In the final installment of our annual trends and analysis newsletter, we will detail our results as they pertain to parts and service sales. Our analysis is compiled from dealer results for 2014. For virtually all dealerships, parts and service sales (commonly referred to as the “back end operations”) are the areas that can create the greatest amount of profitability and absorb the majority of overhead expenses.
Service Sales Dollars and Gross Profits| Percentage of Dealerships Who: | Total Dealership Sales | |||
| Overall | < $20 Million | $20-$30 Million | >$30 Million | |
| Increased Service Sales Dollars | 86% | 82% | 100% | 73% |
| Increased Service Sales Gross Profit Percentage | 42% | 41% | 40% | 45% |
Based on the data collected, a significant percentage of dealerships experienced increases in service sales. With the recession and credit crunch of 2008 further in the rear view mirror, the steady increase in vehicle sales over the past few years has manifested itself into increased service business. Service departments with solid management should continue to see growth. Of those dealerships that achieved an increase in sales, approximately half saw sales increase more than 10% compared to prior year sales.
Service Sales ProfitabilityGross profits for all categories fell within the range we would expect. For all groups, the percentage remained in the mid 60% range. In comparison to prior year results, service profitability dropped approximately 1% across the board.
Part Sales Dollars and Gross Profits| Percentage of Dealerships Who: | Total Dealership Sales | |||
| Overall | < $20 Million | $20-$30 Million | >$30 Million | |
| Increased Parts Sales Dollars | 88% | 88% | 93% | 82% |
| Increased Parts Sales Gross Profit Percentage | 51% | 53% | 53% | 45% |
With the increase in service sales, we would expect an increase in parts sales. While approximately half of dealers showed an increase in gross profit percentage, the overall change was negligible across the board.
Parts Sales Profitability| Total Dealership Sales | ||||
| Overall | < 20 Million | 20-30 Million | >30 Million | |
| Average Gross Profit Percentage | 31.63% | 31.67% | 31.97% | 31.11% |
| Average Change in Gross Profit Percentage | .07% | .03% | .02% | .2% |
As with service gross profit, the average parts gross profit is consistent across the board. Any deviations can be the result of the volume of wholesale parts business a dealer transacts. Normally, larger dealerships have greater wholesale parts operations and that is reflected in their lower gross profit percentage. As noted above, the average change in gross profit percentage is insignificant.
Overall, 2014 was a strong year for dealerships. They experienced growth in all facets of the business and many earned record profits. With continued signs of solid economic growth, lower unemployment and dropping oil/gas prices, dealers should expect 2015 to be a profitable year.
If you have any questions regarding this article, please contact Charlie Paolino at CPaolino@DowneyCoCPA.com or 800-849-6022.