Dealer profit outlook plunges, survey finds

Mercedes-Benz of Lynwood, just outside of Seattle, posted record sales in December, January, February and into the first week of March. The year looked robust. Then the coronavirus crisis hit.

Now Terry Haigh, the dealership's general sales manager, expects revenue to drop by as much as 20 percent this year.

Haigh is among the many auto retailers now facing an abrupt swing in their outlook for 2020. Just six weeks ago, dealers answering an Automotive News survey shared a downright rosy view of the year. Last week, dealers who answered a second survey had a much more grim outlook.

Preliminary results from the survey by the Automotive News Data Center found that more than 9 out of 10 respondents expect business in 2020 to be worse or much worse compared with last year. In the February survey, nearly half of the respondents projected that business would be better this year vs. 2019.

"It's a day-to-day emergency, and we are learning and trying to act with compassion while still running a business," one dealer said in the latest survey. "From last week to this week it has taken a 180-degree change. But we will survive."

Just six weeks ago, only 1 in 10 dealers thought the profit outlook for 2020 was worse or much worse.

In other preliminary results from the latest survey, about two-thirds of respondents now expect a decline in revenue of at least 20 percent. The results reflected answers from 177 respondents through the morning of Friday, March 20. The survey was continuing into this week.

One survey respondent, Drew Fitchett, the 73-year-old dealer principal of North Penn Volkswagen and North Penn Mazda outside of Philadelphia, had to shut his stores last week. He was preparing to do so even before all dealership showroom sales in Pennsylvania were ordered closed Thursday, March 19.

Fitchett recalled the challenges presented by high interest rates in the 1980s, the first Gulf War in the early 1990s, the Sept. 11 terrorist attacks in 2001 and the Great Recession in 2008 and 2009.

"We've gone through quite a bit of turmoil, and this is by far one of the most challenging" events, Fitchett told Automotive News.

Both Haigh and Fitchett are looking ahead to the back half of the year in the hopes the tide will be turned back, at least somewhat.

"I think we're going to spring back late summer and come back roaring," Haigh said. "That's my hope for this."

The Seattle area has been among the harder-hit areas of the country, but at press time, Mercedes-Benz of Lynwood remained open, albeit with reduced hours and staff.

Of the dealers surveyed, nearly half see a return to business as usual in two to six months. But roughly the same number of respondents think it will take longer. And nearly a fifth of dealers think it will take a year or more.

The area where dealers see the most opportunity for profit growth has flipped from dominantly used-vehicle sales to dominantly service. In some states where shelter-in-place orders were enacted last week, only service has been allowed to continue to operate.

Several dealers last week said they've begun to advertise digital shopping and home delivery as an alternative to coming into physical showrooms.

"This will reshape consumer behavior forever," one respondent said in Automotive News' survey. "Lots of new digital tools will be invented for the new consumer."