This article is the final installment of our annual series analyzing the year to date results of our dealer clients, 2018 compared to 2017.
Fixed operations (parts, service, and body shop sales) have historically been a strong profit center for dealerships. Their profits absorb a significant portion of a dealership’s overhead. The suggested range for the fixed absorption ratio is between 70-85%. Our dealer clients averaged approximately 64%, an increase of nearly 1.7% over the prior year.
The following are selected results from our analysis:
| Service | Parts | Body Shop | |
| Average overall increase in sales
|
7.37% | 7.79% | 27.97% |
| Average gross profit percentage
|
64.98% | 33.04% | 51.08% |
As detailed above, our dealer clients have experienced solid growth in fixed operation sales. Service gross margins have remained relatively flat while parts gross margins have shown an uptick of approximately 3%.
The sales increases are a result of the surge in vehicle sales since 2015. Consumers are returning to dealerships to have necessary service work performed as their vehicles age. Service generates the need for parts, so it is a beneficiary of the service increase. Dealers that maintain a body shop have experienced significant growth in this area. In conversations with our dealer clients, many other dealers and independent body shops are closing due to the costs associated with equipment upgrades. Additionally, with more out of state insurance companies entering the market, consumers are not bound to use body shops from a selected list.
As highlighted in our previous articles, vehicle gross margins continue to dwindle. Back end sales are the key to a dealer’s profitability. Efficiently run service, parts and body shop departments can generate significant gross profit dollars for the dealership which can be used to absorb a significant share of the dealership’s operational expenses. Dealers that build strong and consistent back end operations can withstand the ebbs and flows of vehicle sales. For dealers to survive and flourish, it is imperative for them to continue to explore ways to increase fixed operation sales and enhance dealership profitability.
If you have any questions regarding this article, please contact Charlie Paolino at CPaolino@DowneyCoCPA.com or at 800-849-6022.
