Inside Automotive with Jim Fitzpatrick, powered by CBT News

What Q3 Earnings Reveal About Dealer Profitability with Brian Gordon

• Jim Fitzpatrick • Season 1 • Episode 33

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Public automotive dealer groups are navigating a complex market, and on this episode of Inside Automotive, Brian Gordon, president of the Dave Cantin Group, shares his perspective on third-quarter earnings and what they reveal about industry health.

In this conversation, Gordon explores:

  • Stable third-quarter performance signaling balanced growth and profitability
  • New-vehicle sales dipping 15–20% while used-vehicle margins remain steady
  • Growth in F&I per unit highlighting strong fixed operations performance
  • Longer-term loans affecting used-vehicle trade-ins and overall market supply
  • Strategic financial moves by public groups, including acquisitions and stock buybacks
  • Electric vehicle demand stabilization and renewed focus on core operations

Gordon also emphasizes careful monitoring of fixed operations, proactive used-vehicle management, and investments in technology as strategies to position dealerships for continued success into 2026.

Inside Automotive with Jim Fitzpatrick is powered by CBT News, your go-to source for the latest news, trends, and insights in retail automotive. Subscribe for more interviews with top industry leaders, dealership innovators, and experts shaping the future of automotive.

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Announcer:

Welcome to Inside Automotive with Jim Fitzpatrick.

Jim Fitzpatrick:

Hey everyone, Jim Fitzpatrick. Welcome to another edition of Inside Automotive, right here at the CBT Automotive Network. The third quarter earnings are in for the major public dealer groups out there, and there's a lot to unpack beyond just the top-line numbers. Joining us today is Brian Gordon. You've seen him here before on CBT News. He's the president of the Dave Canton Group to share his perspective on what these results really say about the health of the retail automotive industry today. So, Brian, thanks so much for taking the time out of your very busy schedule there at Dave Cantin to uh to talk to us about some of these high points and maybe even some of the low points in the auto industry. But uh so looking at the at uh the you know the six public dealer groups that are out there, what what were there some of the biggest takeaways for this last uh earnings cycle?

Brian Gordon:

Yeah, I think the the first big takeaway um is that despite everything going on in the world and everything that we're hearing about, you know, internally and externally around the industry, um, it was kind of a boring quarter. And and boring isn't bad. Right. Trust me, you know, especially for public companies. Um, it was a very steady quarter despite the times. Um, there was a lot of strong growth from a revenue perspective. Um, you know, margins in certain areas of the business are doing really well, in other areas they're a little bit more challenged. But what it shows is that dealers have really figured out how to sort of balance the different parts of their business to meet consumers' needs and drive their own revenue and profitability.

Jim Fitzpatrick:

Right.

Brian Gordon:

Um, you know, in addition, we saw universal strength in in Fix Ops and F&I. Um, we saw new cars just kind of plodding along, and I think we realized the strategy there is just about customer acquisition. It's getting those units in operation, even if you have to give up a little bit of margin to do it.

Jim Fitzpatrick:

Sure.

Brian Gordon:

And I'd say the one uh thing that was a little challenging for the industry was used cars. Um, and that's really about acquiring enough inventory and enough inventory that they can make margin on, but we can unpack all that stuff a little bit more later. But those are really the four things that we saw coming out of this uh quarter's earnings.

Jim Fitzpatrick:

Brian, what's interesting is I'm talking to dealers uh uh uh you know around the country and uh presidents of auto associations and such, and I will tell you that uh things are a little bit different uh recently in the sense that the T-word doesn't come up as much. If if at all. I'm talking about tariffs. Have we kind of crossed over uh to a new era here in with regard to tariffs and the industry? It's it doesn't seem to be at the forefront of everybody's mind as it was five months ago.

Brian Gordon:

Yeah, truth is I don't think we know for sure what the future holds. This is an administration that you know can pivot on a dime, uh, but it's certainly very different than it was back in in March and April when everybody was really worried. And especially for the retail dealers, uh, I think what they've understood is that they're relatively insulated from tariffs. They've got most of their business that isn't affected by tariffs, and in some cases is potentially benefiting from increased prices and some affordability challenges like fixed ops. Um, and I think they've just put their heads down and realized that they're gonna control the things that they can control in their business, and they've realized that if something happens and they're more impacted by tariffs, then they'll deal with that when they have to deal with that. But for now, and this is what I meant in that that first quarter, sorry, this this quarter was a little bit boring, they really understand how to operate in these times and and they're operating very well.

