Automobile Dealer Financial Trends
The average dealership’s new vehicle profits rose from 2001 through 2004. In 2005, according to the National Automobile Dealer Association (NADA), there was a significant decline in profit margins. In 2006 new vehicle department net profit posted further declines, slipping below break-even. Large inventories, generous incentives and higher floor-plan costs cut into dealer profits.
Total used car profits increased in 2006. Dealerships of all sizes and makes continue to rely heavily on used vehicle departments for profits because of modest returns on new unit sales. Consumers find used vehicles a good value now because of better quality and durability. Similarly, financial institutions are more willing to offer competitive rates for used vehicle purchases.
Total service and parts profits increased slightly in 2006, as gross margins improved and expenses were largely held in check. Dealers will continue to compete with independent service outlets for the fewer repairs required on more durable and complex vehicles.