NADA says the average dealership earned a record high of $785,855 in 2011

Article by Christian A., on March 26, 2012

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.

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