Dealership profits are declining and something has to change.
What’s happening to our business?
“Profitability” is the 2018 buzzword for dealerships. It’s the focal point of NADA 20 Group discussions, OEM events (e.g. General Motor’s Profitability Pavilion) and sales pitches from numerous vendors. And rightly so.
Between 2015 and 2017, the average U.S. franchised automotive dealer operating profit margin fell from 7.2% to 1.4% (per NADA) placing dealers as the 13th worst profitable business owners in the country according to Sageworks. In 700 days, dealership margins equaled that of a big chain grocery or liquor store.
It’s not all doom and gloom. According to Sageworks analyst Libby Bierman, “Making this list isn’t necessarily bad news for the companies in the space, but it probably means they must be intentional about expense management and growth. These types of firms usually make few cents on the dollar for profit but can make up sufficient profit through volume but requires lean inventory management to maintain success.” While grocery and liquor stores will continue to sell at volume during the good times and bad (maybe even more during the bad economic times), dealerships don’t have that luxury. Higher volume light duty auto sales is not likely to continue into 2019. That got us thinking . . . What can we do to remove reliance on volume and move dealers back up the profitability curve?
The answer: Business Intelligence.