A Sobering, Softer Start To 2019
I haven’t talked to a single dealer who’s happy about how they finished January at their stores.
In some cases, February is looking a little better, particularly in used vehicles in areas of the country where weather conditions have been tough the past several weeks.
But the feedback about January is sobering:
“It’s like someone turned off the faucet.”
“It’s the worst start to a new year that we’ve had in seven years.”
“Sixty-three percent of my dealers lost money in January, which means the number of dealers that lost money is more than any month for over 10 years.”
That last comment came from a respected dealer CPA who added, “I do not ever remember seeing such poor results.”
The CPA also struck a note of optimism, pointing out that March is usually a pretty good month for most dealers. “Let’s hope the profit/loss trend returns to normal in March 2019,” he wrote.
Indeed.
But I question whether the current market forces that are in play will, in fact, allow for a return to normal.
Consider, for example, how profit/loss trends have shaken out over the course of the past couple years. In both new and used vehicles, dealers are seeing ever smaller profits, despite retailing more expensive vehicles.
You see this disturbing trend in dealership financial profile data from the National Automobile Dealers Association (NADA).
For 2018, dealers saw retail net profit per new vehicle retailed drop to -$570, a 35 percent decline from 2017’s figure, according to NADA.
In used vehicles, dealers fared a little better in 2018 compared to the prior year; NADA reports retail net profit per used vehicle retail climbed back to black, to $6 up from -$2 in 2017.
Meanwhile, the expenses required to operate a dealership keep growing. NADA data shows total expenses for dealers went up 3 percent in 2018, and now account for 100.2 percent of the average dealership’s total gross. NADA also reports that dealership net profit dropped 3 percent in 2018.
Zowie.
These financial dynamics beg a critical question: If, as analysts predict, we can’t count on any innate growth in retail sales of new and used vehicles, how can dealers offset these disturbing margin pressures, particularly when factory partners don’t seem interested in helping?
The answer, I believe, lies in each dealer’s ability to find advantage and gain efficiency within the four walls of your dealership, and the market beyond.
I know, for example, that many dealerships currently carry a larger share of distressed, often aged, new and used vehicles than they should. It’s a problem that ultimately owes to inherent inefficiencies in the way dealers manage their inventories in the context of their market and factory pressure.
I also know that while many dealers fundamentally understand that technology and tools can help them become more operationally efficient and profitable, there’s some distance between this understanding and its actual application/investment in day to day operations and oversight. You might call this an inefficiency of will.
I could go on.
My point is to underscore that while January typically isn’t the strongest or most influential month on dealership financial statements, its softer results gave me pause.
Perhaps we, as an industry, are quickly approaching the junction where the cost of doing the same in your dealership operations will be far greater than the cost of changing them for the better.