Inside Automotive with Jim Fitzpatrick, powered by CBT News

Auto Market Trends and Buy-Sell Insights with George Karolis

• Jim Fitzpatrick • Season 1 • Episode 32

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The automotive retail market continues to evolve—and few have a clearer view of where it’s heading than The Presidio Group. On this episode of Inside Automotive, Presidio President George Karolis shares insights from recent M&A activity and breaks down findings from the latest Presidio-NCM Average Dealership Performance Benchmark report.

Based on data from more than 4,000 dealerships across the U.S., the report highlights key shifts influencing profitability, including:

  • Rising profitability year-over-year
  • Continued normalization of new-vehicle margins
  • Strong gains in F&I performance and per-unit profit
  • Softer results in used vehicles and fixed operations
  • Lower floorplan and advertising costs driven by improved inventory discipline


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.

For more content, visit CBTNews.com and follow us on your favorite podcast platform.

Jim Fitzpatrick:

Hi everyone, Jim Fitzpatrick. Welcome into another edition of Inside Automotive right here at the CBT Automotive Network. The Presidio Group has been very, very busy this year, advising on several major transactions across the country. Joining us in the studio now is George Karolis. You've seen him here before on CBT News. He's president of the Presidio Group to tell us more and uh also take a look at the recent Presidio NCM Average Dealership Performance Benchmark Data Report. Thank you, George, for joining us in the studios.

George Karolis:

Thanks for having me, Jim. Yeah, good to be here.

Jim Fitzpatrick:

Thank you for joining us. You you're on like an incredible schedule because you guys just keep closing deals and closing deals and working with dealers all over the country. So congrats on a great year.

George Karolis:

Thanks. Busy Year but we're only a mile away -

Jim Fitzpatrick:

That's right. You're one of the few uh clients that we have that's uh so close, right? We always see each other at lunch. That's right. Well then you never buy me lunch, which I think is wrong. I think you should, you know.

George Karolis:

Yeah, I can't afford your your your habits.

Jim Fitzpatrick:

So uh so tell us about the report.

George Karolis:

Yeah, you know, our partnership with NCM is is truly uh you know incredible. We have data for over 4,000 dealerships that we report on quarterly, you know, generally pretty quickly within a few weeks of the quarter end. That's nice. Uh you know, this interesting, some interesting tidbits this year, profits still um trending higher uh year over year, third quarter up on average about seven percent overall profit-wise. But wow, seeing you know some components of that, uh some kinks in the trends, margins are still normalizing and new vehicle margins down about 15%, uh right back kind of back in line with 2020 levels. Okay. And so on the new side, some some continued pressure in the normalization, right? Uh use side a little softer as well, but bright spot was F&I. F& I was up about 7% quarter to quarter, um, which is helping drive profits. And then we see expenses coming down in a couple areas, floor plan and uh advertising. So floor plan over 50% reduction in expense. So I think some of that contributing to that profit increase. Yeah.

Jim Fitzpatrick:

Why do you think that we saw that in was it did it have anything to do with maybe the clearing out of all the EVs?

George Karolis:

Yeah, probably clearing out rates tick down a little bit, obviously, right? And then clearing out of EVs. Yeah, we had uh, you know, this time last year a lot more inventory. Yeah. It was kind of up and down. Yes, right.

Jim Fitzpatrick:

Yeah, exactly. Do you think the OEMs have learned their lesson at all to say, let's keep this to maybe a 45-day? No. No. They just keep shipping them out.

George Karolis:

Yeah, because well they're in are they in business to uh not make cars or make cars?

Jim Fitzpatrick:

That's right. That's right. That's why it was always amazing to me why Tesla and Rivian wouldn't go the route of our franchise network because they're able to just dump all that inventory on all of these entrepreneurs that say sure, we'll take your 500 cars, right?

George Karolis:

Yeah. I mean, I think dealers have gotten you know uh tighter on it and and stronger. I remember, you know, in the in the Great Recession being at Asbury and OEMs were trying to push everything out. You know we have daily meetings on inventory management and what you know how to manage through that and not take vehicles. So I think dealers have have a leg up on that now and aren't you know being forced to take vehicles. They can say no and know when to say no, but it's you know, it's not perfect. Yeah, yeah.