Jim Fitzpatrick:

Sure, sure. Yeah, there's no tariffs on F&I income, there's no tariffs really that that much on you know paid labor, right, and service. There is uh a little bit on parts, obviously. Uh, there isn't on used cars. So I agree with you. Dealers have a way of pivoting around any major issues, and uh and tariffs seems to be one of those situations where it's like, hey, some of the manufacturers said, hey, we'll absorb it. I don't know how much longer they can do that, uh, but uh but it it just doesn't seem to be uh you know that major issue, that major scare uh that we had uh a few months ago. And from your perspective in in advising dealers on buy-sells, is that coming up much or is that really not a-

Brian Gordon:

It's, it really, I mean you said the T word. We just don't really hear the T-word that that much at all from a buy-sell perspective. Um, some of the things that we are seeing that are worth watching, especially as we get into next year, that could be you know impacts from tariff, we are starting to see tariff-related line items creeping into sticker prices in different and creative ways depending on the state that dealers are operating in.

Jim Fitzpatrick:

Yeah.

Brian Gordon:

Um and and parts could be an issue down the road if we start to see disruptions in supply chain or parts companies that are having trouble or bankruptcies. Um, you know, a couple of manufacturers, European manufacturers this week actually announced that they were very worried about chips again. And so though that's worth watching because if all of a sudden we can't deliver certain types of vehicles that may be higher margin, or we can't get certain parts, that's gonna slow down the ability to provide service. Those are things that we're we're keeping an eye on. But for right now, for this quarter and and probably for the next one, are not having a big impact on the business. Yeah, yeah.

Jim Fitzpatrick:

From your perspective, what do what do the sales, uh, the the gross profit per unit look like across the board? Um they up, they down. What what what does that look like?

Brian Gordon:

Yeah, so for a little bit different picture for for new and for used, um, generally for new, uh they're down and down fairly significantly. Now that the publics typically like to report versus a year ago, same quarter.

Jim Fitzpatrick:

Yeah.

Brian Gordon:

You know, especially with second and third quarter, that holiday is a little bit different. And but second and third quarter aren't that much different. We were really looking at what would happen in Q2 and what happened in Q3. So consecutive quarters this year. And we saw some pretty significant declines, you know, 10, 20% from last quarter in terms of gross profit. Um, and again, I think that speaks to dealers just realizing let's keep inventory levels down.

Jim Fitzpatrick:

Yeah.

Brian Gordon:

Um, let's keep bringing those customers in so that we can service vehicles, we can sell them F& I products. And if we've got to lose a little bit of margin in new, that's not the end of the world because we're gonna make it up.

Jim Fitzpatrick:

Right.

Brian Gordon:

The used side was a little more interesting. Um, margins were um a little more, a little more firm. Um, and in some cases, we had uh a public that actually increased their uh their grosses on used. And I think that speaks to the some of the inventory challenges. Same store sales are down, um, they're just not able to get enough inventory, and so they're able to keep prices a little bit more firm, uh, and they sort of have to. Uh so you know, a little bit of a mixed uh of a mixed bag there, but again, what we are seeing is huge increases in F&I uh per unit and just fixed coverage uh by these, you know, by these huge companies.

Jim Fitzpatrick:

Sure, sure. Obviously, we saw you know a 12%, uh 12% of the market went into EVs due to the ending of the tax incentives there or the tax benefits in buying an EV. Um it seems as though many dealers have cleaned their shelves of EVs. EVs doesn't seem to be that major concern dealers are having uh moving forward. It kind of has stabilized a little bit. Um what are you what are you hearing about the EV market out there among your your dealers?

Brian Gordon:

Yeah, less than we've ever heard for years.

Jim Fitzpatrick:

Exactly. Yeah.

Brian Gordon:

It's um they're not being they're not being pushed on by the manufacturers nearly as as much. Um EVs are still really strong in certain parts of the country and and not in others. And I think we're gonna start to find out pretty quickly um you know what that sort of normal EV demand looks like in this in this country. And and there is demand. It's just gonna be very specific to a certain type of consumer or a certain part of the United States. Um, and I'd love to come back next week and talk more about the manufacturer earnings. I think there's way more interesting things that are going on with the manufacturers.

Jim Fitzpatrick:

Yeah.

Brian Gordon:

Um, but but I really think Tesla is gonna end up being the big beneficiary of this return to normalcy. And if we remember before all of the tax credits and everything, Tesla was dominating. And if General Motors, you know, who was a big beneficiary over the last year or two, yeah, realizes wow, we can make a lot of money because people are buying you know bigger trucks again, yeah, uh that diminishes the incentive to keep making and pushing the electric vehicles. So that's right. I think Tesla could be in for a pretty good run here. Um, but we'll talk about that a little bit more next week.

