Report: Dealer profits rise, despite lower sales

Article by Christian A., on July 4, 2011

According to the National Automobile Dealers Association, the average dealership’s net pretax profit margin reached its highest in 24 years in 2010 despite the weak new-car sales for the fifth straight year.

Specifically, the net pretax profit as a percentage of total dealership sales in all departments was 2.1 percent in 2010. This is an increase from the 1.5 percent in 2009, and is the highest since 1986, NADA disclosed in its annual data report released last week.

Year over year, the average dealership's profit increased 60 percent to $642,057. Overall results were boosted by the used-vehicle department and the service-and-parts operations.

In addition, dealerships obtained an increase from the much lower floorplan expense brought about by tighter new-vehicle inventory and low interest rates. Dealerships that survived the factory bankruptcies and downturn also caught up with sales and service business from competitors that shut down, chief economist Paul Taylor at NADA revealed.

The population of the dealership declined another 760 in 2010 to 17,700. It previously declined by 1,550 in 2009, and 760 in 2008. When it comes to finance and insurance income, it increased 15 percent in 2010, and service contract penetration was 39 percent, which is up from 37 percent in 2009.

However, this performance failed to push the new-vehicle department into being profitable as it had during the five-year stretch. Even if the loss dropped substantially from 2009, the average dealership lost $92,581 when it comes to the new-car sales department in 2010.

Topics: dealer, profit, sales

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