Since the beginning of the year, most dealers have seen their sales grow in all departments of their stores. Increased sales have led to improved profitability over last year. The following are some trends that we have seen occurring in the industry.
- Manufacturers have inventory and they are pressuring dealers to take additional units. Inventories of new vehicles are growing as dealers are not willing to say no to the manufacturer. Dealers must make sure their turnover is sixty days or lower.
- Banks are lowering credit standards and are competing for business.
- Margins in the new vehicle department continue to slide. Dealers are selling more units, but in many cases, the total gross profit generated by the new vehicle department is lower as the gross per unit has declined.
- Service and parts departments are booming. The increase in profitability for most stores is attributed to the growth in these departments. The high gross profit percentages achieved by these departments drive the profitability of the dealership. The gross profit percentages have remained consistent with the increased volume. Higher vehicle sales are feeding the back end of the store and growing the net profit of the dealership.
- Dealers overall are flat in their used vehicle departments.
- Facility upgrading pressures continue to mount. Dealers can count on refreshes every seven to ten years to maintain compliance. Dealers that are out of compliance will have a reduction in incentives.
- While sales are growing, expenses are increasing at an even higher pace for many stores. This is making it difficult to grow the bottom line. Manufacturers are requiring dealers to increase their personnel counts to qualify for incentive programs. This can be seen in such positions as greeters, sales managers, BDC personnel, internet sales departments, and service writers.
We expect the year to finish strong and are confident that many of our clients will achieve record profitability. Dealers, though, are still cautious and feel that they must “grind it out” every day to maximize their potential.
If you have any questions regarding this article or any dealership management issues, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com or 800-849-6022.
