JP Morgan downgrades auto dealers on inventory buildup, tariff woes

Published 17/07/2025, 13:46
© Reuters.

Investing.com -- JP Morgan warned of a challenging second half for U.S. franchise auto dealers as rising inventory, softening demand and tariffs weigh on the industry, prompting the bank to downgrade several dealer stocks like Group 1 Automotive (NYSE:GPI), Sonic Automotive (NYSE:SAH) and Asbury (NYSE:ABG) Automotive.

Despite a likely round of second-quarter earnings beats, JP Morgan said fundamentals have weakened, and dealer stocks have disconnected from underlying trends.

Shares have outperformed broader retail benchmarks even as early signs of margin pressure and slower sales growth have emerged.

"This is the first instance since the pandemic where we believe shares seem to have disconnected from fundamentals," the analysts wrote, citing growing risks to vehicle margins and limited room for further upside in valuations.

JPMorgan cut its ratings on Group 1 to Neutral from Overweight, Sonic to Underweight from Overweight, and Asbury to Underweight from Neutral.

The analysts now see roughly 10% downside for the group on average, with few near-term catalysts to support earnings growth.

While parts and service revenue is expected to remain a steady contributor, comparisons get tougher through the rest of the year, especially as elevated recall-related activity fades.

New vehicle supply continues to rise, but demand is showing signs of strain, pressuring pricing and profit per unit.

The bank maintained its only Overweight rating in the group on Lithia Motors (NYSE:LAD), citing stronger growth drivers and capital flexibility.

JP Morgan sees better positioning for B2C marketplaces like Cars.com, which it upgraded to Overweight, saying the segment offers more resilient revenue and favorable valuation after lagging dealer stocks this year.

The note also flagged ongoing risks for B2B marketplaces tied to declining off-lease volumes and fewer trade-ins, which have weakened wholesale activity in recent months.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.