After a record breaking vehicle sales year in the auto industry, most dealers, while hopeful for a repeat performance, were realistic in their projections that 2016 results would not reach the levels achieved in 2015. Our analysis proves this to be correct.
Data
Our results are based on the compilation and analysis of our dealer clients’ financial statements for the nine months ended September 30, 2016, compared with the same period from the prior year.
Profitability
- 70% of dealerships reported lower profits as of September 30, 2016, compared to the same period for 2015.
- On average, the drop in profitability was approximately 28%.
- For dealers that saw profitability rise, the results were solid with nearly a 24% increase in profitability.
Overall Dealership Sales
- Surprisingly, dealership sales have not followed correspondingly with profitability.
- Over 53% of dealerships saw overall sales rise just over 9%.
- For the 47% with a sales decline, the drop was in the range of 6%.
As you can see from above, if overall sales have shown minimal swings, but profitability for the majority of dealerships is down significantly, it must mean that gross margins are shrinking (to be discussed in later articles) and/or expenses are rising.
Expenses
- Nearly 63% of dealers saw their variable expenses decline. This makes sense as a majority of dealers reported lower gross profits on vehicles sold (to be detailed in subsequent articles). On average, the decrease was 7%.
- Personnel expenses have increased for nearly 66% of dealerships. A number of factors contribute to this. For some dealers, pay increases were a way to reward employees after strong 2015 results. With the employment market becoming more competitive, dealers have had to increase salaries to retain qualified employees and attract new ones. Like most small businesses, dealers are also confronted with rising healthcare premiums. These factors drove personnel costs up nearly 7%.
- Third quarter results also indicated a rise in the semi fixed expense category with nearly 66% of dealers experiencing dramatic jumps .There is no clear cut common factor that has caused the hike in this category. Some dealers have focused on expanding their market presence by stepping up advertising and e-commerce initiatives which also raises costs in information technology. Others have taken the opportunity to address other areas that had previously been put on hold, such as training.
- It is almost an even split as to the change in fixed expenses. 53% of dealers experienced an increase.
With declining margins and increasing expenses, most dealers are certainly below the levels that were achieved in 2015. This news is certainly not the doom and gloom of the 2009 recession. Many dealers are still generating solid profits and with a constant eye on margins and controlling expenses, that trend should continue.
If you have any questions regarding this article, please contact Charlie Paolino at CPaolino@DowneyCoCPA.com or at 800-849-6022.
