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According to the National Automobile Dealers Association, the average dealer saw their pre-tax net profit nearly double during the first five months of 2010 compared with the same period last year.
The association said the average dealers pre-tax profit margin in May was 2.3% compared with 1.3% a year earlier. The NADA said net profit margins of 2% and above have been rare over the past three decades.
The NADA attributes the strong profits reports to a number of factors including lower interest rates, reduced inventories and higher sales volumes and profit margins on both new and used vehicles.
NADA chief economist Paul Taylor said, “All key financial numbers are up year to date. The retail automotive market is getting better slowly but surely this year.”
Dealers benefitted greatly from inventory financing during the first five months of the year. Floorplan interest cost per unit during the period fell 117% due to lower interest rates and reduced production. The NADA said the credit balance per unit in the average dealers floorplan account in May was only $23 which was lower than the financial assistance they receive from factories on new vehicle orders.
Taylor also warned, “Low interest rates are keeping inventory costs low this year, but some popular trucks and cars are in short supply because of production cutbacks and factory closings.”
Another big contributor to the uptick in pre-tax net profits was the rebound of new and used vehicle sales revenue which increased by 26% and 24% respectively during the period.
On average, dealers grossed $2,269 per used vehicle sold compared with only $1,590 per vehicle last year. Gross profits from new car sales during the period saw a more modest increase to $1,371 per vehicle compared with $1,183 per unit last year.
Taylor said strong used vehicle prices have buoyed new vehicle prices. He said, “Used-car prices remain elevated, helping new-car sales by increasing trade-in equity and by narrowing the gap in price between new cars and a 1- or 2-year-old car of the same description.”
He also the 2010 “NADA Data” report indicates that, in 2009, new vehicle sales continued to fall despite more favorable prices at the pump, while used car prices struggled to rebound from their 2008 levels. Taylor also said the report shows the negative effect reduced consumer spending and the weak U.S. economy had on dealerships.
Although new car sales have continued to decline for the past four years, 2008 marked the first time used car departments across the country failed to turn a profit. The federal Cash-for-Clunkers program helped drive used vehicle sales back into the black last year.
The NADA also reported that the number of new vehicle dealers had fallen to 18,458 at the beginning of the year, down 1,550 from the previous year and it expects the number to shrink by about another 500 by the end of the year.
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