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State of the Industry - September 2016 YTD

November 01, 2016

I just finished a webinar for DealersEdge on budgeting and in preparation I completed an analysis of all of our dealers thru September 2016. 
The numbers were very interesting, so I wanted to share them.  In total our dealers are less profitable by about 10% for Domestic and Import and our Luxury dealers are down 28%.

As I dig into the numbers for Domestic and Import, overall gross is up 7%, new volume up 5% and used volume up 11%, but our selling expenses are up 11% and overhead is up 10%.  The increase in overhead expense was the biggest surprise.  It does support what we have been seeing everywhere, new & used gross per unit is down, therefore there is not enough gross to support the additional expenses.

As you build your forecasts for 2017, look for ways to increase gross while controlling expenses.  If we have a down turn, it will throw a number of dealerships into losses.  Overall, front end gross is going away and F & I is growing, but the additional F & I gross is just covering the increased employee cost over the last two years.  Gross doesn’t need to go down, we still have a number of clients that get strong gross and have strong market share.  These are not mutually exclusive; you just have to build a culture in your store on the importance of gross.  It takes a while to make that change, but it is well worth it.  If you take out your 2016 ACAR Report and see you are making less after making all those additional sales, it is disappointing.

An example of strong gross is our Toyota dealers.  Not only is new volume up 5%, but new gross is up 7%, and Toyota has the new DAP income which if included in new car gross, would cause gross to be up 13%.  This is just one example; we have a number of dealers still excelling in gross. 
In general, items that help increase gross are:
  • Having the correct inventory
  • Looking at front end gross separately from F & I gross and manufacturer income
  • Having an understanding of how much it costs to sell a car (usually at least $2,000)           
  • Realizing that you have a product people want and that it isn’t always about price
  • Training your sales staff and managers the value of the vehicle and your dealership
  • When gross goes up, usually market share goes up, because morale goes up
As we look at the Luxury brands a big concern is overall service gross, which is only up 1% and many of the brands are down.  In contrast, Domestic and Import brands are up 7% in service, which is very important if the market turns.  Used sales are up 10%, versus new sales only being up 1%.  Overall gross is down 1%, selling expenses are up 3% and overhead expenses are up 5%.  Not a good recipe for increased net profit.
In summary, there are a lot of positives in the market, but as we look at 2017, make sure you are not leaving profits on table.  A fine-tuned operation is key to attacking a down turn.

We will be sending our annual Profit Planners this month.  Be sure to give us a call if you have any questions at 1-888-409-2227.