||NADA: Dealer Profit Hits Record in 2012
Rising new-vehicle sales lifted average dealership pretax profit to a record $843,697 last year, a National Automobile Dealers Association survey shows.
The average store's 2012 profit rose 6 percent from the previous record set in 2011. NADA began the annual survey in 1970.
Dealers' average return on sales held steady at 2 percent, but profit rose because of a sharp increase in demand for new and used vehicles. Total revenue rose 9 percent at the average store to $38,359,930.
The rising profit has given dealers a reason to cheer this tax season, said John Bachle, an accountant at Sartain Fischbein & Co. in Tulsa, Okla.
"They're always fun to deal with, but they're much more fun if they're making money," said Bachle, whose firm has about 50 dealer clients, mostly in Oklahoma.
The new-car department provided 56 percent of the average dealer's revenue in 2012, up from 54 percent in 2011. The used-car department provided 32 percent of revenue last year, unchanged from 2011. Parts and service business fell from 13 percent of the average dealer's revenue to 12 percent.
In 2007, the last full year before the economic downturn, new cars provided 59 percent of the average dealer's revenue, while used cars provided 29 percent and the parts and service business provided 12 percent.
Dealers again benefited in 2012 from low interest rates and factory floorplan assistance programs. Last year, the average dealer made money on floorplanning: a $72 credit per new car sold, according to the NADA data. That was up from $48 per vehicle in 2011, accounting for nearly half of the total increase in pretax profits.
Typically, the interest paid to keep cars and trucks on the lot has been a major expense. In 2007, the average dealer paid $103,708 for floorplan interest, or $167 for every car sold.
Last year, dealers made money because they took advantage of programs in which factories repay them for interest. Brisk sales left dealers with tighter-than-usual inventories, so cars and trucks did not sit on lots very long and dealers profited from the incentives, said Carl Woodward, a dealer accountant at Woodward & Associates Inc. in Bloomington, Ill., which has about 250 dealer clients.
Woodward said the past two years have been among the most profitable in the three decades that he has handled accounting for dealers. The biggest reasons, he said, are cuts to payroll and advertising budgets after the economic downturn.
The average dealership spent $405,907 on advertising in 2012, up $38,728 from 2011.
"Dealers have gotten their expenses under control," he said. "They cut back on expenses when they hit the recession, and they're reaping the benefits of that now --until they screw it up by going back to where they used to be."
Sales increases over the past 2 years have made the average auto dealership more profitable, even though the average margin held steady at 2%. Based on NADA data, the chart below shows average total sales per dealer for the last three years, along with gross revenue, and net profit:
2010: $30.90 million; $4.50 million; $635,926
2011: $34.70 million; $5.00 million; $794,536
2012: $38.40 million; $5.30 million; $834,697
(Source: Automotive News, 03/25/13)