For most of this year, new sales have lagged behind the pace of 2016 (approximately 3%), but a surprising uptick in sales in September has narrowed that gap. September 2017 exceeded September 2016 by 6% making the year over year new vehicle sales drop less than 2%. A strong final quarter could drive new vehicle sales to reach 2016 levels and help dealers maintain profitability levels.
Data
Our results are based on the compilation and analysis of our dealer clients’ financial statements for the nine months ended September 30, 2017, compared with the same period from the prior year.
Profitability
- On average, dealers experienced an increase in profits of approximately 2.5%.
- 53% of dealerships reported higher profits as of September 30, 2017, compared to the same period for 2016.
- For dealers that increased profits, 84% had an increase of 10% or more.
- Over 80% of those reporting lower profits saw a drop of 10% or more.
Overall Dealership Total Sales
- Of the over 57% of dealerships that saw overall sales rise, nearly half reported increases greater than 10%.
- For the 43% with a sales decline, over 80% reported a drop of more than 10%.
- On average, dealership sales increased 3.25%.
Expenses
- Nearly 63% of dealers saw their variable expenses increase. Revised pay plans in order to retain sales staff is one of the reasons for the increase. On average, the increase was 5%.
- Personnel expenses have increased for more than 70% of dealerships. Dealers continue to struggle in finding staff. Dealers are paying higher wages to retain and attract employees. Health care costs also continue to rise. These factors drove personnel costs up nearly 5%. This is on top of the 7% increase last year.
- Year to date results also indicated a rise in the semi fixed expense category with over 78% of dealers experiencing dramatic jumps. As noted in variable expenses, depending on the manufacturer, floorplan interest and advertising may be part of this category. Increases in both the prime rate and LIBOR have driven the cost of funds up. Competition for business and the need to expand internet and social media presence have caused dealers to spend more on advertising. Semi fixed expenses have increased on average nearly 15%.
- 70% of dealerships experienced an increase in fixed expenses with over 44% seeing them grow more than 10%. Rising insurance costs and facility repairs are the most common causes for the increase. Overall, fixed expenses have had an average increase of 4.25%.
With minimal increases in sales and rising costs, dealers are constantly challenged to find ways to maintain profitability. Successful dealers continue to finds those ways to generate revenues while controlling costs.
If you have any questions regarding this article, please contact Charlie Paolino at CPaolino@DowneyCoCPA.com or at 800-849-6022.
