In 2011, the average dealership profits were at their highest level ever since the National Automobile Dealers Association started to monitor this data in 1970. Last year, the average dealership earned a record high of $785,855 in net pretax profit. Paul Taylor, NADA's chief economist, said that its net pretax profit as a percentage of total sales was 2.3% -- the highest-ever since 1978 at least. Dealerships were also able to make money on those new cars. In 2011, the average retail net profit for a new vehicle was $23. Meanwhile, a loss of $180 was recorded in 2010. Taylor said that the company typically loses. He believes that this turnaround is the result of a better economy, fewer competing dealerships, and historically low interest rates. Experts believe that when these trends continue in 2012 until next year, dealers would find themselves in a golden era of profitability if they remain disciplined.
Interest rates alone in 2011 made up the difference between a profit and loss on every new vehicle sold. Taylor added that due to the low rates and manufacturer incentives, the average dealership had a floorplan credit of $48 last year rather than the $200 expense that’s to be expected in a growth year. He revealed that the used-car net profit had a slight increase, going from $252 for each vehicle in 2010 to $269 in 2011.
The new-vehicle department saw its sales go up by 15.6%. The used-vehicle department had a 9.8% boost in sales while a 5.7% increase was recorded for the service and parts department, says Autonews. Last year, the expenses related to advertising and rent dropped on a per-vehicle basis. Meanwhile, the service and parts absorption (defined as the department's gross profit as a percentage of total fixed overhead expense) dropped from 59.6% in 2010 to 57.8% in 2011. Taylor said that this is expected since fixed costs would increase when vehicle sales climb but then service and parts sales didn’t go up so quickly.