The past five years have seen a twenty-five percent decrease in the number of new vehicle dealers.  Most of the dealers that survived this difficult time have strong fixed operations.

Two significant factors in selling new vehicles are the economy and the attractiveness of the product line up and the brand.  Dealers have no control over these factors.  If both of these factors are working against a dealer, it is extremely difficult to sell new vehicles.  A dealer can maintain profitability during such times if the dealership has well run service, parts, and body shop operations.

Twenty-years ago a dealer would measure the success of a particular month solely on the number of new vehicles sold.  Today, the key factor in determining monthly profitability is the amount of fixed gross generated by the store.  Clearly, a dealer must sell vehicles to generate demand in its service, parts, and body shop operations, but the back end of a store can carry the dealership in a weak economy and in a period when a brand is not selling well.

Keep in mind, the gross profit percentages are approximately 60 to 70 % in the service department, 30 to 40% in parts, and 45% in the body shop, while new vehicle sales generate only 3 to 7%.  Over the past twenty years, the gross profit percentages in the new vehicle department have steadily declined and there is no indication that they will improve in the future.

In conclusion, successful dealers will continue to focus significant attention on the back end of the store. Thankfully, new vehicle sales are slowly improving.  These increased sales will feed your service, parts, and body shop operations and add to dealer profitability. 

If you have any dealership management questions, please contact Paul McGovern at pmcgovern@downeycocpa.com or 800-849-6022.