It comes as no surprise that auto dealers have experienced significant increases in sales and profitability over the first nine months of 2015. Solid economic growth coupled with continued low interest rates and falling gas prices have been the main catalysts.
Data
Our results are based on the compilation of information from our dealer clients’ third quarter financial statements compared with the same period from the prior year.
Overall Sales
Based on our analysis, over 75% of dealerships increased sales compared to the same period last year with an average increase of greater than 14%. Interestingly, the increases were led by the domestic brand dealers. Over 90% reported increased sales averaging jumps of approximately 16%. In comparison, only 57% of foreign brands registered a year over year increase averaging almost 13%. Sales gains have been noted in all departments for most dealerships. We will detail those results in upcoming articles.
Net Income
Robust overall sales have translated into solid improvement in the bottom line for most dealers. Nearly 64% of dealers saw profits rise year over year averaging a whopping 29% increase. More than 82% reported net income increases in excess of 10%. Domestic brands led the way again with 78% of dealers more profitable than last year generating on average 35% greater profits from the prior period. In contrast, only 48% of foreign brand dealers reported net income gains and their average increase hovered around 15%.
Expenses & Other Income
With the increase in overall sales, it stands to reason that expenses would also be on the rise.
Variable expenses by their very nature should increase with the rise in vehicle sales as sales commissions are the most significant portion of this category. Over 65% of dealers reported a hike of approximately 21%.
It is not unexpected that personnel costs would also rise. Additions to staff, as well as increases in manager bonuses, drove this category higher. Nearly 90% of dealers saw personnel costs rise over 12% from the prior year.
As the name indicates, semi fixed expenses comprise costs that have both variable and fixed elements. The most common are advertising, outside services, and interest. Roughly 65% of dealers had increases in this category with costs rising in the 13% range.
One would expect that fixed expenses, as defined, would show little change. However, that is not the case. 75% of dealers reported an increase. Expenses ticked up over 9% from the same period a year ago.
A dealer’s doc and prep fees are the predominant portion of their “other income” account for most stores. Approximately two thirds of all dealers increased their other income by more than 15%.
On the subject of doc and prep fees, we polled our dealers as to the amount they charge. Our results showed they ranged from a low of $99 to a high of $500. Dealers should review what they charge annually, mindful of the fact that each state establishes guidelines as to what is deemed “reasonable charges” or have a maximum allowable fee. Our data indicates that less than one third have raised their doc fees from last year, and for many it has been longer than that.
2015 has been a boon year for most dealerships as sales and profits trend back towards pre-recession levels. But, as many dealers have experienced, the good times do not last forever. The dealers who produce positive results year after year, no matter the economy, are those that continue to manage their dealerships effectively, look for opportunities for growth, and maintain controls on costs.
If you have any questions regarding this article, please contact Charlie Paolino at CPaolino@DowneyCoCPA.com or 800-849-6022.
