In December, Downey & Company sent out a survey to new vehicle dealers. The survey included questions pertaining to the business outlook for 2012, challenges that will face auto dealers in 2012, and floor plan financing topics.
There are some trends that were evident from the results that I would like to comment on. The first being good news in that 87.8% of auto dealers expect the total income from their dealerships to be higher in 2012. This correlates with 69.6% of auto dealers perceiving their business outlook to be marginally better this year compared to last year.
As for the challenges, 48.4% of the responses indicate that the biggest challenge facing a dealership is the need to increase vehicle sales. Analysts are predicting an increase in new vehicle sales in the U.S. in 2012 to 13.5 to 14 million units. Two significant factors in selling new vehicles are the economy and the attractiveness of the product line-up and the brand. Both of these factors will be positive for most dealers in 2012.
The need to control operational expenses comes in second with 27.2% as a challenge facing auto dealers. 48.4% of dealerships have monthly data processing costs of $3,000 or more. Smaller software DMS providers have gained significant market share with monthly maintenance and support for $1,000 to $2,000 per month. The large providers have lowered their costs, but are still several thousand dollars per month. The large providers have more sophisticated applications; however, most dealers do not utilize the additional functionality.
Finally, 42.4% of dealers are not utilizing a reinsurance company. A reinsurance company can typically increase a dealership’s profits after the dealer forms their own reinsurance company. The service and parts business increases as the service contract generally leads customers to the dealership for the warranty work. Additionally, the dealer is motivated to sell more F&I products when they see the premium accumulating in the reinsurance company.
I look forward to a tremendous year for dealers in 2012.
