Dealer profit margins even lower
03-31-2003, 04:10 PM
#1
AudiWorld Uber User
Thread Starter
Dealer profit margins even lower
Costs squeeze dealer profits
Fierce competition, higher ad spending, yield 1.9% margin
By Donna Harris
Automotive News / March 31, 2003
-------
Lower sales, higher expenses
Source: National Automobile Dealers Association
Intense competition for new-vehicle sales shrank the average dealer's pretax profit margin in 2002.
Lower sales, higher advertising expenses and aggressive price negotiations whittled margins, even though for the first time in recorded history the average dealership made money on floorplan assistance.
The average pretax margin slipped to 1.9 percent for the year from a 15-year record of 2.0 percent in 2001, according to the National Automobile Dealers Association.
The average dealership's revenues declined to $31.3 million from $31.5 million in 2001. Overall expenses grew to $3.6 million from $3.5 million.
"Dealers are giving away every single penny to get a deal," says Bob Ringo, COO of Classic Automotive Group in Mentor, Ohio.
Paul Taylor, NADA's chief economist, says that with lower sales, dealers were less equipped to cover their overhead. Light-vehicle sales in the United States totaled 16.8 million in 2002, down from 17.2 million in 2001. Taylor expects a drop to 16.5 million or 16.6 million units in 2003.
Ad budgets rise
Compared with the end of 2001, when dealers coasted on the backs of manufacturers promoting the novelty of 0 percent financing, they spent more on advertising last year. Car buyers came to expect hefty incentives, no-interest loans and bargain prices while new-vehicle sales were falling.
Lloyd Miller, a partner with accounting firm Crowe Chizek in South Bend, Ind., with more than 400 dealer clients, says many expenses rose, including health care and property taxes, but advertising budgets rose substantially.
NADA reported a 14.1 percent increase in the average dealer's advertising budget last year to $344,457 from $301,957 and a 10.2 percent increase in advertising cost per vehicle to $507 from $460.
"I think the competitive nature of the marketplace is as keen as I have ever seen it," Miller says.
Though the average new-vehicle retail price rose 1.4 percent to $26,163 in 2002, the average new-vehicle gross profit declined 0.7 percent to $1,531. The new-vehicle gross profit is the difference between what the dealer paid for the vehicle and what the vehicle sold for.
"The competition is fierce," says Jack Fitzgerald, owner of Fitzgerald Auto Mall in Rockville, Md. "When you have that kind of intense pressure, you run the extra ads and run the ads bigger."
COO Ringo of Classic Automotive Group says he had backed off radio and TV advertising in 2001 but resumed spending on electronic media last year to get customers in the door. The northeastern Ohio chain usually relies on newspaper advertising but needed radio and TV to reach a broader audience and to reinforce the print message.
Many advertisements focused on price.
"If you have to advertise price points to be competitive, the profit will reflect that," says Howard Kuperman, president of Phil's Ford Lincoln-Mercury Inc. and Phil's Jeep-Eagle in Port Jervis, N.Y.
Floorplan credits
Higher expenses erased the effect of floorplan assistance, an allowance manufacturers pay dealers to help finance new-vehicle inventory.
For the first time since at least 1988 -- NADA's earliest records -- the average dealer's floorplan assistance exceeded the interest paid to finance vehicle inventory. The average dealer made $18 on each new vehicle stocked after paying interest on inventory. After the incentives, dealers paid an average $103 per vehicle in interest in 2001.
The floorplan incentive is calculated in various ways, but it generally is designed to provide interest-free transit from the time the vehicle is shipped from the factory to the dealership and an added bonus designed to lower interest based on the number of days the vehicle is in stock. Factories pay the incentive even if dealers do not use captive finance companies.
Dealerships that turn their inventories rapidly and negotiate competitive floorplan interest rates can make money on floorplan assistance. Last year, dealers were turning vehicle inventory quickly and paying cheaper-than-ever interest rates to finance it.
"Toyota pays a percentage of the vehicle price for the first 30 days a vehicle is in stock," says Rosario Criscuolo, president of Spartan Motor Mall in Lansing, Mich. "We never had a 30-day supply of vehicles last year."
