U.S. auto dealer profits slid to a nearly two-decade low in 2008 and could fall even more this year.
According to the National Automobile Dealers Association, the average dealership made a net pretax profit last year of just 1.0 percent of sales, down from 1.5 percent in 2007.
The last time profitability dropped so low was in 1989 through 1991, said Paul Taylor, NADA's chief economist.
Taylor told Automotive News that he expects little or no profit improvement until the second half of this year — if then.
In the 30 years that the association has calculated annual profits, the lowest rate was 0.6 percent in 1980, a period of high inflation, unemployment and double-digit interest rates.
Back then, "the cost of credit was high," Taylor noted. "In this recession, the issue is credit availability."
Taylor said reduced access to consumer credit "is at the root of the slowdown." NADA successfully lobbied the Obama administration and Congress to include tax breaks for new-vehicle buyers in the new economic stimulus law.
NADA also wants federal officials to provide loan guarantees so dealers can buy inventory.
Low profits correlate with a high rate of dealership closings, Taylor said. This year, he predicts a net loss of 900 dealerships — about 4.5 percent of the total. In 2008, he says, the net loss was 760 dealerships.