Dealer Profitability – 2011 was a tremendous year financially for our dealer clients as a whole and these trends have continued into the first half of 2012. Dealers are cautiously optimistic in 2012 regarding their profitability. Profits are strong, but dealers are working diligently to increase revenues and keep costs under control. Dealers are recording these strong profits by working harder than ever to squeeze every dollar of profit out of their stores. Dealers that are not adapting to an ever-changing environment are seeing sales and profitability slide.
New Vehicle Sales –Sales of new cars and light trucks are up 13% nationally through May as reported by Automotive News. However, sales in the Northeast have not been as robust as the national figures. My discussions with dealers indicate that sales are even or slightly ahead of last year’s pace for most stores in the Northeast region. In fact, the Massachusetts State Auto Dealers Association reports that new retail registrations are down 2% for the four-month period ended April 30, 2012.
Used Vehicle Sales – The used vehicle market has been difficult over the past few years. Higher auction prices have reduced dealer profitability. Dealers are doing a better job of passing these higher costs onto consumers. Vehicle manufacturers have offered aggressive purchase and lease incentives on new vehicles. These incentives have reduced the monthly payments on new vehicles which have made it increasingly difficult to sell program vehicles. Conditions in the used vehicle marketplace appear to be improving, but not dramatically. Many dealers are experiencing success with retailing lower priced, older vehicles. Units under $12,000 that were typically wholesaled are now being retailed at high grosses. Dealers will also retail brands that were previously wholesaled immediately after the trade in.
Service Departments – The buzz here is that warranty sales continue to slide. The new vehicles are flat-out made better these days and don’t have as many mechanical failures. The average age of vehicles on the road is still high and this is helping to boost sales in the service department. Dealers are appealing to manufacturers for increases in warranty parts reimbursement equal to retail prices charged.
In conclusion, 2012 is off to a great start for most dealers. As the summer selling season starts, these trends should continue and allow for another financially rewarding year.
Downey & Company specializes in finance, tax and management of automobile dealerships. For more information on any of the topics presented here, please email Paul McGovern at PMcGovern@DowneyCoCPA.com.