Fierce competition, higher ad spending, yield 1.9% margin
By Donna Harris
Automotive News / March 31, 2003
-------
Lower sales, higher expenses
Source: National Automobile Dealers Association
Intense competition for new-vehicle sales shrank the average dealer's pretax profit margin in 2002.
Lower sales, higher advertising expenses and aggressive price negotiations whittled margins, even though for the first time in recorded history the average dealership made money on floorplan assistance.
The average pretax margin slipped to 1.9 percent for the year from a 15-year record of 2.0 percent in 2001, according to the National Automobile Dealers Association.
The average dealership's revenues declined to $31.3 million from $31.5 million in 2001. Overall expenses grew to $3.6 million from $3.5 million.
"Dealers are giving away every single penny to get a deal," says Bob Ringo, COO of Classic Automotive Group in Mentor, Ohio.
Paul Taylor, NADA's chief economist, says that with lower sales, dealers were less equipped to cover their overhead. Light-vehicle sales in the United States totaled 16.8 million in 2002, down from 17.2 million in 2001. Taylor expects a drop to 16.5 million or 16.6 million units in 2003.
Ad budgets rise
Compared with the end of 2001, when dealers coasted on the backs of manufacturers promoting the novelty of 0 percent financing, they spent more on advertising last year. Car buyers came to expect hefty incentives, no-interest loans and bargain prices while new-vehicle sales were falling.
Lloyd Miller, a partner with accounting firm Crowe Chizek in South Bend, Ind., with more than 400 dealer clients, says many expenses rose, including health care and property taxes, but advertising budgets rose substantially.
NADA reported a 14.1 percent increase in the average dealer's advertising budget last year to $344,457 from $301,957 and a 10.2 percent increase in advertising cost per vehicle to $507 from $460.
"I think the competitive nature of the marketplace is as keen as I have ever seen it," Miller says.
Though the average new-vehicle retail price rose 1.4 percent to $26,163 in 2002, the average new-vehicle gross profit declined 0.7 percent to $1,531. The new-vehicle gross profit is the difference between what the dealer paid for the vehicle and what the vehicle sold for.
"The competition is fierce," says Jack Fitzgerald, owner of Fitzgerald Auto Mall in Rockville, Md. "When you have that kind of intense pressure, you run the extra ads and run the ads bigger."
COO Ringo of Classic Automotive Group says he had backed off radio and TV advertising in 2001 but resumed spending on electronic media last year to get customers in the door. The northeastern Ohio chain usually relies on newspaper advertising but needed radio and TV to reach a broader audience and to reinforce the print message.
Many advertisements focused on price.
"If you have to advertise price points to be competitive, the profit will reflect that," says Howard Kuperman, president of Phil's Ford Lincoln-Mercury Inc. and Phil's Jeep-Eagle in Port Jervis, N.Y.
Floorplan credits
Higher expenses erased the effect of floorplan assistance, an allowance manufacturers pay dealers to help finance new-vehicle inventory.
For the first time since at least 1988 -- NADA's earliest records -- the average dealer's floorplan assistance exceeded the interest paid to finance vehicle inventory. The average dealer made $18 on each new vehicle stocked after paying interest on inventory. After the incentives, dealers paid an average $103 per vehicle in interest in 2001.
The floorplan incentive is calculated in various ways, but it generally is designed to provide interest-free transit from the time the vehicle is shipped from the factory to the dealership and an added bonus designed to lower interest based on the number of days the vehicle is in stock. Factories pay the incentive even if dealers do not use captive finance companies.
Dealerships that turn their inventories rapidly and negotiate competitive floorplan interest rates can make money on floorplan assistance. Last year, dealers were turning vehicle inventory quickly and paying cheaper-than-ever interest rates to finance it.
"Toyota pays a percentage of the vehicle price for the first 30 days a vehicle is in stock," says Rosario Criscuolo, president of Spartan Motor Mall in Lansing, Mich. "We never had a 30-day supply of vehicles last year."
04-01-2003, 05:16 AM
#3
Double whammy - Many local dealers are in the midst of big capital expenditures.
The heady dot-com days made local dealers pretty fat and happy, and as a result many of them are in expansion mode (the kind of thing that can't be stopped once it's started).
HBL Audi (Porsche & MB) in Virginia is doing a major expansion.
HBL Audi (Porsche & MB) in Virginia is doing a major expansion.
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