Baker Tilly automotive dealership benchmark survey – 3rd quarter 2013

On a quarterly basis, Baker Tilly conducts a benchmarking study of auto dealerships. Respondents to the most recent study were primarily dealerships located in the Upper Midwest. This whitepaper summarizes key data as of and for the three quarters ended September 30, 2013, with comparisons to the same period in 2012. Amounts and percentages noted herein are representative of the average dealership in our survey, unless noted otherwise.

The bottom line

Overall, profitability has improved in 2013. Net income as a percentage of sales was 1.98%, compared to 1.55% for 2012. Although average front-end grosses on new vehicle sales decreased $109 per retail unit to $1,003, better gross margins in fixed operations buoyed the bottom line. On average, total gross profit per employee per month was $7,199 as of September 30, 2013 compared to $6,802 as of September 30, 2012.

New vehicle sales

Industry-wide, new vehicle sales volumes are higher than last year. In a survey by Stephens, year-to-date new unit sales through September 30 were 11.73 million versus 10.86 million last year, an increase of 7.99%. New vehicle sales through the first three quarters are slightly stronger than used vehicle sales, as the ratio of new to used vehicles sold increased to 1.16 from 1.14.

The average dealership was carrying more new vehicle inventory than last year. The days’ supply in units was 94.9 days as of September 30, 2013 compared to 90.9 a year earlier. In addition, the average cost per unit of new vehicles on hand as of September 30 increased $1,002 (3.2%) to $32,493. Although the average dealership is carrying more new vehicle inventory at a higher cost, increased sales volumes have reduced per new vehicle retailed (PNVR) expenses. In our survey, advertising expense PNVR decreased $26 from $209 to $183. Similarly, floor plan interest earned PNVR (floor plan interest, net of floor plan assistance) increased $27 from $45 to $72.

YTD gross profit per new unit retailed
YTD gross profit per new unit retailed

Used vehicle sales

Average front-end grosses on used vehicle sales are up 1.7%. The average gross per retail unit sold was $1,485 compared to $1,461 last year.

The average dealership was carrying less used vehicle inventory than last year. The days’ supply in units as of September 30 was 91.4 days compared to 92.6 days last year. The average cost per unit of used vehicles on hand increased $488 (3.5%) to $14,437.

YTD gross profit per used unit retailed
YTD gross profit per used unit retailed

Finance and insurance (F&I)

The F&I department is performing better than a year ago. Net F&I income before compensation is up 7.3% for new vehicles and 5.3% for used vehicles. On a per retail unit sold basis, net F&I income before compensation was $776 for new vehicles and $586 for used vehicles.

Finance penetration rates are comparable to last year, averaging 67.8% for new vehicles and 56.5% for used vehicles. However, we are seeing decreases in extended service contract (ESC) penetration rates. Through the first three quarters of 2013, ESC penetration was 39.7% and 35.6% for new and used vehicle sales, respectively. In contrast, the penetration rates were 41.1% and 36.7% for the first three quarters of 2012.

Service

The service department is more productive through nine months compared to 2012. Although the average customer pay shop rate increased from $97 to $100 an hour, there was also an increase in labor hours per customer-pay repair order (RO) based on standard shop rates – from .92 hours as of September 30, 2012 to .98 hours as of September 30, 2013. The combination of an increased shop rate and more hours per customer pay RO resulted in a 9.7% increase in customer labor gross per technician per month compared to 2012.

Customer pay labor represented approximately 51% of service sales through the first three quarters of 2013, compared to approximately 53% last year. The decrease in customer pay labor has been offset by approximately one-percentage point increases in both warranty and internal labor sales.

Although there has been a change in the mix of service work, it has not had a negative impact on the service department. Total gross per technician per month is up 10.9% to an average of $9,176, and total service gross profit is running at 67%, compared to 65.7% last year.

YTD service gross profit percentage
YTD service gross profit percentage

Parts

With the increase in service productivity, parts productivity is also up over last year. The average parts sales per counterperson per month increased 2.5% from $80,856 to $82,894. As noted previously, margins in fixed operations are stronger in 2013. The average gross profit percentage for the parts department was 31.7% through September 30, 2013, compared to 30.7% through the same period last year. The increase in gross profit percentage, along with increased productivity resulted in a 5.8% increase in the average parts gross per counterperson per month ($26,399 through September 30, 2013 versus $24,942 through September 30, 2012).

Parts inventory levels have remained stable, hovering at approximately 58 days’ supply as of September 30 both years.

Body Shop

The body shop department has also been more productive through the first three quarters of the year, as evidenced by a 4.7% increase in total body shop gross per technician per month. However, a large part of this increase was attributable to internal labor sales, instead of customer pay labor. Through September 30, 2013, internal labor sales accounted for 15.2% of total body shop sales, while this figure was 11.0% through September 30, 2012.

Conclusion

Results for the year have been positive and the challenge for dealerships will be to find ways to maintain these results during the last quarter and into the new year. If you would like a more detailed analysis of how your dealership compares to our survey, please contact your Baker Tilly representative or e-mail us at autodealers@bakertilly.com.