Jim Fitzpatrick:

Was it were there any numbers of the report that you found surprising, whether it was up or down?

George Karolis:

Well I think fixed operations is interesting. There's a lot of noise on the fixed side. Uh fixed continues to grow overall. Yeah. Uh, and you see a lot of strength in public company reporting this quarter on fixed. Um you see softer fix with the privates um this quarter on a more- on a on a gross overall gross percentage, but that's because um this the the third quarter of last year is when the CDK, you know, CDK was impacted in late June of 2024. And so a lot of private dealers, because they don't report on GAAP, right, just push those sales and that recording of sales and and profitability into the third quarter of last year. So last year, private companies were up 12% from a fixed perspective. Okay. But that's because there was some pull forward from June of 24 into the third quarter of 2024. And so you see a little softer number there. Uh, we are seeing, we have some data that we don't report, but anecdotally that RO can't RO counts are kind of flat. They're not really growing tremendously, probably because there's a lot of pressure on cost. Um with labor rates increasing tremendously over the last couple of years, uh, there's pressure on the consumer from from a spending perspective, an affordability perspective. Right. And so it's really coming from price, not not uh increased ROs, at least on the private sector.

Jim Fitzpatrick:

Do you think because of that more consumers are really shopping around more than taking it to the the selling dealer that with the perception that's gonna be a good thing? Yeah, some of that dealers charge more, it's gonna take a little bit longer and some of that, and some just uh deferring.

George Karolis:

Yeah. If they can. Right. A little bit of that. But I mean it's not it's not significant or material, it's just a little bit like and more anecdotal. Um you know, but fix is still a bright spot. Publics are focusing on it tremendously, they're investing in it, privates are investing in it. Sure. The technology that we're seeing is helping fuel that growth. Vehicles are more complex, harder to work on, and so that trend, uh I mean, fix will continue to be a bright spot and and and be around, if you will. Uh, but it's just there's more pressure on it from uh from inflation perspective.

Jim Fitzpatrick:

Does the fact that a dealership have a large fleet of mobile service units play into the valuation of that store? Is that there doesn't have too much to do with it?

George Karolis:

Not not um significantly yet.

Jim Fitzpatrick:

Uh I talked to one dealer, he's got 40 mobile vehicles.

George Karolis:

Oh look, I think the road is mobile is yeah I'm a big fan of mobile, we're big fans of mobile. It's a future. I'm only mobile, you know, my good friend Eddie Stivers, uh Stivers Automotive Group. Uh mobile. I use their mobile, they service any vehicle. Sure. It is the most convenient, amazing thing, and they have it dialed in. And so I'd say the dealers that continue to focus on mobile, it's what the customer wants. Right. It's and once you once you try it, once you use it, you don't want to go back. Now look, there's not a there's certain things that can't be done with mobile that that you have to bring the vehicle in. Right. Um, it's not really impacting valuation. Now, um behind the scenes it might be, right? Because if your fix is growing uh from an outsized perspective, because you have a great mobile service where you're growing your business and customers are flocking to that, sure, then yeah, it's gonna be in the numbers, which ultimately better numbers, you know, there's better valuation. Um but I I see that trend um as a big trend. Go forward mobile. We'll see a lot of people.

Jim Fitzpatrick:

If I were a buyer out there of a dealership and they had a a uh a network already set up, they've got 20, 30, 40 trucks on the road, they've got the techs hired, they've got this thing all dialed in, that would be appealing to me to say, okay, these guys uh see the future and they're they're in it in a big way.

George Karolis:

Definitely, definitely.

Jim Fitzpatrick:

Yeah, yeah. Interesting. So uh and then of course F& I income. Where does that stand today?

George Karolis:

F&I is a bright spot. We saw F and I increase almost seven percent uh over sixteen hundred and sixty uh dollars a unit, sixteen sixty-six. Nice. And so I think that's been um also a driver of this seven percent increase in overall profitability to stream F&I.

Jim Fitzpatrick:

A nd and why the why the increase, do you do you think in-

George Karolis:

You know I think you know there's look, there's uh warranties are a little more expensive. Uh rate, spread because rates came down actually makes spread a little easier. Yeah, I didn't think about that. And you know, just focus.