Jim Fitzpatrick:

Yeah, yeah, that that that's great. So um, you know, there's been some uh groups doubling down on acquisitions, as you know, while others are putting more money into stock buybacks. Um what are you seeing as a trend out there? What are some of the spending patterns that you're that you're recognizing?

Brian Gordon:

Yeah, no, I'm glad you asked that. Um we tend to really pay attention to where these companies are are deploying their cash. Um are they are they spending it on acquisitions to grow the top line? Um are they buying back stock because they feel that they're they're undervalued? Are they paying back shareholders uh in the form of dividends? Are they spending on CapEx? Um And obviously we had the huge Herb Chambers deal with with Asbury, and so that was a significant amount of cash that they put into that deal. Um But it's acquisitions have been a little slower from the publics, although a couple of publics, in including Lithia, signaled that they've got some big news that they expect to to come out with in the fourth quarter. Um and we've seen it, DCG, we've seen that as well. I mean, I think we have six or seven closings scheduled between now and I mean, really December 15th, because you're not doing anything after that.

Jim Fitzpatrick:

That's one that's one a week.

Brian Gordon:

Yeah, and I wish it were one a week. It's more like none for the next couple of weeks and then bam two or three or four in a week. Yeah. Right. Um, but and I think that's symptomatic of of what's happened this year is deals, deals are being done. Uh, the deals that we're doing are larger, even though we're doing a few less than last year. Um, and they're just taking a little bit longer to materialize and to work through numbers and diligence and all of those different things that you've got to do to get a deal closed. So I think it's gonna be a very, very active fourth quarter. And I think that's gonna lead into an incredibly busy first and and second quarter next year on the M&A side.

Jim Fitzpatrick:

Yeah, for sure. Um, is there is the money still available out there for acquisitions? I mean, it obviously you have Wall Street that's jumped into this in a big way, but and many financial institutions. Is it still pretty plentiful for for dealers that want to go, you know, search for some debt to acquire some more stores?

Brian Gordon:

Yeah, it it really is. There is a ton of money still, both inside the industry that wants to grow and outside the industry that wants to come in. Um and we may even see next year valuations start to increase, um, not like they did during COVID, but just because we've got some groups that are getting a little impatient. They really want to acquire, they have cash sitting on the sidelines, and you know, they may not be waiting for that perfect strategic acquisition. Yeah. You know, they may, you know, trade off a little bit in order to get something into their platform. And so we're starting to see, you know, dealer groups even getting a little anxious to deploy that capital because they want to be in the business. And goes back to the beginning of the conversation. We've had, you know, very challenging times in the world right now from a from a macroeconomic perspective. Um, and yet this industry is is having by and large a very good year. Like that's something, you know, dealers now are looking at other businesses that they're involved in, and yeah, you know, external capital is looking at the returns in other industries, and they keep coming back to automotive saying, I don't know if there's a best play, better place to put my money. So that really is maintaining valuations and I think even going to drive them higher.

Jim Fitzpatrick:

One trend that's getting some attention is rising bad debt provisions. How concerned should dealers be about this?

Brian Gordon:

Again, I think it's one of those things that's impossible to not pay attention to.

Jim Fitzpatrick:

Yeah.

Brian Gordon:

Um, you know, we actually looked in this quarter at a couple of the publics that that do their own financing, uh, Lithia and Auto Nation. Um, and we I hadn't looked at that before. And it was actually very encouraging. You know, one of the things you worry about is is our dealers stretching and our bank stretching to get customers in cars that maybe shouldn't spend quite as much money, but you know, things are expensive now. So we looked at the publics, and you've got, you know, Auto Nation with about 50% of their loans to customers with 700 plus credit scores. You've got Lithia with almost 65% with customers of 700 and above. And when you look at all of that and you look at what they're really writing down, um, those those businesses are incredibly healthy and they're doing it with a ton of discipline.

Jim Fitzpatrick:

Right.

Brian Gordon:

Um, and so we hope that the banks are doing the same thing. Uh, we have seen some cracks. There are way more subprime than there were before. Yep. Um, those interest rates are very, very high. We're seeing loan terms uh, you know, on new car, on new cars, but also just on leased vehicles extending out to 84 months. We're seeing the highest payments than we've ever seen. Yep. And when you put all that together, you you can't help but think that some of those consumers aren't able to afford the loans that they're in. Um, and so really have to keep an eye on that. And again, I hope the industry has learned from other sectors in in past times that you know the short-term gain is not worth the bottom falling out of the industry if we have a real, a real credit crisis in the business. So, again, I'm not saying we're anywhere near that. Yeah, but we would be foolish not to really be paying attention to it and to have our retail dealers be very disciplined, even if banks are willing to loan in certain instances, would love to see those dealers make sure that they've got standards that they're adhering to so that they don't get into trouble as well.

