Baker Tilly automotive dealership benchmark survey – 3rd quarter 2015

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, 2015 (Q3 2015), with comparisons to the same period in 2014 (Q3 2014) and to the year ended December 31, 2014. Amounts and percentages noted herein are representative of the average dealership in our survey, unless noted otherwise.

The bottom line

Dealership profitability took a downturn in Q3 2015, and dropped below the level at this time last year. Profitability has also dropped below levels at this time last year. Net income year to date as a percentage of sales was 1.72 percent through Q3 2015, compared to 1.86 percent through Q3 2014. Bottom line declines were mainly attributable to lower vehicle grosses.

YTD net income as a percentage of sales

New vehicle sales

Industry wide, the volume of new vehicle sales in the first nine months of the year surpassed volumes one year ago. In a survey by Stephens, year to date new vehicle sales through September 2015 were 13.0 million units versus 12.4 million units through September 2014, an increase of 5.1 percent. Strong truck sales continue to drive the increase in new vehicle sales with 11.4 percent growth over this time last year. Truck sales represented 55.6 percent of new vehicle sales through Q3 2015, compared to 52.5 percent one year ago. New unit sales of both domestic and import brands have grown (5.0 percent and 5.1 percent, respectively). If fourth quarter sales improve year over year, this year will be the sixth consecutive year of new vehicle sales growth. Although the industry is on track to sell well over 17 million new units, year to date grosses per new vehicle retailed (PNVR) have dropped since last quarter, which is putting pressure on the bottom line.

A comparison of recent grosses PNVR follows:

YTD Quarter Ending: 201520142013
March 31$ 1,039$ 1,034$ 1,019
June 30$ 1,061$ 1,062$ 1,010
September 30$ 1,021$ 1,052$ 1,001
December 31 $ 1,056$ 1,026

New vehicle sales in units continue to outnumber used vehicle sales through the third quarter of 2015. The ratio of new to used vehicle sales through Q3 2015 increased to 1.08 compared to 1.04 through Q2 2015. However, this figure is still well below the 1.14 noted in Q3 2014.

New vehicle inventories in terms of days’ supply continue to decrease as unit sales remain strong through the third quarter of 2015. The days’ supply in units for the most recent quarters is as follows:

Days' supply of new vehicles

Net floor plan interest income (floor plan interest, net of floor plan assistance) PNVR was $95 through Q3 2015, which is considerably higher than the $65 PNVR through Q3 2014. Despite a 1.6 percent increase in average cost of new inventory compared to this time last year, the increase in net floor plan assistance is primarily attributable to dealerships turning new vehicle inventories quicker in 2015 compared to 2014. In addition, dealerships have also benefited from competition between floor plan lenders and the resulting decrease in floor plans rates.

Used vehicle sales

Grosses per used vehicle retailed (PUVR) dropped to a recent low of $1,242 through the third quarter of 2015. Continued declines since June 2014 are the result of higher demand for new vehicles due to increased employment rates and wage growth, low fuel prices creating higher demand for new SUV’s and trucks, recent low payment lease incentives on new vehicles and an increased supply of off-lease and program vehicles.

Following is the trend of recent quarters:

YTD gross per used vehicle retailed

Although used vehicle grosses have been trending downward since June 2014, used vehicle sales volumes during 2015 have been robust.  Through Q3 2015, 12.1 million units were sold compared to 10.8 million units through Q3 2014–an 11.5 percent increase. The increased demand for used vehicles, has resulted in a third consecutive quarter where the supply of used vehicles in units has been under 90 days. The average days’ supply in units as of September 30, 2015 declined to 82.4 days compared to 88.9 as of June 30, 2015. In comparison, the days’ supply in units as of September 30, 2014 was 94.1.

Finance and insurance (F&I)

Net F&I income continues to remain strong through the three quarters ended September 30, 2015. Bottom line increases are, in part, attributable to a 21.0 percent increase in insurance penetration rates on new vehicles coupled with a 7.3 percent decrease in total F&I compensation compared to this time last year.

Net F&I income per contract has improved considerably over the past year—increasing 5.7 percent for new vehicles (from $624 to $660 per contract) and 3.0 percent for used vehicles (from $549 to $565 per contract).

Net F&I income (before compensation) per retail unit began to level off in Q3 2015, but still holds strong for the year when comparing to 2014. Net F&I income (before compensation) was $875 for new vehicles and $684 for used vehicles through September 30, 2015, compared with $833 for new and $657 for used vehicles during the same period last year. The following graph shows the trend of net F&I income before compensation for the most recent quarters:

YTD F&I income before compensation per retail unit sold

Service

Service department productivity, measured as total gross per technician per month, decreased 8.0 percent compared to the same period one year ago ($8,931 for Q3 2015 compared to $9,710 for Q3 2014). This decrease is mainly attributable to an 8% increase in warranty work compared to year to date Q3 2014 and an increase in the total number of technicians reported by the respondents. The ratio of technicians to total service department employees increased 6% since September 2014.

After a steady downward trend in customer pay labor as a percentage of total labor sales, the industry experienced a rebound to levels one year ago (see graph below). Consistent with the first two quarters of 2015, warranty labor sales continue to outperform levels one year ago. Warranty labor as a percentage of total labor sales increased from 19.3 percent for Q3 2014 to 20.9 percent for Q3 2015.

The trend of customer pay labor as a percentage of total service sales follows:

YTD customer labor as a percentage of service sales

Parts

Parts productivity, measured as total parts gross per counterperson per month, increased 3.1 percent through Q3 2015 over the same period in 2014. A comparison of parts productivity measures for recent quarters follows:

Average monthly parts gross per counterperson YTD

YTD Quarter Ending: 201520142013
March 31$ 25,916$ 25,723$ 24,596
June 30$ 25,576$ 25,874$ 25,528
September 30$ 27,249$ 26,422$ 26,400
December 31 $ 25,801$ 27,863

Margins in the parts department remained comparable to the same period in 2014, as the total parts gross profit percentage was 31.9 percent through Q3 2015 versus 32.2 percent through Q3 2014.

Parts inventory levels have remained consistent throughout the year, as the days’ supply has ranged from 59 to 60 days. As of September 30, 2015, the average dealership had a 60 days’ supply. However, this is higher than the 57 days’ supply as of September 30, 2014. 

Body shop

Total body shop gross profit as a percentage of sales for Q3 2015 was 57.1 percent, which is an improvement over Q3 2014 (56.8 percent). The increase in the gross profit percentage has been driven by customer pay work, as labor rates have remained relatively flat over the last year at roughly $55 per hour. Body shop customer labor sales per repair order (RO) increased 2.8 percent ($776 through Q3 2015, compared to $755 through Q3 2014), while average labor hours per RO (based on standard labor rates) remained comparable between the same periods (14.1 and 14.0 hours, respectively). The following shows the trend of YTD body shop gross profit percentages for the most recent quarters:

YTD body shop gross profit percentage

Conclusion

Overall, through Q3 2015:

  • Vehicle sales volumes were up industry-wide for both new and used vehicles.  Sales of new SUV’s and trucks continued to outpace sales of new cars and the margin between the two continued to widen.
  • Average new and used vehicle grosses were at their lowest point for 2015 and 2014.  Some of this decline is being recouped on the back end through F&I. 
  • Fixed operations gross profit levels have remained comparable to last year with slight decreases in parts and service being offset by an increase in body shop.

Although this could potentially be another consecutive year of sales growth for new vehicles, expected interest rate increases by the Federal Reserve may cause sales to slow down in future years.

For more information on this topic, or to learn how Baker Tilly dealership specialists can help, contact our team.