Jim Fitzpatrick:

Right. Focus. Right, yeah, for sure, for sure. So uh let's jump into these uh multiple high profile transactions that you've had. I mean you've had a a series of big um notable transactions. Talk to us about that.

George Karolis:

Yeah, well we've done 15 deals this year, transactions this year in our in our dealership and tech business, mostly dealership. Um but yeah, the the last few months we've done a couple notable ones. Uh in particular, uh we facilitated the sale of uh Fletcher Jones, Mercedes and Audi in Chicago, really large volume metro stores to Autonation, yeah, uh who has a presence in Chicago and has grown that presence. You know, that's uh classic portfolio management, which we preach to dealers and our clients and friends around the industry. And so Fletcher Jones, most of their operation, they're an iconic brand, uh, mostly in the West Coast, California, Las Vegas.

Jim Fitzpatrick:

Drill down on that a little bit in terms of uh portfolio management. What what does that what does that mean to deal with?

George Karolis:

Yeah, sure. We see the publics in particular and then the larger privates and even the smaller and medium uh focusing, you know, that constantly now, the best in class uh dealers now constantly evaluating their portfolio dealerships. Not ever every dealership uh works for every dealer. Yeah. And it could be a geographical issue, it just could be um just not the right fit for a dealer. Right. Um it could be a management issue, it could be uh just a lack of desire to invest in that business or in CapEx. And so we see uh dealers regularly uh looking at their portfolio, and sometimes even though they're growing, and they're not necessarily sellers, pruning off stores. Okay. And our last three transactions actually were all uh large groups that are not sellers, that are overall net growers and trying to grow their business, sell stores off. Okay, okay.

Jim Fitzpatrick:

And using that capital to then throw it.

George Karolis:

Yeah, typically it's not a capital issue as much as it's a portfolio optimization issue, real really resources, and so you don't have unlimited personnel resources and and and human resources. So, you know, and sometimes it's the 80-20 rule. Sometimes some of your your hardest stores are taking up 80% of your time and you want it to be the reverse. That's right. So that's another reason. And then also we see publics and uh large, large privates, oftentimes when they make acquisitions, they might hit a cap. Particularly, we see a couple of the public. We did a deal for Asbury a couple years ago where we helped them sell a Lexus store uh from the that they purchased from the Coons acquisition because they hit a cap. Okay. And so they had to sell a store. And so you'll see it for that reason as well.

Jim Fitzpatrick:

That's gotta bring you to tears when you gotta sell a Lexus store, right? That's uh Lexus. It's not a good day.

George Karolis:

In our survey that we do twice a year, Lexus continue to be right at the top. Yeah, that and Toyota. Right, yeah. That's right.

Jim Fitzpatrick:

Yeah. So also Stivers here, right here in uh Atlanta, our our hometown. That's right. Right? That that's a big deal.

George Karolis:

Stiver Subaru, yeah, in Decatur, really large, tremendously, you know, tremendous store. Yeah. Uh but you know, Stivers, Eddie and his family, they're focused on Ford and and Hyundai and other brands, and you know, this was a strategic, you know, uh sale for them to optimize their portfolio. They bought a few Ford stores just here in the last year or so. And so it was a great deal. Lithia is trying to grow on the market and they were the natural buyer and and stepped in and you are now the stewards of that store.

Jim Fitzpatrick:

Yeah, that's a nice they've got some stores uh in South Carolina as well, right?

George Karolis:

That's right. Yeah. And our recent most recent deal we closed last week was actually for the Hendrick, uh, Hendrick Automotive Group, one of the largest privates in the country. Hendrick, you know, again, you would think, oh, they don't sell stores. Well, they had a Honda store in a market where they don't have a big presence, it wasn't working for them, and they decided strategically to sell the deal. Okay. And the Ourisman family through the Grand Ourisman partnership, Chris Ourisman, um, they had stores right there, Toyota and Chrysler right in the market. Yeah, and so it was a natural fit for them, and it was a kind of a one-on-one deal. Um sort of a match deal.

