4 Auto Retail Stocks to Keep on Your Radar as the Industry Evolves

The  Zacks Auto Retail and Wholesale industry is undergoing major changes, driven by shifting consumer habits, policy shifts, and strategic moves by key players. EV sales are likely to see a near-term boost as buyers rush to take advantage of expiring federal incentives. At the same time, affordability remains a challenge. Though rising incomes and dealer incentives have provided slight relief, tariffs on imported vehicles continue to limit options for budget-conscious buyers.

In response to these pressures, auto retailers like Penske Automotive PAG, Lithia Motors LAD, AutoNation AN and Group 1 Automotive GPI are ramping up strategic acquisitions to expand market share and diversify offerings. Parallelly, the push toward digitization is gaining momentum, as dealers invest in online platforms to meet evolving customer expectations and improve profitability.

Industry Overview

The auto retail and wholesale industry plays a key role in how cars, trucks, and auto parts reach consumers. Companies in this space operate through dealership networks and retail chains, selling both new and used vehicles, offering repair and maintenance services, and helping customers with financing. Since this is a consumer-driven industry, its performance often depends on how strong the economy is. When people have more disposable income, they're more likely to spend on vehicles. But during tougher times, like economic slowdowns, big purchases are often put on hold. The COVID-19 pandemic changed the way the industry works, pushing dealers to focus more on online tools and e-commerce. That digital shift is expected to continue, shaping how vehicles are bought and sold in the future.

Factors to Shape the Industry Dynamics

Affordability Inches Up But Tariff Pressures Loom Large: Car affordability saw a modest improvement last month, not because vehicles got cheaper, but because consumer incomes edged up and dealers increased incentives to attract hesitant buyers. However, this relief may be short-lived. Industry experts warn that any further gains in affordability are unlikely, especially with tariffs casting a long shadow over the market. Tariffs on imported vehicles and parts can add as much as $5,700 to the cost of a new car, particularly affecting lower-priced models that appeal to cost-conscious consumers. With limited trade relief in sight, these added costs might weaken sales volumes.

EV Sales to Rise in the Near Term Before Declining by Year End: The EV market is heading into a transitional phase. While first-half 2025 U.S. EV sales hit a record 607,089 units—up 1.5% year over year—the story is more nuanced. According to Cox Automotive’s Kelley Blue Book, second-quarter EV sales dropped 6.3% year over year but climbed 4.9% sequentially, hinting at short-term momentum. That boost likely reflects consumers pulling purchases forward to capitalize on expiring federal incentives, which are set to end in September. As a result, third-quarter sales could be strong, possibly breaking more records. But the outlook beyond that is murkier. Without the cushion of government subsidies, demand is expected to take a hit in the fourth quarter.

Strategic Acquisitions Are Boosting Market Share: Auto retailers are making strategic acquisitions to strengthen their competitive positioning and expand into new geographic territories. These deals not only boost market share but also allow dealers to diversify their brand mix, customer base, and service capabilities.

Digitization is Ramping Up: The industry is embracing a digital-first approach. As more car buyers gravitate toward online vehicle purchases, dealers are investing in technology platforms to meet evolving expectations. This digital shift is broadening customer reach and is leading to more seamless buying experiences, ultimately translating into improved margins and operational efficiency.

Zacks Industry Rank Is Encouraging

The Zacks Auto Retail & Wholesale industry is part of the broader Zacks Auto-Tires-Trucks sector. The industry currently carries a Zacks Industry Rank #91, which places it in the top 37% of 245 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.

We will present a few stocks that you might consider adding to your watchlist. Before that, let’s discuss the industry’s recent stock market performance and valuation picture.

Industry Tops Sector & S&P 500

The Zacks Auto Retail & Whole Sales industry has outperformed the Zacks S&P 500 composite as well as the Auto, Tires and Truck sector over the past year. The industry has returned 16.3% over this period compared with the S&P 500’s growth of 12.6% and the sector's decline of 5.1%.

One-Year Price Performance

Industry's Current Valuation

Since automotive companies are debt-laden, it makes sense to value them based on the enterprise value/earnings before interest, tax, depreciation and amortization (EV/EBITDA) ratio.

On the basis of the trailing 12-month EV/EBITDA, the industry is currently trading at 8.95X compared with the S&P 500’s 17.64X and the sector’s trailing 12-month EV/EBITDA of 20.66X.

