This article is part 3 of our annual series analyzing the results of our dealer clients for the first nine months of 2019 compared to 2018.
Statistics gathered on total used vehicle sales indicate that the first nine months of 2019 surpassed 2018 sales at a rate of 1.4%. Dealerships (both franchised and independent) on average are performing even better and are projected to sell 20.6 million used vehicles compared to 19.8 million in 2018, a 4% increase. The used vehicle sales increase for franchised dealers has been driven by the continued appeal of certified pre-owned vehicles, (up 2.9% from 2018) especially for trucks and SUVs. It is projected that 2019 CPO sales will easily exceed 2018’s total of 2.7 million vehicles. The following are the results from our dealer clients.
Unit Sales
- 67% of dealers experienced an increase in used unit sales in 2019 compared to 2018. The average increase in used vehicle sales prices for our dealer clients was 1.7%. This is in contrast to the 5.1% increase in 2018.
Profitability
65% – Percentage of dealers reporting a drop in used vehicle gross profit margin.
.75% – The average decrease in the gross profit margin percentage from 6.57% in 2018 to 5.82% in 2019.
The following chart summarizes profitability on a per vehicle basis:
| 2019 | 2018 | Change | |
|
Gross Profit/Vehicle
|
$1,216 | $1,348 | $(132) |
|
F&I Income/Vehicle
|
$1,069 | $1,017 | $52 |
|
Combined/Vehicle
|
$2,285 | $2,365 | $(80)
|
The analysis above highlights the trend over the past several years. While unit sales and sales dollars continue to rise, the gross profit per vehicle continues to decline. The drop is mitigated by an increase in F&I income. Some of this increase is due to fewer factories offering promotional interest rates meaning that F&I departments are offering market interest rates which generate greater profits. Some dealerships have invested in F&I training which provides personnel with better techniques to sell aftermarket products. Like new vehicles, consumers are relying on web sites like Kelley Blue Book, Edmunds, AutoTrader, etc. to determine the price they should pay for a vehicle. They also allow consumers to locate the vehicles they are interested in and play one dealer off one another. It has also been difficult to merchandise used vehicles when the pricing of leasing a new vehicle is so attractive. This drives down the margins for used vehicles as they look to move product.
The basic principles of running a successful used vehicle department remain unchanged. Dealers must focus on purchasing the types of vehicles they can sell, manage inventory aging, and emphasize the sales of aftermarket products. These principles remain the keys to maintaining profitability in the used vehicle department. It is essential for dealers to closely monitor its used vehicle department.
If you have any questions regarding this article, please contact Charlie Paolino at CPaolino@DowneyCoCPA.com or at 800-849-6022.