Jim Fitzpatrick:

Sure. Sure. Um I I asked this of of your colleagues in the industry. Is it a buyer's market or a seller's market right now?

George Karolis:

It's definitely still a seller's market. Yeah. Uh and it has been, you know, since the pandemic uh and and a little bit before the pandemic. Sure. Uh it's definitely still a seller's market. We're seeing um record demand still from buyers, more buyers and sellers. Now, of course, we preached this, right? Brand geography are more important than ever, but also deals have to be rational. And um, you know, the last few years, in particular a couple years right out of out of coming out of COVID, we we like to refer to it as a gold rush. Right. It brought in a lot of new buyers, but it also brought in a lot, a lot of advisors. And and we see oftentimes uh uh some dealers having uh wrong expect incorrect expectations about the value of their business. Okay. And some folks telling dealers what they want to hear in terms of what their business is worth, those deals are tougher to get done, right? Okay. The the we call that the bid as spread. So if it's a rational deal and a seller has a rational expectation of value, right, uh then then it's a seller's market because there's gonna be demand by buyers, right? And of great value, but again, but not you know, uh outside the lines, if you will. And we're just helping rational.

Jim Fitzpatrick:

We were talking before we got recording today that that you've got some pretty cool ways now to um to really hone in on what the value of a specific dealership is. So when somebody calls you and says, hey man, I'm sitting on a whatever it is, a a Chrysler store or a Dodge, you know, or Toyota or Nissan or whatever the case might be. Um can you give me an idea of what this this is worth? And you got a pretty I mean you can pretty much dial it in today, right?

George Karolis:

Well we're talking we were having fun talking about a little valuation tool we created that's a little more for for fun, but no, we have a pretty uh dialed-in process. It's pretty sophisticated, it's it's uh intense. Um we won't actually uh engage with with it uh uh on uh either the sell side or the buy side with anyone unless we're on the same page with our clients in terms of what value is. And so we'll do we always do valuations and give a sense of what the value is, and there's a lot that goes into it. Sure. You know, um a hundred years of expertise with our team members, um, a lot of data, database, robust database full of information about what stores, you know, uh overall around the country, but then in in certain regions are worth and and we'll um and really it's about what the expected cash flows are. Right. So you have to I I think we we talk about this, I think I said this in our uh report that we we recently released that there's not one um dealer financial statement that is ever completely accurate um when you go to market. There's always adjustments that have to be made one way or the other, right? And so um and then take that, multiply it, you know, take that forward, and then it's it's what opportunities are there, what store, you know, what how should the store be performing? Right. And so every deal is unique, and there's numerous uh concepts and numerous uh sure, you know, sort of levers that go into valuing the dealership. Uh and you know you want to do that upfront. Uh you never want to go to market uh with uh uh an expectation that you're not aligned with with a seller. Right. Um because if you do, then nobody wins, right? The deal ultimately doesn't get done. So the deals that are not in alignment where uh there's an improper or unrealistic expectation of value, sure is gonna be under pressure. We've seen a couple of those recently that uh not our deals, but just out out in the market as we help other clients. Um sometimes deals just don't make sense. Folks are asking for too much. But right in the main, if it's valued properly and again it's a seller's market, deals are getting done.

Jim Fitzpatrick:

Right. And if the if a dealer acquired a store in uh 2021 after COVID or 2022, and they paid those huge you know telephone numbers and they want to get out of the store, it's a difficult it's almost like trading your car. Well, kind of at that point in time, go man, I got you know 40 million in this store. You know, you're telling me it's worth thirty or you know.

George Karolis:

I actually think a lot of those are exceptions and outliers. Okay. Uh all the deals, most of the deals, I should say most of the deals we did during that period, none were valued off of peak earnings. Okay. Um the comp complexity then was how do you figure out what normalized earnings, what what the right the real earnings are gonna be of this business go forward. Right. And it was never off that peak in 21 or 22. Yeah and there were a lot of different scenarios and folks saying, well, we're gonna take the average of pre-COVID and post-COVID, or we're gonna take the four-year average. You know, it was difficult, um, but most deals were not valued off of peak earnings, right? So they were there was an expectation, just like the public companies, if you looked at their trading multiples during that period of time, yeah, they were trading, you know, well below where they're trading today from an EV to EBITDA from an earnings to EBITDA perspective, right. Um, because the markets are pretty sophisticated, you knew that these earnings levels aren't going to be sustainable. Um so their multiples looked different.

