In general, our clients have been able to maintain sales and gross profit levels in recent years. Sales and gross profit in the parts and service department have grown, while vehicle sales have declined slightly. Net profits, though, have declined. This is a function of an increase in expenses across the board.
The chart below reflects the change in dealer expenses as a percentage of gross profits over the past 3 years.
This data was obtained from a presentation given by Alan Haig of Haig Partners to the National Alliance of Auto Dealer Advisors. Downey & Company, LLP is a member of the National Alliance of Auto Dealer Advisors. This group of CPAs meets twice a year to discuss dealership management issues.
The data highlights the following:
- The largest increase in SG&A is personnel expenses.
- It is not surprising that floor plan interest has grown with the recent rate increases.
- Rent and equivalent have grown as dealers continue to improve their facilities to comply with manufacturer standards.
Monitoring expenses will be critical to maintaining profitability in the future. Sales are important, but also keep an eye on your expenses. This is especially true for smaller dealers as the dealer groups have significant purchasing power that allows them to lower their expenses.
If you have any questions regarding this article, please contact Paul McGovern at pmcgovern@downeycocpa.com or at 800-849-6022.
