This article is the final installment in our annual series analyzing the results of our dealer clients for the first nine months of 2016 versus 2015.
Fixed operations (parts, service and body shop sales) has long been the foundation of dealership profitability. A strong parts and service department should be able to absorb a significant portion of a dealership’s overhead. While 100% would be ideal, it is not unreasonable to expect the back end gross profits to cover 70 to 85% of them.
Service Sales
- 65% reported an increase in service sales.
- The average increase was 6.56% for those that increased sales.
- Overall, dealer’s margins remained unchanged year over year, averaging 63%.
While new vehicle sales have been strong the past two years, the residual effect has yet to be fully felt in service. Most new vehicles typically only require basic maintenance in the first couple of years. After that point (reaching the 50-75,000 mile range) those vehicles will require repairs due to wear and tear. Dealers should begin to see an uptick in service on a go forward basis. Dealers may also want to plan a campaign of contacting customers whose vehicles fall into this category to attract them back to the dealership for their service needs.
Parts Sales
- 50% reported an increase in parts sales.
- The average increase was 10.76% for those that increased sales.
- Overall, dealer’s margins remained unchanged year over year, averaging 32.7%.
Parts sales are mostly dependent on the service department, so the fact that there was only a nominal increase in services sales helps to explain the slight increase in parts sales. Some dealers have shrunk their wholesale business by limiting credit to body shops and independent garages due to payment issues.
Body Shop Sales
- Over 63% reported a decrease in body shop sales.
- The average decrease was 10.23% for those that saw sales drop.
- Overall, dealer’s margins remained unchanged year over year, averaging 50%.
The percentage of dealers that still maintain an in house body shop continues to dwindle. Approximately 25% of the dealerships in our survey still continue to offer the service. The struggle to generate an acceptable level of profitability continues in this area. Dealers who have body shops need to continually evaluate the department to make sure they are producing profits from the department that justify the investment in it.
Fixed operations for 2016 has remained relatively consistent with 2015. As we have noted in our previous installments, vehicle gross margins are shrinking, so for many dealers true growth resides in its fixed operations. Dealers need to focus efforts on ways to maximize the profitability from these departments which will increase the overall dealership profitability.
If you have any questions in regard to this article, please contact Charlie Paolino at CPaolino@DowneyCoCPA.com or at 800-849-6022.
