ORLANDO -- Before we get around to cheering for the growth in vehicle sales, let us wax nostalgic for the good old days of 2009 and 2010.
Even though it was cataclysmic on most counts, it wasn’t too shabby on at least one point. Dealership gross profits were better then.
Since the month of February 2009, when NADA conventioneers gathered in dejected silence in New Orleans, store grosses have declined steadily year after year, even as new-car sales have returned to today’s good times.
In that depressing month four years ago, even as retailers fought to keep employees and feared closing their doors, the average U.S. dealership posted a 16.7 percent gross profit margin, according to NADA data. That represents the amount of sales a dealer had left over to operate the store after paying for inventory.
One improved year later, February 2010, as the industry wobbled out of the bomb crater and met at the convention in Orlando, average gross profits had fallen to 15.9 percent of sales.
By February 2011, as an optimistic crowd shuttled off to the convention in San Francisco, it had eroded further to 14.9 percent. And last year in Las Vegas, amid robust sales, the average store’s gross profit fell to 14.7 percent of sales.
The NADA data for February 2013 will not be out for a while. The most recent snapshot of dealer financials is November 2012 -- a month when many dealers were contemplating how sweet life has become again. The average gross profit had fallen to 13.9 percent.
It’s hard to accept that there could be any direct correlation between improved industry volume on one hand and weakening store grosses on the other. Dealerships have a dozen different valves that get turned as volumes rise and fall. Payroll. Advertising expenses. High-margin cars vs. low-margin cars.
And frankly, most dealers would probably be completely content with a 10 percent gross profit percentage of today’s volumes than a 15 percent piece of the meager rations available back in February 2009. So enjoy the good times.
But that sure wasn’t the message of the day back then.
In the year or two that followed the economic meltdown of 2008, auto dealers everywhere had the same religion: Cut costs, count pennies, watch your margins, build relationships, win customers, earn service business, spend more time in the service department, go to the auctions, buy smart, mind your mending and weather the storm.
But now that the storm is over, how low will gross profits drop?