Jim Fitzpatrick:

Yeah.

George Karolis:

Their earnings were great, their values were tremendous, their enterprise value was still great. You know, so that's how private deals really were acting. Sure. Then, but there were some outliers, and in particular some of the brands that are really struggling today, that's probably what you're talking about. Yeah. We don't need to name those brands.

Jim Fitzpatrick:

We've now been talking for, I don't know, 15, 20 minutes, and neither one of us have used the T-word tariffs. Uh are we not talking as much about that in the industry, especially in this segment here in terms of, you know, the buy-sell market, is that just not a factor anymore or or what?

George Karolis:

Not really. I mean it it's uh it's uh small factor in terms of some of the brand preferences. Okay. Um so uh you know, you see some so you see it anecdotally with but not not in your face anymore.

Jim Fitzpatrick:

Right.

George Karolis:

We just had our uh third annual Tech Auto Tech Conference, Presidio Auto Tech Summit in Denver, which was sold out last week. And we actually after after the conference, there's about 150 people there, we were debriefing and we say, you know, we didn't talk about tariffs once in this entire conference, same thing. Right. Didn't come up once.

Jim Fitzpatrick:

Isn't that crazy?

George Karolis:

It's all about AI and and uh technology and-

Jim Fitzpatrick:

You go back a year or you go back you know eight months or whatever to be like, oh my god, the industry's over, you know, for your trade.

George Karolis:

Yeah, just like the internet.

Jim Fitzpatrick:

That's right. We we did uh talk, I brought this up a number of times when we talked to uh Senator Bernie Moreno, as you know, is a car dealer, and uh and he said, you know, this is a blip on the radar in a year, we won't even be dust uh you know talking about this. And maybe he's right, you know, in a year we won't even be talking about it. That's right.

George Karolis:

And we're gonna have Senator Senator Moreno at our um Auto Team America annual conference in Las Vegas. Oh, very cool. Uh in February. Great at the Wynn Hotel. So hopefully everyone all viewers can come join that. He'll be there among a lot of other uh great, great folks. So he's amazing to listen. He's really dialed in. If you want to really know what the government's thinking, he'll he'll talk about it as much as he can.

Jim Fitzpatrick:

And it's so good that we have uh you know a car person, you know, a car guy or so to speak, at the table now and uh right there in the thick of things, you know, helping us uh you know thro through all of this. So uh we need more. We need more Bernie Morenos uh running you know running for office, right? But uh,

George Karolis:

Scary thing to do though. It's uh... tough environment.

Jim Fitzpatrick:

So talk to me about the future. What is what is the the the rest of the year look like in with regard to M&A? And then what is the first quarter or beyond look like in 2026?

George Karolis:

Yeah, uh you know, our our year will end pretty strong. We've got several closings uh scheduled for the next uh two months. Okay. You know, well into mid-December. Once you get past mid-December, the OEMs sort of go get you know go on vacation. Right. But uh so we'll see the four or five deals close uh in our business uh during that period. And our pipeline uh in into the first quarter is uh stronger than it's ever been, so it's probably a record pipeline. So we're gonna see a lot of deals, at least from our perspective, transpire in the first quarter. Yeah. And I expect that you know to continue throughout well into next year and actually into future years, you know, this again, whether it's a seller's market or buyers market, um, the demand from dealers for for assets and to grow is there. We're gonna see consolidation. We expect to see consolidation for years to come. Okay, okay.

Jim Fitzpatrick:

The future of the mom and pop, I have one or two stores. Will it just continue to be increasingly more difficult for me to operate my stores because of the consolidation out there, or not so much?

George Karolis:

Somewhat. You know, it depends on the the geography, right? If you're in more rural areas and uh you know you have less competition, perhaps not, and it's a you know um community business, you know, and larger metros gets a little tougher. Yeah, costs continue to increase, competition's strong. Yeah, every metro's different, every market's different, but the investment required uh as AI is coming into the business and technology comes into the business, facility demands keep changing, they always do. You know, it's just it's a pressure on on investment. And look, it's expensive to renovates uh um dealerships today. You know, the cost of uh building is at record levels, and there's not much end in sight to that. That's right. So that's right. You know, it's cross-board.

