Imagine a dealer peering into a crystal ball back in January and learning of the following for 2021:
- The pandemic, while significantly less threatening than 2020, would still be a factor in our lives even with a vaccine available.
- The scarcity of computer chips would cause new vehicle production to grind to a halt.
- Used vehicle inventory would shrink due to the lack of new vehicle supply.
- Supply chain issues would cause delays in obtaining necessary parts inventory.
- Hiring and retention of employees would become increasing difficult.
- Across the board increases in the costs of goods and services would occur.
I am guessing that most dealers would have been resigned to a difficult year in the auto business. Yet, in spite of all the negative factors mentioned above, virtually all dealers are generating record profits for the year.
Source
The following results are based on the compilation of information from our dealer client financial statements for the nine months ending September 30, 2021 as compared to their financial information for the same period ended September 30, 2020.
Profitability
- All of our dealer clients were profitable for the period.
- On average, dealers experienced an increase in profits of over 160%.
- Large dealership’s (sales >$30MM) average profit increase was approximately $1.475MM, while small dealerships saw profits rise $740K on average.
Overall Dealership Sales
- Despite inventory issues, nearly all of our dealer clients had an overall sales increase from the prior period, which considering the shutdowns in 2020 is not unexpected.
- Surprisingly, nearly 75% of dealers reported and overall sales increase from 2019. On average, total dealership sales increased nearly 20% when comparing 2021 to 2019.
Expenses
- 90% saw variable expenses increase. Not unanticipated with the higher grosses achieved on vehicle sales leading to higher sales commissions.
- It comes as no surprise that personnel costs have risen year over year for nearly all dealers. Many employees were furloughed due to the pandemic. Additionally, in 2020 many employees took advantage of the generous unemployment benefits offered and were reluctant to return to work.
- Over 83% of dealers saw semi fixed expenses increase. With the uncertainty of the effects of the pandemic on business in 2020, most dealers slashed discretionary expenses, such as advertising. Return to spending levels coupled with inflation caused this expense category to rise over 17% which was somewhat mitigated by a drop in floor plan interest expense due to limited vehicle inventory.
- The fixed expense category also felt the effects of the economic climate, especially inflation. On average, fixed costs rose 4.5% from 2020. When compared to 2019, current year expenses increased over 6%.
For 2021, dealers were able to turn the challenges they faced into opportunities to produce record profits. Experienced dealers know that exceptional margins they are generating will not last long term and will need to remain diligent in managing their dealerships.
If you have any questions regarding this article, please contact Charles Paolino at CPaolino@DowneyCoCPA.com or at 800-849-6022.
