This article is part two in our series that analyzes data compiled from our dealer clients for the first nine months of 2015 compared to the same period for 2014.
Based on industry results, year to date auto sales (in terms of units) have risen 5% compared to the sales for the first nine months of 2014. In fact, the year to date units for 2015 have already exceeded the total new sales volume of the years 2009, 2010 and 2011. As of September, the seasonally adjusted annualized rate predicts that over 18 million units will be sold. Let’s see how that compares to our results.
New Unit Sales
Our dealer clients beat the national average in terms of unit sales with their new vehicle unit sales increasing by 6.9%. Over 67% of our dealers saw a jump in new unit sales with an average increase of 64 units. Nearly 82% of domestic dealers experienced an average increase of 54 units. In contrast, only 52% of foreign dealers reported gains, but those who did showed an average increase of 81 units.
Gross Profits
Selling more units may bring a smile to a dealer’s face; however, the real goal is to generate more gross profit. While logic suggests if a dealer generates greater sales, there will be greater gross profit dollars; this is not necessarily the case. As noted earlier, while two-thirds of dealers had new unit sales increase, only 60% reported an increase in overall gross profit dollars. This is a result that would surprise most dealers.
As much as dealers may look at overall gross profit dollars, their real focus is on the gross profit per vehicle. On average, dealers earned $1,132 in straight gross profit on new vehicle sales in 2015. Domestic dealers seemed to have the better of it, achieving a gross profit of $1,335, while their foreign counterpart’s sales resulted in only $929. In 2014, straight gross profit was $1,063 per new vehicle overall with domestics producing $1,228 and foreign $898.
Vehicle profitability doesn’t end with just the straight gross profit on its sale. Dealers depend on a strong F&I department to significantly contribute to the bottom line. Our results indicate that overall F&I produced an average of $842 of gross profit on each new vehicle sold. Domestics outpaced foreign brands $957 to $715. Compared to $791 overall, $891 for domestics and $691 for foreign, from 2014.
The result? Dealerships produced $1,974 of profit for each new unit sold. This was up $120 from the prior year. Domestics had the upper hand producing $2,292 of combined gross profit per vehicle (an increase of $187 from last year) with foreign brands coming in at a combined gross profit per vehicle of $1,644 (an increase of $53 from last year).
The most recent industry results paint a rosy picture for auto dealers. However, not everyone is party to this upswing. Dealers need to continue to work hard at growing their new vehicle sales and monitoring their grosses to make sure the category maintains sustained profitability.
If you have any questions regarding this article, please contact Charlie Paolino at CPaolino@DowneyCoCPA.com or 800-849-6022.
