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2 Auto Retailers Worth Watching Despite Purchasing Power Erosion
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The Zacks Auto Retail and Wholesale industry enters the second half of 2026 navigating a complex landscape. New-vehicle demand has demonstrated notable resilience, supported by stable monthly sales volumes and broadening credit access, even as macro headwinds persist. However, sustained inflationary pressures, elevated vehicle prices and high borrowing costs continue to erode consumer purchasing power, disproportionately impacting mainstream and entry-level buyers. With full-year sales forecast at 15.8 million units— below 2025 levels— the industry faces pressure on volumes and margins.
Despite this backdrop, a few retailers like Lithia Motors (LAD - Free Report) and Sonic Automotive (SAH - Free Report) are better positioned to weather the cycle, backed by strategic acquisitions, ongoing digitization efforts and shareholder-friendly capital allocation.
About the Industry
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 facilitating customer financing. As a consumer-driven industry, its performance is closely tied to broader economic conditions — disposable income levels, interest rates, and consumer confidence all directly influence vehicle purchase decisions. The industry has also undergone meaningful structural change in recent years, with dealers increasingly investing in digital tools and e-commerce capabilities, a shift that continues to reshape how vehicles are bought and sold.
Key Investing Themes
Resilient Demand and Stabilizing Sales Pace: Despite a volatile start to 2026 driven by weather disruptions, policy shifts and the Middle East energy shock, new-vehicle demand has proven surprisingly durable. Per Cox Automotive, the SAAR has held near 16.1 million for four consecutive months, including June, reflecting the underlying strength of consumer commitment to vehicle purchases. Strong equity markets and accumulated household wealth are also providing meaningful support, helping insulate demand despite elevated fuel prices and broader macro uncertainty.
Broadening Credit Access Supporting a Wider Buyer Pool: Per Cox Automotive, while average new vehicle loan rates remain elevated, it is a result of a broader mix of consumers now accessing financing, including lower credit tiers that were previously shut out of the market. Lenders have been expanding approval rates, extending loan terms, financing negative equity, and narrowing yield spreads, collectively widening the pool of eligible buyers. This broadening of credit access, even within a high-rate environment, should continue to support transaction volumes that might otherwise have deteriorated more sharply given current affordability pressures.
Eroding Consumer Purchasing Power: A sustained erosion of household purchasing power remains a key structural headwind for auto retail going into the second half of 2026. Per Cox Automotive, consumer price inflation has compounded at nearly 5% annually over the last five years, and personal expenditure growth continues to outpace income growth. The average consumer's budget is under meaningful pressure. Energy costs remain a persistent drag, and unless inflation trends materially improve, discretionary spending on big-ticket purchases like vehicles will continue to face resistance— particularly in mainstream and entry-level segments where financing dependency is highest and budget sensitivity is most acute.
Elevated Vehicle Prices and High Borrowing Costs Suppressing Volume: Average transaction prices for new vehicles sit at approximately $49,220 — nearly 9% above where they would be had pre-COVID price growth trends continued. Layered on top of that, average new auto loan rates stand at 9.6%, having risen sharply from approximately 6.5% a decade ago. Cox Automotive's Vehicle Affordability Index highlights rising income requirements to purchase a new vehicle, with price-sensitive compact and subcompact segment buyers increasingly trading down to used vehicles or exiting the market entirely.
Year-Over-Year Volume Decline Pressuring Revenue Comps: Full-year new-vehicle sales are forecast at 15.8 million units, a 2.9% decline from 2025. While some of this softness reflects last year's outperformance rather than a fundamental demand collapse, negative unit comps create meaningful headwinds for revenue growth and operating leverage across the industry. In a business with high fixed costs at the dealership level, even modest volume declines can compress margins and pressure earnings comparisons through the remainder of 2026.
Zacks Industry Rank Isn't 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 #167, which places it in the bottom 32% of nearly 245 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates weak 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence about this group’s earnings growth potential. Over the past year, the industry's earnings estimate for 2026 has declined roughly 8%.
We will present a couple of stocks that you might consider adding to your watchlist. But before that, let’s discuss the industry’s recent stock market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Auto Retail & Whole Sales industry has lost roughly 4%, underperforming the Zacks S&P 500 composite as well as the Auto, Tires and Truck sector over the past year, which grew 26% and 16%, respectively.
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 9.1X compared with the S&P 500’s 18.23X and the sector’s trailing 12-month EV/EBITDA of 26.76X.
