According to the National Automobile Dealers’ Association (NADA), profits posted from automotive retailers last year were the highest on record; the average being $785,855 per store before taxes.
As a percentage of total sales, pre-tax profits for the year were some 2.3 percent, a level not seen since 1978, according to NADA’s chief economist Paul Taylor. This contrasts to recent years, where most dealers reported losses. In fact, the average profit per vehicle in 2011 was $23, versus a loss of $180 the previous year.
Taylor believes the reason for the change in fortune is due to a combination of economic growth, stronger vehicle sales spurred by low interest rates and fewer dealers (a number of stores closed during the recession, particularly Chrysler and General Motors facilities).
According to the NADA findings, the biggest increase in terms of sales at the dealer level last year concerned new vehicles (15.6 percent), followed by used vehicles (9.8 percent), while parts and service sales were up by around 5.7 percent.
Taylor said that the service department’s gross profit, as a percentage of fixed costs, actually declined last year by almost two percentage points, from 59.6 to 57.8, though he says that’s to be expected because increases in new vehicle sales traditionally boost fixed costs and parts and service sales haven’t increased as quickly.
So, does the new scenario hint at golden era for automotive retailers? It’s difficult to say, though Taylor is urging dealers to make the most of the opportunity presented to them. “Make hay while the sun shines,” he said during an interview with Automotive News.
Given the painful lessons learned over the last few years, despite the encouraging numbers, there are signs dealers are erring on the side of caution, focusing energy on the used car and parts and service business, which tends to be more profitable — even in the worst of times. That could mean that if growth continues, it will be less dramatic but likely more sustainable in the long run.
“Everyone learned a lesson in expense control over the last few years,” said Dick Heider, a Colorado based dealer account, “and I think this will not be forgotten soon. Dealers are smarter and more focused on efficiency within their stores now than in the past.”
[Source: Automotive News]