Core Viewpoint - The Zacks Auto Retail and Wholesale industry is experiencing a mixed operating environment, with challenges such as slowing vehicle sales, high borrowing costs, and affordability constraints, while some companies are positioned to outperform through strategic acquisitions and digital initiatives [1] Industry Overview - The auto retail and wholesale industry is crucial for delivering vehicles and parts to consumers, operating through dealership networks and retail chains [2] - The industry's performance is closely tied to economic conditions, with consumer spending on vehicles typically increasing during economic growth and declining during downturns [2] - The COVID-19 pandemic has accelerated the shift towards online tools and e-commerce, a trend expected to continue [2] Factors Shaping Industry Dynamics - U.S. vehicle sales are projected to decline, with total new vehicle sales expected to be around 15.8 million units in 2026, a 2.4% year-over-year decrease, and new retail sales likely to fall 1.5% to 13.1 million units [3] - High interest rates, reduced manufacturer incentives, and tight household budgets are negatively impacting demand, while average new car prices are around $50,000 [3] - The EV market is facing uncertainty due to the loss of federal tax incentives, leading automakers to reduce EV investments and focus on gas and hybrid models [4] Strategic Buyouts - Auto retailers are actively pursuing acquisitions to expand their market reach and enhance competitive positioning, which helps diversify brand portfolios and improve operational efficiencies [5] Digitization - Dealers are investing in digital platforms to enhance customer experience, with tools like virtual showrooms and online pricing improving transparency and engagement [6] Capital Allocation - Many auto retailers are focusing on shareholder returns through share buybacks and dividend increases, supported by strong cash flow from disciplined acquisitions and cost-control initiatives [7] Industry Rank - The Zacks Auto Retail & Wholesale industry holds a Zacks Industry Rank of 89, placing it in the top 36% of nearly 245 Zacks industries, indicating strong near-term prospects [9][10] Stock Performance - The industry has underperformed compared to the S&P 500 and the Auto, Tires, and Truck sector over the past year, declining more than 1% while the S&P 500 and sector grew by 18% and 12%, respectively [12] Valuation - The industry is currently trading at an EV/EBITDA ratio of 8.36X, significantly lower than the S&P 500's 18.68X and the sector's 26.92X [15] Company Highlights - **AutoNation**: A leading automotive retailer expanding through acquisitions, with recent additions expected to generate significant annual revenues. The company is also enhancing its digital capabilities and prioritizing shareholder returns with a $1 billion share repurchase plan [19][20][21] - **Asbury Automotive Group**: A diversified auto retailer benefiting from multiple income streams and strategic acquisitions, with a focus on digitization through its Clicklane platform. The company is also expanding into higher-margin segments and reporting improved productivity from new technology [24][25][26]

Industry Overview - The Zacks Auto Retail and Wholesale industry is experiencing significant changes due to evolving consumer habits, policy shifts, and strategic actions by key players [1][3] - The industry is consumer-driven, with performance closely tied to economic conditions, where increased disposable income typically leads to higher vehicle purchases [3] - The COVID-19 pandemic has accelerated the industry's shift towards online tools and e-commerce, a trend expected to continue [3] Factors Influencing Industry Dynamics - Car affordability has seen a modest improvement due to rising consumer incomes and dealer incentives, but tariffs on imported vehicles continue to pose challenges, potentially adding up to $5,700 to the cost of new cars [4] - The EV market is in a transitional phase, with first-half 2025 U.S. EV sales reaching 607,089 units, a 1.5% year-over-year increase, but a decline in demand is anticipated in the fourth quarter without government subsidies [5] - Auto retailers are making strategic acquisitions to enhance market share and diversify offerings, while also investing in digital platforms to meet changing customer expectations [2][6][7] Market Performance - The Zacks Auto Retail & Wholesale industry ranks 91, placing it in the top 37% of 245 Zacks industries, indicating positive near-term prospects [8][9] - Over the past year, the industry has outperformed the S&P 500, returning 16.3% compared to the S&P 500's 12.6% growth [10] Current Valuation - The industry is currently trading at an EV/EBITDA ratio of 8.95X, significantly lower than the S&P 500's 17.64X and the sector's 20.66X [13] Company Highlights - **Penske Automotive**: Completed acquisitions in 2024 representing nearly $2.1 billion in annualized revenues, with a strong order backlog and a low long-term debt-to-capitalization ratio of 15.5% [17][18] - **Lithia Motors**: Expanded its footprint through acquisitions, adding $3.8 billion in 2023 and $5.9 billion in 2024 in annualized revenues, with a focus on digital platforms to enhance customer experience [22][23] - **AutoNation**: Continues to grow through strategic acquisitions and digital transformation, with a recent purchase expected to add $200 million in annual revenues [25][26] - **Group 1 Automotive**: Achieved significant revenue growth through acquisitions, adding over $1 billion in 2023 and $3.9 billion in 2024, while focusing on an omnichannel strategy [31][32]