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Many experts predict the end of auto and truck dealerships over the next 10 to 15 years. Experts believe dealerships will fall victim to driverless vehicles, ridesharing, innovations in human mobility and changing consumer buying habits.
Over the past 2 decades, most auto and truck dealerships have prospered despite the Great Recession (the average dealership doubled its profits during that time), internet disruptors and even millennials’ decreased desire to own vehicles compared to previous generations.
This industry’s resiliency is worth banking on. Here are 5 auto and truck dealership stocks with potential.
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Overview: Auto and Truck Dealership Stocks
Auto and truck dealership stocks are in a cyclical industry — success is dependent on consumer confidence. When consumers get nervous about the economy, dealerships feel the pinch and operate under low profit margins. This causes a common dilemma for dealership management during low demand periods. They can either bite into their profits by offering customer incentives or they can protect their profit margin while giving up sales to their competitors.
It’s true that auto and truck dealerships have felt the impact of Tesla, Uber, Lyft and other auto and truck market disruptors. However, most of these new entrants struggle to be profitable.
Consider these facts as you research this industry:
- Since 2013, total annual sales for new vehicles rose from $390 billion to $520 billion.
- In 2018, vehicle dealerships created over 2 million jobs.
- That same year, vehicle dealerships generated $1 trillion in total sales.
- The 2018 dealership payroll was $66.6 billion.
Understanding an industry’s influencing forces helps you make better trading and investing decisions — including understanding consumer demand. Do careful research as you select the right car and truck dealer stocks for you.
Best Online Brokers for Auto and Truck and Dealership Stock
Most investments come with some amount of risk. Online brokers can provide you with the resources to help you manage the risks associated with stocks. Here are some of the best online brokers.
Intermediate Traders and Investors
Features to Look for in Auto and Truck Dealership Stock
You’ll want to understand each company in detail, but here are 3 things you can research to be sure you’re choosing the right stock for your needs:
- Price-to-earnings ratio (P/E ratio): Since car and truck dealer stocks are cyclical, the P/E ratio is a useful evaluation metric. It indicates the investors’ present valuation of a stock by comparing the amount they are willing to pay with the stock’s actual earnings. You can calculate a stock’s P/E ratio by dividing the market price per share by the earnings per share.
- Revenue/long-term revenue growth: Checking present and historical revenue can give you an idea of a stock’s future potential. Current revenues prominently appear on a company’s income statements and quarterly earnings reports.
- Debt levels: A company’s debt levels can have a tremendous effect on its stock performance. Sometimes, a company must utilize a good portion of its assets to stay competitive. Check debt-to-equity ratios — divide the dealers’ total debt by total assets.
Auto and Truck Dealership Stocks for the Long Haul
Auto and truck dealerships have endured tough times in this country. Throughout these changing times, this sector has shown a consistent pattern of growth. If you are looking for an investment with relatively safe exposure and consistent growth, auto and truck dealership stocks may fit that category.
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