Jim Fitzpatrick:

Um any any comments on on Nissan, and then the follow-up's gonna be your feeling on um on Stellantis stores.

George Karolis:

Yeah, I mean both we're seeing some positivity. We're seeing uh a little drumbeat from private dealers more so.

Jim Fitzpatrick:

Okay.

George Karolis:

Um, which are a little bit more longer-term focused, um, taking shots at Nissan and Chrysler, thinking they bottomed out, thinking they've made some good changes, management-wise, product-wise. You know, Chrysler's gonna lag that on the product perspective, but we're actually seeing a little bit more positivity in both brands and dealers actually asking about them, and some even saying, hey, I'm looking for Stellantis dealerships, I'm looking for Nissan dealerships. So we're seeing that more a lot more than we didn't do. I don't know, they turn the corner per se, but we're seeing dealers and dealers are you know, dealers are smart folks, yeah. And so um, you know, from a risk adjusted perspective, earnings are lower on these businesses now. Uh so from an overall valuation because again, it's all about earnings. Yeah. You know, people talk too much about multiples, most of the equation is about earnings. Right. And so as you apply, you know, uh the earnings component to value, right? There are some deals there now in some of these businesses, and so we're seeing more demand. Great, great.

Jim Fitzpatrick:

So dealers, uh, if you're Nissan and you're Stellantis and you're thinking about maybe this is the year, right? Call you.

George Karolis:

Or maybe you're you'll start making more money.

Jim Fitzpatrick:

Oh, yeah. That's right. That's right. I was sorry to see the um I I can't remember the the gentleman's name and it forgive me for that. I interviewed him. But uh the guy that took over the for Nissan for sales and marketing, he came from Toyota, great guy, and then uh he but he left the the industry. That's right.

George Karolis:

Yeah, he sent to uh telecom.

Jim Fitzpatrick:

Yeah, right. Yeah. So um, because I think a lot of people were feeling as though, hey, this this this guy's got to be.

George Karolis:

Yeah, Jason Stein had him on stage at the uh JD Power. Am I allowed to talk about that JD Power conference in New York last year? You were there, that's right. That's right. And uh yeah, he he was pretty impressive on stage.

Jim Fitzpatrick:

Yeah, he was. Yeah, good guy. Good guy. But uh but that's the auto industry, right? Right. So uh any final comments that you want to share with the dealers uh about the industry or uh your your forecast. I I guess you just really touched on uh all things are looking good for-

George Karolis:

Yeah, look, I'm not here to give advice to dealers, they're better operators than I am

Jim Fitzpatrick:

Wait a minute You're an advisor. They want advice. I'm an advisor.

George Karolis:

Uh I can give them a lot of advice on the value of their business. Okay, there you go. You know, they they can tell me how to run a bit run a deal. But I think you know, dealers are incredible uh entrepreneurs, and yeah, uh there's so many of them in the in the business. And yeah, we're really excited to see. Yeah, uh we're we we kind of feel like this is still a golden age uh for the dealership business. Folks are loving personal transportation and uh technology is only helping because it's not hurting it.

Jim Fitzpatrick:

For sure, for sure. And um uh we didn't touch on affordability, that still continues to be kind of a pain point in the industry.

George Karolis:

Yeah, I mean average price in September over fifty thousand dollars from some of the data we saw. There's data different data out there, right? And there's pressure on the consumer. Yeah, yeah. Hopefully we'll see rates tick down some more. Right. Um, but it's uh wallets are being stretched. Yeah, it's crazy, crazy.

Jim Fitzpatrick:

George Karolis president of the Presidio Group. Thanks so much, man, for stopping by. You're right around the corner, so I don't know why you're not in here more.

George Karolis:

All right, let's have lunch.

Jim Fitzpatrick:

Thank you. It's on you.

George Karolis:

Thanks for having me.

Jim Fitzpatrick:

Thanks.