Over the past five years, the industry has traded as high as 9.45X, as low as 4.78X and at a median of 7.21X, as the chart below shows.
EV/EBITDA Ratio (Past 5 Years)
2 Stocks Worth Considering
Sonic has grown into one of the most diversified franchised auto retailers in the United States. The 2021 acquisition of RFJ Auto Partners cemented its position among the top five U.S. dealership groups, while its more recent acquisition of four Jaguar and Land Rover dealerships in California made it the largest U.S. retailer of those premium brands— adding meaningful exposure to the higher-end segment that has shown relative resilience in 2026.
Beyond traditional auto retail, Sonic is expanding into powersports through its Sonic Powersports unit, now operating 20 rooftops across 46 franchises following its Harley-Davidson dealership acquisitions, positioning it among the top five U.S. powersports groups. Its EchoPark digital platform further supports an omnichannel retail strategy aligned with evolving consumer preferences. Notably, Sonic has raised its dividend eight times over the last five years, underscoring consistent shareholder returns.
Sonic currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2026 and 2027 sales implies year-over-year growth of 5% and 8%, respectively. The consensus mark for Sonic’s current and next year EPS has moved north by 13 cents and 10 cents, respectively, over the past 30 days.
Lithia stands out as one of the most acquisitive and strategically disciplined auto retailers in the United States. The company added $2.4 billion in annualized revenues through acquisitions in 2025 and continues to target $2-$4 billion in annual acquired revenues in 2026, with a deliberate focus on large, high-performing stores in the high-profitability Southeast and South-Central markets.
Beyond physical expansion, Lithia's digital platforms— Driveway and GreenCars— enable customers to buy, sell and service vehicles online, supporting an omnichannel strategy aligned with shifting consumer preferences. Its North American JV sale to Pinewood AI has further streamlined operations, unified its technology platform and accelerated delivery capabilities. Lithia also maintains a strong shareholder return track record, with a five-year annualized dividend growth rate of 11.56%, reflecting confidence in its long-term earnings trajectory.
Lithia currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for 2026 and 2027 sales implies year-over-year growth of 3% and 17%, respectively. The consensus mark for LAD’s current and next year EPS has moved north by 11 cents and 43 cents, respectively, over the past 30 days.
View the Zacks #1 Rank List
Image: Bigstock
2 Auto Retailers Worth Watching Despite Purchasing Power Erosion
The Zacks Auto Retail and Wholesale industry enters the second half of 2026 navigating a complex landscape. New-vehicle demand has demonstrated notable resilience, supported by stable monthly sales volumes and broadening credit access, even as macro headwinds persist. However, sustained inflationary pressures, elevated vehicle prices and high borrowing costs continue to erode consumer purchasing power, disproportionately impacting mainstream and entry-level buyers. With full-year sales forecast at 15.8 million units— below 2025 levels— the industry faces pressure on volumes and margins.
Despite this backdrop, a few retailers like Lithia Motors (LAD - Free Report) and Sonic Automotive (SAH - Free Report) are better positioned to weather the cycle, backed by strategic acquisitions, ongoing digitization efforts and shareholder-friendly capital allocation.
About the Industry
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 facilitating customer financing. As a consumer-driven industry, its performance is closely tied to broader economic conditions — disposable income levels, interest rates, and consumer confidence all directly influence vehicle purchase decisions. The industry has also undergone meaningful structural change in recent years, with dealers increasingly investing in digital tools and e-commerce capabilities, a shift that continues to reshape how vehicles are bought and sold.
Key Investing Themes
Resilient Demand and Stabilizing Sales Pace: Despite a volatile start to 2026 driven by weather disruptions, policy shifts and the Middle East energy shock, new-vehicle demand has proven surprisingly durable. Per Cox Automotive, the SAAR has held near 16.1 million for four consecutive months, including June, reflecting the underlying strength of consumer commitment to vehicle purchases. Strong equity markets and accumulated household wealth are also providing meaningful support, helping insulate demand despite elevated fuel prices and broader macro uncertainty.
Broadening Credit Access Supporting a Wider Buyer Pool: Per Cox Automotive, while average new vehicle loan rates remain elevated, it is a result of a broader mix of consumers now accessing financing, including lower credit tiers that were previously shut out of the market. Lenders have been expanding approval rates, extending loan terms, financing negative equity, and narrowing yield spreads, collectively widening the pool of eligible buyers. This broadening of credit access, even within a high-rate environment, should continue to support transaction volumes that might otherwise have deteriorated more sharply given current affordability pressures.
