The following summarizes our thoughts as we reflect on the financial results for our clients for 2019.
New Vehicle Sales – On average our clients experienced a slight decline in new vehicle sales. There is a lot of negativity surrounding the new vehicle department, but sales are still robust. NADA predicts annual sales of 16.8 million for 2020. Although a slight decline, this is still a strong number.
We have noted that many dealers have grown their new inventory dramatically and have vehicles over 180 days old. In some cases, the inventory is only turning 2 to 3 times a year. Carrying excess new vehicle inventory is often not on the radar of dealers, but there is a real cost to having too much inventory.
Used Vehicle Sales – Sales are slightly higher year over year. New vehicle prices continue to rise. This increases the demand for “used” as customers cannot afford new vehicle prices. Stronger dealers are focusing their efforts on used. As we all know, used vehicle grosses exceed new vehicles by a wide margin.
Finance and Insurance – This area continues to grow. Dealers are making up for lower grosses in the new and used departments by capturing additional F & I income.
Parts and Service – This area is growing as well. Many stores are up over 5%. Brands with recalls and warranty claims are experiencing even larger gains.
Body Shop – Dealers with body shops continue to grow this department. The gross profit percentages are improving as well. At times this department is neglected, but a well-managed body shop can enhance a dealer’s bottom line significantly.
Expenses – Personnel costs continue to skyrocket. With low unemployment and a high demand for competent staff, dealers are experiencing increases of 6% or higher. This is not expected to improve in the short term.
Conclusion – Dealership profits were strong again in 2019. New and used vehicle sales were flat for the year. Additional gross profits were generated by growing service, parts, and body shop departments. F & I departments are outperforming as well. Any gains were mitigated by higher personnel costs leaving dealer profitability in line with 2018.
2020 Outlook – Dealers should focus on moving new vehicles and not getting distracted by the low grosses while managing their inventory levels. Growth opportunities will continue in the used vehicle department. Sales will continue to grow in the service, parts and body shop departments. Personnel issues and costs will be challenging and difficult to manage. I would expect dealers to experience solid profitability in 2020.
If you have any questions regarding this article, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com or at 800-849-6022.
