This article is thanks to Jamie LaReau of AutoNews.com. The original article can be found at http://www.autonews.com/article/20170417/RETAIL06/304179922/nada-dealers-fixed-operations-profit
Dealerships routinely lean on their service and parts departments during a recession. The U.S. is not in a recession but that’s exactly what stores are doing.
As a percentage of a dealership’s total gross, profits fell in the new- and used-vehicle departments, but rose in service and parts, an annual study by the National Automobile Dealers Association shows.
Szakaly: Loyalty key for dealers
The profit gains come after about a third of all U.S. light-vehicle dealerships expanded their service departments by at least one bay in the past 18 months to capture more service revenue, said NADA Chief Economist Steven Szakaly. And with new- and used-vehicle price competition remaining intense, Szakaly predicted, “Going into a [sales] plateauing year, customer loyalty is going to be very key for dealers.”
That loyalty will come from expanding fixed operations’ revenues, he said.
Some other trends that the study revealed: continued dealership consolidation, increased hiring and dealers paying more for talent even as vehicle sales plateau and pretax profit margins remain flat.
The NADA Data 2016 study, based on 2016 data, is the association’s annual financial profile of franchised light-vehicle dealerships. Dealers have three weeks to participate in the full study, to be published this summer, said Szakaly.
Initial findings show that at the average dealership, service, parts and body shop gross profits grew to 47.3 percent of the dealership’s total gross profits in 2016, from 45.4 percent in 2015. In contrast, the new-vehicle department’s gross as a percentage of total gross fell to 27.8 percent from 29.5 percent. In used-car sales, it was 24.9 percent, off from 25.1 percent.
Dealerships are getting more of their total profits from service and parts. Here are data for the average U.S. light-vehicle dealership.
*Includes related F&I profits Source: NADA Data 2016
Last year, new-car dealerships wrote 259 million warranty and customer repair orders, up 6.5 percent from the previous year. On average, express service at dealerships, such oil changes, increased 11 percent, while nonwarranty repair orders rose 4.2 percent.
The average dealership’s revenue from sales — including new- and used-vehicle sales, finance and insurance and fixed operations — rose 5.1 percent to $59.6 million. The average number of new vehicles sold per dealership was 928, up from 916. The average selling price of a new vehicle increased 3 percent from 2015 to $34,449 and that of a used vehicle rose 2.5 percent to $19,866.
But the average dealership’s total expenses rose more sharply than its revenue from sales, 6.5 percent, to $6.5 million. In turn, pretax profit dropped 2.4 percent to $1.5 million. The average dealership’s pretax profit margin — profits as a percentage of total revenue — eased to 2.5 percent in 2016, from 2.7 percent in 2015 and 2.6 percent in 2014.
A big part of the higher expenses was because of staffing. New-car dealerships directly employed a record 1.1 million workers in 2016, up 2.4 percent from a year earlier. That was about 69 workers per dealership vs. 66 in 2015.
Dealers also paid more to attract and keep talent, Szakaly said.
Average weekly earnings of dealership employees rose 2.6 percent, boosting total annual compensation to an average of $69,000 per employee. Szakaly said that means dealership employees earn one of the highest average salaries of any industry. The average weekly earning per employee was $1,122.
The battle to hire service technicians helped drive up pay, said Szakaly.
“The service-tech shortage is reflected in the rising wages and earnings,” he said. “That’s why you see these rising wages in what you pay people so you can attract people to the industry.”
While dealers hired in the service bay, the number of back office employees shrank, largely because of dealership consolidation, Szakaly said.
The number of dealership groups with 11 or more stores climbed to 138 in 2016 from 90 five years earlier, the study showed. Those with just one store decreased by 990 stores, or about 17 percent, since 2011 to 4,972 in 2016.