Eroding Consumer Purchasing Power: A sustained erosion of household purchasing power remains a key structural headwind for auto retail going into the second half of 2026. Per Cox Automotive, consumer price inflation has compounded at nearly 5% annually over the last five years, and personal expenditure growth continues to outpace income growth. The average consumer's budget is under meaningful pressure. Energy costs remain a persistent drag, and unless inflation trends materially improve, discretionary spending on big-ticket purchases like vehicles will continue to face resistance— particularly in mainstream and entry-level segments where financing dependency is highest and budget sensitivity is most acute.
Elevated Vehicle Prices and High Borrowing Costs Suppressing Volume: Average transaction prices for new vehicles sit at approximately $49,220 — nearly 9% above where they would be had pre-COVID price growth trends continued. Layered on top of that, average new auto loan rates stand at 9.6%, having risen sharply from approximately 6.5% a decade ago. Cox Automotive's Vehicle Affordability Index highlights rising income requirements to purchase a new vehicle, with price-sensitive compact and subcompact segment buyers increasingly trading down to used vehicles or exiting the market entirely.
Year-Over-Year Volume Decline Pressuring Revenue Comps: Full-year new-vehicle sales are forecast at 15.8 million units, a 2.9% decline from 2025. While some of this softness reflects last year's outperformance rather than a fundamental demand collapse, negative unit comps create meaningful headwinds for revenue growth and operating leverage across the industry. In a business with high fixed costs at the dealership level, even modest volume declines can compress margins and pressure earnings comparisons through the remainder of 2026.
Zacks Industry Rank Isn't 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 #167, which places it in the bottom 32% of nearly 245 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates weak 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence about this group’s earnings growth potential. Over the past year, the industry's earnings estimate for 2026 has declined roughly 8%.
We will present a couple of stocks that you might consider adding to your watchlist. But before that, let’s discuss the industry’s recent stock market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Auto Retail & Whole Sales industry has lost roughly 4%, underperforming the Zacks S&P 500 composite as well as the Auto, Tires and Truck sector over the past year, which grew 26% and 16%, respectively.
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 9.1X compared with the S&P 500’s 18.23X and the sector’s trailing 12-month EV/EBITDA of 26.76X.
Over the past five years, the industry has traded as high as 9.45X, as low as 4.78X and at a median of 7.21X, as the chart below shows.
EV/EBITDA Ratio (Past 5 Years)
2 Stocks Worth Considering
Sonic has grown into one of the most diversified franchised auto retailers in the United States. The 2021 acquisition of RFJ Auto Partners cemented its position among the top five U.S. dealership groups, while its more recent acquisition of four Jaguar and Land Rover dealerships in California made it the largest U.S. retailer of those premium brands— adding meaningful exposure to the higher-end segment that has shown relative resilience in 2026.
Beyond traditional auto retail, Sonic is expanding into powersports through its Sonic Powersports unit, now operating 20 rooftops across 46 franchises following its Harley-Davidson dealership acquisitions, positioning it among the top five U.S. powersports groups. Its EchoPark digital platform further supports an omnichannel retail strategy aligned with evolving consumer preferences. Notably, Sonic has raised its dividend eight times over the last five years, underscoring consistent shareholder returns.
Sonic currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2026 and 2027 sales implies year-over-year growth of 5% and 8%, respectively. The consensus mark for Sonic’s current and next year EPS has moved north by 13 cents and 10 cents, respectively, over the past 30 days.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: SAH
Lithia stands out as one of the most acquisitive and strategically disciplined auto retailers in the United States. The company added $2.4 billion in annualized revenues through acquisitions in 2025 and continues to target $2-$4 billion in annual acquired revenues in 2026, with a deliberate focus on large, high-performing stores in the high-profitability Southeast and South-Central markets.
Beyond physical expansion, Lithia's digital platforms— Driveway and GreenCars— enable customers to buy, sell and service vehicles online, supporting an omnichannel strategy aligned with shifting consumer preferences. Its North American JV sale to Pinewood AI has further streamlined operations, unified its technology platform and accelerated delivery capabilities. Lithia also maintains a strong shareholder return track record, with a five-year annualized dividend growth rate of 11.56%, reflecting confidence in its long-term earnings trajectory.
Lithia currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for 2026 and 2027 sales implies year-over-year growth of 3% and 17%, respectively. The consensus mark for LAD’s current and next year EPS has moved north by 11 cents and 43 cents, respectively, over the past 30 days.
Price & Consensus: LAD