Over the past five years, the industry has traded as high as 10.79X, as low as 4.78X and at a median of 7.21X, as the chart below shows.

EV/EBITDA Ratio (Past 5 Years)

4 Stocks to Watch Now

Penske Automotive: It is a global player in the auto and commercial truck dealership business, operating across the United States, the United Kingdom, Canada, Germany, Italy and Japan. The company is making bold moves to grow its footprint, having completed acquisitions in 2024 that represent nearly $2.1 billion in annualized revenues. Its Premier Truck Group, with 45 locations across North America, continues to support diversification and revenue growth. A strong order backlog adds to the company's positive outlook, while investments in digital tools are enhancing customer experience and operational efficiency.

Penske Automotive also stands out for its solid financial position, with a low long-term debt-to-capitalization ratio of 15.5%. In a show of financial strength and shareholder confidence, PAG raised its quarterly dividend by 3.3% to $1.26 per share in May, marking its 18th straight quarterly increase.

Penske Automotive currently carries a Zacks Rank #3 (Hold) and has a Value Score of A. The Zacks Consensus Estimate for 2025 sales and EPS implies year-over-year growth of 1.5% and 0.5%, respectively.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price & Consensus: PAG

Lithia Motors: It is one of the top automotive retailers in the United States, offering new and used vehicles along with related services. The company is aggressively expanding its footprint through strategic acquisitions and store growth. In 2023 and 2024, Lithia Motors added $3.8 billion and $5.9 billion, respectively, in annualized revenues from acquisitions. In 2025 so far, it has already secured $400 million more. This M&A strategy is helping the company grow its market share and diversify its portfolio.

On the digital front, platforms like Driveway and GreenCars are helping LAD expand its reach and improve profitability through convenient, tech-driven customer experiences. Lithia continues to return value to shareholders, with a 4% dividend hike announced alongside its first-quarter results and a five-year annualized dividend growth rate of 15%.

Lithia Motors currently carries a Zacks Rank #3 and has a Value Score of A. The Zacks Consensus Estimate for 2025 sales and EPS implies year-over-year growth of 6.8% and 11.4%, respectively.

Price & Consensus: LAD

 

AutoNation: This is one of the largest automotive retailers in the nation, backed by a wide geographical footprint and a growing dealer network. Its ongoing store expansion strategy is helping AutoNation reach a broader customer base across key markets. Strategic acquisitions continue to fuel growth, including the recent purchase of two dealerships in the Greater Denver area. These are expected to add $200 million in annual revenues.

AutoNation is also leaning into digital transformation with its AutoNation Express platform, which streamlines online vehicle buying and selling. The company’s Finance division is also gaining traction, with higher in-store penetration and rising profitability. AN remains committed to shareholder returns. In 2024 alone, it repurchased 2.9 million shares worth $460 million.

AutoNation currently carries a Zacks Rank #3 and has a Value Score of A. The Zacks Consensus Estimate for 2025 sales and EPS implies year-over-year growth of 1.8% and 7.7%, respectively.

Price & Consensus: AN

Group 1 Automotive: It is a major global automotive retailer with a strong presence in the United States and the United Kingdom. The company is steadily expanding through acquisitions, adding over $1 billion in revenues in 2023, $3.9 billion in 2024 and another $430 million so far in 2025. This M&A momentum is fueling its top-line growth and helping it gain scale in key markets. GPI’s omnichannel strategy, anchored by its AcceleRide digital platform, is enhancing customer engagement. On the international front, its restructuring efforts have boosted operational efficiency and performance in the United Kingdom.

Group 1 Automotive also stands out for its shareholder-focused approach. Over the past five years, the company has raised its dividend 11 times, with an impressive annualized dividend growth rate of 12%.

Group 1 Automotive currently carries a Zacks Rank #3 and has a Value Score of A. The Zacks Consensus Estimate for 2025 sales and EPS implies year-over-year growth of 11.6% and 4.3%, respectively.

Price & Consensus: GPI

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Penske Automotive Group, Inc. (PAG): Free Stock Analysis Report
 
AutoNation, Inc. (AN): Free Stock Analysis Report
 
Group 1 Automotive, Inc. (GPI): Free Stock Analysis Report
 
Lithia Motors, Inc. (LAD): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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