Jim Fitzpatrick:

That's right. That's right.

Brian Gordon:

And used is a it's a challenged area right now because affordability is hit hit used in an interesting way. So if people's lease terms are are longer, then there's fewer cars being turned in that can become used cars from leases. Right. If fewer people are buying cars, then um, you know, and and their loans are longer, then they're not trading them in as quickly. We know that the average age of vehicles on the road is getting longer. So there's just fewer vehicles coming in as as pre-owned used inventory or used inventory in general from those channels. Um, and what we saw a couple of publics specifically mentioned in their guidance um, you know, the challenges on margins. They've had to use more auctions than they typically like because they don't make as much money on vehicles they purchase from from auctions. Um and then Carvana really told the story. You know, obviously their their vast majority of their businesses in use, they had a great quarter. They beat on the top, they beat on the bottom, um, they knocked it out of the park. Yeah, but the stock was down double digits because they signaled that they're seeing real challenges in the future on acquiring enough inventory.

Jim Fitzpatrick:

Right.

Brian Gordon:

And and I think that's a story that everybody has been trying to figure out is you know, they've bought a couple of of new franchises now, um, and what's behind that? And and, you know, is that diversification because they understand that being in that one area is is, you know, creates some risk. But that's another going to be another fun story to watch, is sort of how aggressive is Carvana gonna be as they move into the into the franchise news space. Yeah.

Jim Fitzpatrick:

That's right. Um, I'd be remiss if I didn't ask you of the maybe a little bit of an update on Nissan and uh Stellantis stores. Uh I've got a couple of friends of mine that um have acquired both Nissan and Stellantis stores and said, no, this is we feel good about the future of those those companies, and we think that they've turned the corner. Uh they feel certain about that with Stellantis. They're still a little concerned about Nissan. But that being said, there's a lot of Nissan stores that are actually making money out there. And uh these dealers feel pretty good about that. Is that is that kind of the consensus out there that that maybe things are really turning around there?

Brian Gordon:

I think that I think that's right. I think in exactly how you characterize it, I think there's even more bullishness around CDJR.

Jim Fitzpatrick:

Yeah.

Brian Gordon:

Uh we're seeing those stores trade. We're seeing dealers actually asking to go find those stores. Okay. Um, and Nissan, Nissan, the same thing. I think there was this fear for a while that Nissan would would go away or it would get into bankruptcy or something. And right, you know, I think that is a byproduct of just a calming of you know the tariffs and and kind of the macroeconomic environment um that people realize this is a company that sells a lot of value, they're making better cars. That's right. Um and and we are seeing them bounce off the bottom too. So that's right. Um, you know, there really isn't a a franchise out there right now that consumers are are just saying, hey, I don't want anything to do with that. They're really looking at these as how can they positively impact our our business? Can we operate them well? Can we make money? Um, do they fit within the rest of our platform? Do they get us into an area that we want to be in? And I think that's an interesting point. You know, dealers that want to get into Texas or want to get into Florida, um, these are great entry points at a much lower cost than holding out for that Toyota or that Lexus store and paying double digit multiples, you know, and then you get your foot, your, your footprint started in a state that you want to be doing business in. And so we're seeing some of these transacting parts of the world that other dealers just really want to get into.

Jim Fitzpatrick:

Isn't that kind of the case out there that even if a new vehicle franchise is a little soft, you got body shop, you got uh uh uh service, you got used cars, which is crushing it right now if you can get the used cars. I mean, there's so many uh other facets of a new car franchise dealership for a dealer to make money on that it it just kind of it's the ebb and flow, right?

Brian Gordon:

Yeah, yeah, for sure. And you're you're also seeing other reasons. You've got um, you know, first-time dealers that that's their way in. Yeah, they're not walking into a Toyota store.

Jim Fitzpatrick:

Yeah.

Brian Gordon:

Yeah, and and that's great. And then once you're a franchise dealer and you establish yourself and you perform well and and they you prove you can run the business, right? Now you go from Mitzu and and you can go into another import. You go to Mazda, you go to you go to a Nissan and you start to build your business. I think that's a really important thing that's that is it can't be lost. As we talk about all this consolidation and groups getting bigger, yeah, it is so critically important that great people with fire that want to be dealers still have a way to get into this business because someday they're gonna own you know five, 10, 15 stores and they're gonna be those big groups. And I think some of these stores, the CDJRs, the Nissans, uh, the Mitzus that the manufacturers are being a little bit more flexible on who they let into the family, yeah, um, they're gonna be rewarded because those are the people that that again really want to succeed and really have have have fire to be in this industry. So yeah.

