2019 should be another solid year for dealers. Here are some trends and insights for dealers this year.
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New Vehicle Sales – JD Power estimates that new vehicle sales will decrease by 300,000 units to seventeen million in 2019. This is only a decrease of one to two percent from 2018. A one to two percent decline is insignificant as seventeen million indicates it will be a very strong year for dealers. It is projected that eighty-eight new models will be introduced in 2019 as compared to seventy-one in 2018. Higher interest rates in 2019 will only have a moderate impact to vehicle sales. Margin pressure on front end gross will continue.
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Used Vehicle Sales – Many dealers have neglected this department in recent years. Pressures from manufacturers to sell new vehicles have led dealers to lose focus in the used vehicle department. As we all know, “grosses” are significantly higher with used vehicles and dealers need to pay closer attention to this department. Better dealers will make up for a lower volume of new sales with an increase in used sales.
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Finance and Insurance – Obviously, this department is critical in this low new vehicle gross environment. Most dealers have done a decent job in this area as the F & I PRU is growing.
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Parts and Service Department – Dealers are growing revenues in this area and the trend should continue into 2019. New vehicle sales have been near record levels in recent years and these sales are feeding the service and parts department with customers. “Vehicle connectivity” is driving customers back to dealerships as opposed to independent garages. New models communicate directly to the dealer and the customer at various service intervals. We have also seen gross profit percentages increasing in this area. That is the good news. The bad news is that it is extremely difficult to satisfy the demands for quality technicians. Dealers need to think “out of the box” in attracting and maintaining technicians.
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Inventory Supply of New Vehicles – We have seen the days supply increase for most of our clients. Automotive News has indicated that the average days supply of new vehicles on January 1, 2019, was sixty-one days. That figure surprises me as our clients in the Northeast are significantly higher than that on average. This is an area to focus on as inventory floor plan rates have in many cases doubled over the past few years.
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BDC Departments – Larger dealers and dealer groups are out-performing smaller dealers in managing their BDC. For many smaller dealers the BDC adds cost without increasing sales. Larger dealers have embraced the BDC and have well trained staff that allow them to increase their unit sales. Smaller stores need additional training in the BDC area to compete.
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New vehicle sales may slide slightly but should be offset by an increase in used vehicle sales. Strong dealers have grown the F & I revenues to offset the low grosses in new vehicle sales. Parts and service departments are operating efficiently, and sales are growing. Overall, 2019 should be another solid year for dealers.
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If you have any questions regarding this article, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com or at 800-849-6022.
