AutoNation's Warning Rattles Auto Dealers Ahead of Q3 Earnings

AutoNation Inc. AN shares fell 10% on Thursday and hit a new 52-week low, after executives gave a cautious outlook at a Morgan Stanley investor conference. The stock's move dragged the rest of the dealership sector with it. Shares of Sonic Automotive SAH Lithia Motors LAD, Asbury Automotive ABG and Group 1 Automotive GPI fell roughly 9%, 5%, 4% and 3%, respectively. The details behind the drop point to a broader problem.

AutoNation’s management highlighted that parts-and-service revenues, typically one of the more stable parts of the business, are growing slower than expected heading into the third quarter. That's a significant concern, because for these auto retailers, aftermarket sales have long served as a recurring earnings buffer as vehicle sales soften.

Beyond the weaker parts-and-service outlook, AutoNation also flagged that the new-vehicle gross profit is also under pressure. Additionally, electric-vehicle demand has dropped sharply. And affordability, executives said, is now affecting not just vehicle purchases but routine maintenance spending as well— a category that rarely gets cut, even in slower economic periods.

The sector-wide reaction backs up the read that this is bigger than AutoNation. Carvana was the outlier, inching up less than 1%. Carvana's business is built on used-vehicle sales rather than service revenues or new-car margins, which explains why it wasn't caught in the same selloff.

Two additional data points support the idea that this is a sector-level shift rather than a one-off.

First, Cox Automotive's latest dealer survey shows tariff concerns have eased since March 2025, with more dealers expecting a negotiated trade outcome. But concern over parts, reconditioning and service costs has risen among both franchised and independent dealers. That lines up directly with AutoNation's commentary— the pressure point has moved from trade policy to the cost side of day-to-day dealership operations.

Second, the Fed raised its benchmark rate by 25 basis points yesterday— its first hike in three years. Higher rates raise the cost of auto financing, adding pressure on buyers who are already showing signs of pulling back.

Last Word

Together, these four things— slower service revenues, muted expectations for new-vehicle gross profit, weak EV demand and tighter financing— are all happening at once. Service and parts revenues are usually the one part of the business that holds up when new-car sales slow. And if that part starts slipping too, dealers don't have their usual backup. All these could be weighing on the auto retailers’ third-quarter results.

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