WASHINGTON -- With higher sales, lean inventory and low interest rates, dealership profits have jumped this year, the National Automobile Dealers Association says.
The average dealership's net profit before taxes nearly doubled to $278,814 in the first five months of this year compared with the same period last year, NADA says.
The average net pretax profit margin was 2.3 percent, up from 1.3 percent through May last year. In the past 30 years, annual net margins have rarely topped 2 percent, NADA records show.
NADA attributes the strong results to healthy sales increases of new and used vehicles; higher vehicle profit margins; radically reduced inventory; and low interest rates.
"All key financial numbers are up year-to-date," says Paul Taylor, NADA's chief economist.
"The retail automotive market is getting better slowly but surely this year."
The biggest savings came in inventory financing. After the first five months, the average dealership had an unusual $23 credit balance per vehicle in its floorplan account. That means the financial assistance factories paid dealers to order new vehicles more than offset the dealers' interest expense per vehicle.
"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," Taylor says.
Taylor predicts light-vehicle sales this year of 11.4 to 11.7 million, up from last year's 10.4 million.
To hit the high end of the range, he says, the industry would require a boost from fatter incentives, higher consumer confidence, improved loan approval rates for people with poor credit and more stable housing prices.
Through May, the average dealer also saw a 26 percent jump in new-vehicle sales revenue and a 24 percent increase in used-vehicle sales revenue compared with the same period last year.
"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," Taylor says.
NADA said there were 18,458 new-car dealerships in the United States at the start of 2010, down 1,550 from 2009. NADA expects the number of U.S. dealerships to drop in 2010 by about 500.