For the nine months ended September 30, 2019, vehicle unit sales trailed those in 2018 by 1.6% nationally. Various industry analysts have held to their belief that 2019 vehicle sales will not reach 2018 levels and fail to break the 17 million unit threshold for the first time since 2014.
Data
Our results are based on the compilation and analysis of our dealer clients’ financial statements for the nine months ended September 30, 2019, compared with the same period from the prior year.
Profitability
- On average, dealer profits remained flat year over year.
- Our analysis indicates that approximately 52% of large (sales >$30MM) dealerships saw profitability rise while only 48% of smaller (sales <$30MM) dealerships experienced an increase in profitability.
Overall Dealership Total Sales
- Despite declining new sales, approximately 62.5% of dealerships still reported increased overall sales. This is due to stronger results from other departments (used, service and parts). However, this is down from the 70% that reported increases in 2018.
- Among those with sales gains, 43%reported increases greater than 10%.
- On average, overall dealership sales increased nearly 6%, a solid increase considering the drop in new sales. The 2018 results showed a 4.75% increase from 2017.
Expenses
- 63% of dealers saw their variable expenses increase. As the unemployment rate hovers at historical lows and the minimum wage continues to rise, dealers are finding it necessary to revise pay plans to retain and attract sales staff.
- Personnel expenses continue to rise. Over 80% of dealerships have seen these costs increase. In order to obtain and retain employees, dealers have had to entice them with more lucrative compensation. On average, personnel costs have risen over 8%.
- Semi fixed expenses continue to rise with nearly 58% of dealers seeing their expenses grow. Many dealerships categorize floor plan interest and advertising in this category. Rising interest rates have driven the cost of funds higher. Semi fixed expenses have increased on average nearly 3.9%.
- Just over 50% of dealerships experienced an increase in fixed expenses though the increase wasn’t as severe as it was in prior years. Overall, fixed expenses increased on average 2.5% compared to an 8.25% increase in 2018. For many dealers, the costs in this category have begun to stabilize.
While a majority of dealers continue to see dealership sales grow, operating costs continue to climb and margins on vehicles sales remain tight. These factors have caused profits to stagnate. Successful dealers must continue to concentrate on all aspects of their business in order to maintain and grow profitability.
If you have any questions regarding this article, please contact Charlie Paolino at CPaolino@DowneyCoCPA.com or at 800-849-6022.
