New Car Sales have been strong in the first half of the year. The Massachusetts State Automobile Dealer Association reports New Retail Car and Light Truck Registrations have increased by 8.5% for the six months ended June 30, 2013. Although sales have increased, the Gross Profit per New Vehicle Sold continues to slide. Stronger dealers are making up for these low grosses with increased finance and insurance income per unit sold.
A large percentage of the increase in sales is attributable to truck sales. Tradesmen and contractors are replacing their ageing vehicles. Confidence in the economy and improved business conditions has spurred this activity.
Inventories of new vehicles are growing. Fewer brands have product availability issues and manufacturers are pressuring dealers to take on inventory. We would caution dealers to manage the inventory levels and maintain a reasonable number of days supply. Profitable dealers tend to carry a lower number of days supply of vehicles.
The service and parts departments are producing higher sales over last year. As vehicle sales have grown in recent years, dealers are seeing more appointments in the back end. Dealers continue to find that the quality of the vehicle is affecting the need for service.
Dealers are performing slightly better in the used vehicle departments compared to recent years. Dealers are taking more “trade ins” as new vehicle sales continue to grow. Dealers realize higher “grosses” on trade in vehicles as compared to auction vehicles. Prices at the auctions are still high and supply is low. It appears that the pricing at auctions is improving but only minimally. I suspect that this will improve in the upcoming months as more off-lease units appear at the auctions.
The trend of larger dealers outpacing smaller stores continues. It is becoming more difficult for the smaller stores to compete. Well run smaller stores are still experiencing profitability each month, but it is more difficult for them to maintain the growth that large stores are experiencing.
Overall, profitability continues to be strong and the prospects for a robust second half of the year are excellent. Dealers are cautiously optimistic about the prospects of continued success and are working harder than ever to realize their goals. A common comment from dealers is, “It is a grind every day.” I often have to remind them that the past few years have, in many cases, resulted in record profitability for their stores.
If you have any dealership management questions, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com.
