Dealers worry about more cost shifts

Distribution by the numbers
As marketing costs rise, the auto industry struggles to cut distribution costs.


  • n The industry spent $125 billion on distribution in the United States last year, according to J.D. Power and Associates.

  • Marketing costs made up 31% of distribution costs in 1983 but today make up 46%, according to A.T. Kearney.

  • As automakers move to build-to-order, they will save an average of $200 per vehicle sold by 2010, according to Forrester Research.

  • Also by 2010, build-to-order will save automakers an additional $700 on marketing per vehicle, according to Forrester.

  • Dealer distribution costs have remained flat since at least 1996, said John Thomas, an industry analyst with the National Automobile Dealers Association. In 1998, for example, dealer distribution costs averaged 6.62 percent of the cost of each new vehicle, while that percentage crept to only 6.69 last year.

    Dealer distribution expenses include personnel salaries, advertising, staff training and floorplanning, which is the loan interest paid on inventory.

    Some dealers have a renewed concern that the automakers will push more costs onto them, particularly as they cut prices and trim dealer discounts.

    "Recently, DaimlerChrysler dealer margins have contracted quite a bit because of the across-the-board cut of vehicle prices," Thomas said. "That itself has caused concern among the dealers."

    Dealer margin is the difference between a vehicle's wholesale price and sticker price.

    "It has shrunk our margins to 11 percent to 12 percent," said Dodge Dealer Council Chairman Dick Withnell, owner of Withnell Dodge in Salem, Ore.

    Withnell said margins need to be from 15 percent to 18 percent for dealers to be profitable.

    You can reach Arlena Sawyers at asawyers@crain.com

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