The global economy continues to struggle in 2011.  In spite of the sluggish economy, dealer’s profitability continues to surge and many of our clients will post record profits in 2011.

For most dealers new car sales are growing and they are generating more gross profit than last year.  Many brands have fresh products that have enticed consumers to replace aging vehicles.

Used vehicle sales and their gross profits are generally lower than last year.  Prices are extremely high at auctions and dealers are not able to pass these higher costs onto consumers.  Dealers are having a difficult time selling “program cars” since manufacturer incentives and favorable lease programs for new vehicles have made “program cars” less attractive from  a price perspective to consumers.

Dealers that represent Japanese brands have experienced an inventory supply problem due to manufacturing issues after the natural disaster in Japan, although, production issues for Japanese manufacturers seem to be over at this time.  Dealers that represent Japanese brands have experienced a significant decrease in gross profit per new vehicle sold in recent years.  Due to the supply problem, dealers are increasing the gross profit per new vehicle sold.  This is helping to offset lower sales volume as a result of the inventory supply problem.

Our clients have seen growth in their parts and service sales as a result of the increased vehicle sales over the past two years.  Dealer’s fixed absorption ratio continues to increase as a result of the increased fixed gross, combined with closely monitoring expenses.  Dealers continue to be cautious in spending money and expenses are under control.  These factors have led to an excellent year in terms of profitability for most stores. 

Chrysler dealers that have all three brands are experiencing huge increases in profitability and their prospects for future growth appear strong.  Other brands experiencing strong results include Subaru, Volkswagen, and Hyundai.

The outlook for next year is also extremely positive as new vehicle sales are expected to grow.  Economic and political issues seem to be the only factors that could derail another strong year in 2012.

If you have any dealership management questions, please contact Paul McGovern at pmcgovern@downeycocpa.com.