||2011 Was a Record Year for Dealership Profits
Average dealership profits in 2011 were the highest since the National Automobile Dealers Association began tracking the data in 1970.
The average dealership made a record $785,855 in net pretax profit in 2011. Net pretax profit as a percentage of total sales was 2.3 percent, a level not seen since at least 1978, said Paul Taylor, NADA's chief economist.
It's such a good time to be a dealer that dealerships even made money on new cars last year. The average retail net profit for a new vehicle was $23 in 2011 vs. a loss of $180 in 2010.
"It's normally a loss," Taylor said. He credited the turnaround to an improving economy, fewer dealerships in competition with one another and historically low interest rates.
With those trends continuing this year and probably through 2013, dealers could see a golden era of profitability if they stay disciplined, experts said.
"'Make hay while the sun shines' is the operative phrase here," Taylor said.
In 2011, interest rates alone made for the difference between a profit and loss on each new-vehicle sale. Because of the low rates and manufacturer incentives, the average dealership had a floorplan credit of $48 last year instead of the $200 expense typical in a growth year, Taylor said.
Used-car net profit is up slightly, he said. It went from $252 per vehicle in 2010 to $269 in 2011.
Sales in the new-vehicle department rose by 15.6 percent; in the used-vehicle department, by 9.8 percent; and in the service and parts department, by 5.7 percent. On a per-vehicle basis, advertising and rent expenses fell last year.
Service and parts absorption -- the department's gross profit as a percentage of total fixed overhead expense -- dropped from 59.6 percent in 2010 to 57.8 percent in 2011. That's to be expected, Taylor said: Fixed costs go up when vehicle sales rise, and service and parts sales weren't increasing as fast.
The overall rosy profit picture makes for a lot of happy dealers and those who advise them.
"It's a lot more fun to work with our dealers than it was three years ago," said Dan Thompson, a Pennsylvania dealer accountant. "I think they're going to have a good run."
Dealers continue to prosper from the lessons learned during the industry downturn, Thompson said. In particular, they sharpened their focus on used vehicles and the parts and service business.
In 2010, dealers generated as much gross as three years earlier on sharply lower vehicle sales volume, Thompson said. In 2011, dealers continued to perform at those higher levels while enjoying the benefit on incremental vehicle sales.
Going forward, dealers are challenged by how much payroll to add to the dealership.
"Our experience has been dealers have asked less people to do more, primarily because they are not all that confident that sales increases are here to stay," Thompson said. "At some point, personnel will need to be added -- knowing when, how many and what cost is the key."
Dick Heider, a Colorado dealer accountant, also is keeping an eye on expense control.
"Everyone learned a lesson in expense control over the last few years, and I think this will not be forgotten soon," Heider said. "Dealers are smarter and more focused on efficiency within their stores now than in the past."
Dealers should analyze employee productivity and look for process efficiencies. "In what is now more of growth market, this may mean using the same number of people to accomplish a greater volume of work," he said.
Money also can be saved in other areas, such as computer vendor and utility expense, Heider said.
Much better software is now available from computer vendors outside the Big 2 providers, he said.
"While not fully equal to the Big 2, the strides second-tier vendors have made is providing very capable software and is worth a second look," Heider said.
While the payoff is longer term, he said, dealers also can cut utility bills by installing more efficient lighting, including lot lighting.
(Source: Automotive News, 03/23/12)
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