For many dealers, it has been an alarming start to what was counted on as a turnaround year.
Coming off a five-year profit low in 2005, retailers' bottom lines took another hit during the first two months of 2006.
A disturbing number of dealers are actually losing money, say accountants, auto executives and some dealer respondents to an Automotive News survey.
Across the industry, the average dealership's pretax profit declined to 1.45 percent of sales for the first two months of the year, down from 1.53 percent a year earlier, according to the National Automobile Dealers Association. The average pretax profit for all of 2005 was 1.6 percent of total sales, down from about 2 percent in 2001.
Average dealer profitability for Ford Motor Co.'s domestic brands declined 8 to 10 percent in January and February, the automaker's North American sales chief said. That continues a lengthy streak of declining profitability for Ford, Lincoln and Mercury dealers.
Floorplan costs soar
Declining sales for some brands, high inventories and rising interest rates all played a role in pushing profits down, dealers said. Floorplan interest costs alone jumped 52 percent for the average dealership during January and February compared to the year before, according to NADA.
"Almost half my dealers were in the red through February, and I have not seen it that poor in 20 years," said accountant Carl Woodward, of Woodward & Associates Inc. in Bloomington, Ill.
His Ford clients posted the worst results, with 50 percent showing a year-to-date loss through February, said Woodward, an accountant with about 200 dealer clients in the Midwest.
Another dealership accountant described January and February as "dead" for the block of 160 clients he represents.
"They're usually breaking even," said Dan Thompson, of Boyer & Ritter in Harrisburg, Pa. "But there was a lot of red ink in January and February."
The trend seems to be hitting domestic brands the hardest. But even some import-brand dealers experienced a soft start to the year, he said.