NADA reports Dealership profits are up but hold at 2.2% of total sales

[XDCX]

There's no question that the U.S. Car/Truck market has been very favorable over the past few years and the NADA confirmed that with their latest data showing that dealer profits are up but only due to increased revenues.

The dealer net profit ratio of 2.2% has remained flat over the past three years.

I read a report in USA Today and I was somewhat amused when they commented that dealers must be getting rich taking care of all of the recalls the OEMs have issued....

[XDCX]

According to the composite data, the average Dealership made $1.1 Million pre-tax and the average dealership employee made $55,900.

Concerning the employees, those in New Jersey were the most highly compensated at $64,700 and Wisconsin anchored the other end of the scale with average employee earnings at $43,300.

As always, the NADA Composite only reflects the "average" Dealership and I think the profit and wage numbers are being skewed higher as smaller rural stores go out of business and drop off the radar screen.

[57years]

Where does NADA get their numbers? I can remember a time when NADA sent out a questionnaire for the dealer to fill in. As you may guess, the numbers were "askew"!

[XDCX]

Originally Posted by 57years

Where does NADA get their numbers? I can remember a time when NADA sent out a questionnaire for the dealer to fill in. As you may guess, the numbers were "askew"!

I'm almost 100% certain that the NADA Composite is representative of the surveys they receive back from NADA members.

That means the numbers may be subject to some bias based on the fact that not all new car dealers are members of the NADA and not all NADA members are likely to have filled out their survey.

[57years]

Does NADA release any specification of:
1) the number of "individual" dealership financial composites it uses;
2) the percentage of the combined total of dealers of all manufacturers it represents;
3) the breakdown of facility combinations for multiple franchises where it did receive a survey response, (i.e., separate showrooms but combined service; or one real estate company with multiple dealer tenants on the property, etc.?

What it all boils down to in my mind is the total worthlessness of the survey results for a dealer to compare himself to, whereas NADA releases this as if it is all Rosy in River City!

The dealer's who are not proud of their results trash the survey....

[johnpico]

Figuring averages is a pretty complex business. Is it the “Mean” average, the “Median” average, or the “Mode”?

The fact is, however, that in the car business, the averages for successful dealerships have been pretty consistent. Since I began following them in 1972, the mean average for advertising expense has been around one percent of total sales and ten percent of gross.

NADA doesn’t need to survey dealers any more. Each factory produces composites for its dealers showing national and regional averages for expenses.

If you are a Toyota dealer, for example, and if you ask, the Region will give you a composite of its dealers’ financial statements. Most factories will break the composites down into total averages and the top 10 or 20 percent. Honda, for example, will give you a “Benchmark Report” of the top 20% of its dealers in your region.

The averages are quite useful because if you keep your store’s expenses, etc., within the averages shown for the successful dealer, you more likely than not, will have a profitable dealership.

If, on the other hand, you vary significantly, you will probably go broke. The average rent factor, for example, varies between 8 and 12% of gross, depending upon brand. If your rent factor is 22% of gross, you will, more likely than not, go broke. It may take a year, or two years, or five years, but you will go broke.

The problem with dealers looking at bad statements is that a dealership has so much cash flow that it could be, and usually is, broke years before the dealership closes. A dealership is like a dinosaur. You put a bullet in its brain and it walks five miles before it knows it is dead.

In comparing the different factory composites to NADA’s averages, and I have done over 1,000 comparisons, the averages for all are usually about the same.

If dealer has not done it, he or she might ask the zone or region to give them a financial statement composite of all the dealers in the zone/region and one with the top 10 or 20%, then compare them to his or her financial statement.

If the dealership statement varies substantially from the percentages of expense/profit/gross from the successful dealers, it might be worth looking into the reason for the difference; the dealer might find that his/her store is running on 7 cylinders instead of 8, or might find he or she has a better run store.

I don’t mean to be for or against anyone’s composite, or critical of any report or dealership. I just thought it might be useful to some for me to share my personal experiences regarding composites and averages.

[57years]

Thank you.

[XDCX]

Originally Posted by johnpico

A dealership is like a dinosaur. You put a bullet in its brain and it walks five miles before it knows it is dead.

Quote of the week material...

I remember hearing the same statements regarding the City of Detroit when they filed bankruptcy - the city was bankrupt a decade ago it just took this long before they ran out of options.

Concerning the post, thanks for sharing your insights. As I recall, the Chrysler dealers could request a T500 report that would provide a composite of the top performing dealerships based on group size. I believe the T500 report was made obsolete once the Chrysler Dealers had access to EXAM and could create their own reports.

I agree 100% that it is a good investment of a Dealer's time to compare his/her store to the composite and look for improvement opportunities.

[johnpico]

One of the better reports for Chrysler dealers is Chrysler’s “Market Master.” It contains an in-Depth Analysis on: pump-ins vs. pump outs; the dealer’s sales and performance; and, competitive dealer and brand performance. It is difficult to read that report and not find a way to improve the profits of your dealership.

With respect to the quote of the week. The fact is Detroit reporters did not think of it.

I coined the example in my 1986 books, all of which were copyrighted. See: Buying and Selling Automobile Dealerships, by John Pico, National Legal Publishing Co. ISBN# 0-936381-03-5; Buying and Selling Automobile Dealerships, by John Pico, Volume I, ISBN# 0-936381-04-3; Buying and Selling Automobile Dealerships Volume II, by John Pico, United States Library of Congress Number 89-082568.

[XDCX]

Originally Posted by johnpico

One of the better reports for Chrysler dealers is Chrysler’s “Market Master.” It contains an in-Depth Analysis on: pump-ins vs. pump outs; the dealer’s sales and performance; and, competitive dealer and brand performance. It is difficult to read that report and not find a way to improve the profits of your dealership.

I think I formed a negative reaction to Chrysler's Market Master because when it was launched it seemed like it was being "force fed" to the dealers primarily as a money grab by Auburn Hills.

That said, we've heard from members who echo your comments that Market Master can be a very effective tool for analyzing a dealership's performance and looking for improvement opportunities.

[XDCX]

Originally Posted by johnpico

With respect to the quote of the week. The fact is Detroit reporters did not think of it.

I coined the example in my 1986 books, all of which were copyrighted. See: Buying and Selling Automobile Dealerships, by John Pico, National Legal Publishing Co. ISBN# 0-936381-03-5; Buying and Selling Automobile Dealerships, by John Pico, Volume I, ISBN# 0-936381-04-3; Buying and Selling Automobile Dealerships Volume II, by John Pico, United States Library of Congress Number 89-082568.

Sorry, I didn't mean to imply that the Detroit reporters originated your quote, I was trying to make the correlation that the City of Detroit, just like a car dealership, was defunct long before the eventual date of the bankruptcy filing.

The reports that I read concerning the City of Detroit suggested the city was essentially defunct over a decade ago - they just delayed the problem until they had no other choice but to file for bankruptcy.

Concerning your book, Buying and Selling Automobile Dealerships, by John Pico, it's great to have a published author add content to the forum.