROFIT AND CASH FLOW The service business is driving profitability and boosting cash flow to a greater degree than many people anticipated. It’s true that vehicles are better built than they were just 10 to 15 years ago — and last longer — but they still need service and parts throughout their extended lifespans. And OEMs will have warranty issues and recalls that require servicing, a meaningful source of revenue, particularly for dealers who maximize their warranty reimbursement rates. An invigorated used car market closely links customer acquisition and rising service needs as a vehicle ages. Focusing on reaching the rising number of used car customers and fulfilling their needs could add critical service volume. Also, contrary to expectations, EVs are contributing to added profitability due to higher average costs for service visits. OEMS ARE PRODUCING AT OPTIMAL LEVELS TO DRIVE ORGANIC GROWTH While many dealers should see solid, organic growth in the coming years, with variation based on brand and individual store performance, the trade policy uncertainty adds a few twists to the story. If the economy avoids a downturn and tariff issues don’t flare up, demand for new and used cars, along with a more normalized market, bodes well for profitability. Manufacturers are building for overall market demand rather than production capacity. Our data shows that the sweet spot for a healthy margin on new car sales is a 65- to 75-day supply of vehicles, and April 2025 closed with a 66-day supply — 16 days lower than a year ago.2 (Compare that to the 110- to 115-day supply in 2019.) At the low end of the ideal new vehicle supply range, dealers enter the summer with inventory levels that should help protect margins. We expect total dealership profit to stabilize at around 4% of sales — twice the historical pre-COVID levels. BRAND DYNAMICS ARE SHIFTING, AND VALUE OFFERINGS ARE EMERGING Brand value is typically quite stable, something retailers can take as a given. However, recently, Nissan, Chrysler, Dodge, Jeep and Ram have dropped in blue-sky multiple values. Subaru and Ford are down as well, while Toyota has increased significantly. Besides several outstanding products that generate high-volume sales, Toyota now offers a hybrid-heavy lineup to better meet shifting demand, along vada.com 19
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