2020 has been a year unlike any other. The pandemic has affected our daily lives as well as how dealerships do business. All dealerships took a substantial hit in March and April but, surprisingly, many have been able to bounce back to pre-COVID levels with a good number able to generate greater profits compared to the same period last year.
Source
The following was derived by compiling information from our dealer clients for the nine months ending September 30, 2020 compared to the nine months ending September 30, 2019. It should be noted that the information does not take into account any of the Paycheck Protection Program funds received which may ultimately result in significant profits for dealerships.
Profitability
- 50% of dealers saw profits increase year over year. 59% of domestic brands had increased profits compared to 48% of imports.
- Of those dealerships reporting increased profits, the average increase was nearly $300,000 compared to the same period last year.
- Approximately 71% of large dealerships (sales>$30MM) reported increased profits while only 44% of small dealerships (sales<$30MM) saw profits rise.
Overall Dealership Sales
- Nearly 84% of dealers reported a drop in overall dealership sales.
- On average, the decline in sales was over 11% as each department experienced a drop in sales.
- Comparatively, 2019 reported a 6% increase over 2018 sales.
Expenses
- 95% saw variable expenses decline. The pandemic caused most dealerships to pare back their sales staff due to a combination of declining vehicle sales and state mandates. In recent years, many dealers have bulked up their sales force. Dealers are booking sales leads by appointment and many can accomplish a good portion of the deal online eliminating the need for a large sales staff. Many dealers believe this trend will continue even post-pandemic and their sales departments will remain smaller.
- As expected, personnel expenses dropped compared to 2019. Over 75% of dealers saw a decline in personnel expenses, on average reporting a 9% decrease. Several COVID related factors contributed to the decrease. Nearly all dealerships cut back on staff due to limited hours of operation, a drop in sales activity, and health protections for employees.
- 78% of dealers saw a decrease in semi fixed expenses. Many dealers include interest expense in this category as interest rates have dropped and vehicle inventory levels have declined due to availability. Advertising expense has also declined. Dealers cut back on advertising during the early stages of the pandemic and realized that it was not necessary to return to pre-COVID levels of spending to generate sales. Additionally, during lean times dealers are apt to look more closely at expenses and institute cost cutting measures to maintain profitability.
- On average, fixed expenses have remained consistent with the prior year. Dealers continue to effectively manage these costs and keep a tight control over them.
In spite of the economic turmoil caused by the pandemic, many dealers have found ways to increase profits despite declining sales by improving margins and managing costs. With uncertainty in the near term, dealers must continue to effectively manage all facets of the dealership to maintain profitability.
If you have any questions regarding this article, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com or at 800-849-6022.