Jim Fitzpatrick:

And it seems as though the business model for all of the publics and the big guys that are out there is to get the high volume metro stores. Let's surround ourselves with those, you know, uh volume covers a multitude of sins. We'll make a boatload of money, um, which leaves, I think, huge opportunities for the private cap smaller companies out there to say, good, go go into the metros. We're fine. We're fine taking care of our of our uh of the you know of the markets that we're in, even though they're outlying markets outside of a metro, you know, you can still make a boatload of money selling 150 cars a month and having a good fixed ops operation and bot and body shop and such, right?

Brian Gordon:

I mean, there's no yeah, no question. And and you've got publics that are, you know, that are that are intentionally exiting certain parts of the country because they don't want to do business there.

Jim Fitzpatrick:

Yeah.

Brian Gordon:

But there's also dealers that make a ton of money in those places that a public doesn't want to be. So, you know, case in point, it's not even just about bigger metros. It could be about certain states with certain, you know, uh regulatory um challenges or aren't as friendly a business environment as another state. That's right. But the dealers there, to your point, still do really, really well.

Jim Fitzpatrick:

Yeah.

Brian Gordon:

Um, so that's again, it's just it what may it's it what it's what makes this such a great industry is dealers, regardless of external forces or where they are, they understand how to service customers um and they know how to make make money. That's right. Um and I would go back to the last point, you know, you mentioned the all these, you know, the banks, and there's all these people that are looking to make money by providing loans to consumers. At the end of the day, all of this boils down to the fact that Americans still just love cars and they have to have their cars and they have to be on the road and they have to work, and they don't just want one car. And you know, when their kids turn 16 or 17, depending on where you are, they get a car. I mean, and and so at the end of the day, let's not forget that if consumers weren't driving this sort of demand and the need to have vehicles and have vehicles that that work and drive all over this incredible country of ours, we'd probably be talking about a very different story. And and I don't think any of us see that changing anytime soon.

Jim Fitzpatrick:

Last question, based on you know, your uh, you know, what you're seeing out there in the way of uh these earnings reports and the trends and and things of that nature and where you sit as president of Dave Cantin Group, working with hundreds of dealers all over the country, some in other countries. Um what's what's your takeaway that you can share, or maybe some action items that you think dealers should really be thinking about as they close out this year and go into 2026?

Brian Gordon:

I I think it's a lot of what we talked about. I mean, you know, there's there's six companies out there that operate a business just like every other dealer, right? Bigger, obviously greater scale. But, you know, it tells you to pay attention to what's happening with used and really make sure that if you're relying on used for for gross and for margin, understand that inventory is going to be a challenge. Look at where you're getting your vehicles from. Look at who is sourcing your vehicles and who's buying your vehicles, look at your used car manager if you even have one, if you're a smaller dealer, and don't project revenue and and margin there unless you're prepared to meet the challenges that are ahead of us right now. Um, you know, fixed ops and and F& I, again, uh there's whether it's it's two or three quarters or or two or three years, you're not gonna get expansion in those areas for forever.

Jim Fitzpatrick:

Yeah.

Brian Gordon:

And so understanding whether you're maximizing what you have in fixed and in F&I, do you have great partners in F&I, right? Are they bringing you products that your customers, that your customers want and need and that you can make money from? And have you done everything you can to maximize fixed? Do you need to invest in capital to to build more bays or to modernize some of your technology? Do you need to spend on that AI scheduling software that's gonna make you know the whole the whole company a little bit more effective? And so I think it it's don't take for granted that the status quo isn't gonna change by next quarter or the quarter after, and really look at these areas, look at what some of the publics are saying they're identifying as challenges and address those challenges now before revenue or margins start to really fall off. And I think that's why we come and love talking about these things because they really are there's great information that dealers can look at and learn and apply to their own businesses and really look inward to understand whether they're doing everything they can right now to set themselves up for success in the coming quarters.

Jim Fitzpatrick:

Right, for sure. Great advice, Brian Gordon, president of Dave Cantin Group. Thank you so much for all the time you've given us here at the show. We very much appreciate it. I know our dealer audience will get a lot out of your visit with us here today. So thanks so much.

Brian Gordon:

Thank you. Appreciate it. Thanks.

Announcer:

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