From the December issue of UCD
By Brent Carmichael
About a year ago, I penned an article titled “2025….Thrive or Survive.” I talked about whether 2025 was going to be a year that the independent used dealer would have realistic opportunities to thrive, or would it be full of challenges and thus a year to just survive.
This year, there seems to be quite a few dealers who have succumbed to the “Chicken Little Syndrome.”
But to get a sense of whether the sky is truly falling, we first need to review how 2025 has treated the independent dealer world. Overall, it received decent treatment in spite of a few bumps and bruises.
From a profitability standpoint, independent dealers are enjoying a 6.1 percent increase in overall profitability through the third quarter compared to last year. This was due mostly to the rightsizing of overall operations.
Dealers continue to focus on their entire operations to “cut the fat” and run their businesses based on the cash and gross they are currently generating. I would expect to see this increase decline slightly in the fourth quarter, but will still see a more profitable 2025 than 2024.
Sales volume has been flat through Q3. I think this is more self-inflicted than anything else, especially for the BHPH dealers. Their sales volumes are being driven more by cash management. BHPH dealers seem to want to sell what their cash flow dictates rather than sell as much as possible. There doesn’t appear to be a lack of customers in the market.
Overall, customer leads are up slightly from this time last year, and retail dealers are showing a slight increase in their sales volumes from this time last year.
Another barometer to look at is the overall used vehicle loan performance. This is where the outlook gets a little ominous. The 60-day used auto loan delinquencies are now at an all-time high and there appears to be no relief in the immediate future.
This is obviously leading to more challenges in getting customers financed. Dealers that are well-versed in subprime and special financing are seeing less of an impact on their overall operations. Similar trends are occurring in the BHPH portfolio performance.
We are seeing concerning trends not only from a dollar loss standpoint but also from a number loss standpoint. We are seeing increases in both through the third quarter. This is driven by a couple of factors, including the need for affordable inventory. We are seeing customers fall delinquent earlier in their term, resulting in an earlier repossession. Usually, this would help stabilize the dollar losses as the vehicles are recovered earlier and in better condition, and thus garner higher recovery amounts. Unfortunately, this has not been the case as dollar losses per vehicle have increased over this time last year. This I believe, may have been a result of a slight downward trend in inventory values.
Another dark cloud so far this year is the misfortune of some members of our industry, dealers and lenders alike. The focus should be on learning from it as much as possible.
So, is the sky falling? Based on the data, the answer is no. Are there a few clouds? If I were a weatherman, I would say it is partly sunny. Overall dealer profitability is the sunny part and having the clouds of sales volumes and auto loan performance to darken our skies a little. Hopefully, the forecast for 2026 will reduce the number of Chicken Littles.
