July 2014 Dealer Profitability
Deloitte Motor Industry Services | 31 August 2014
- July saw dealer profitability fall to its second lowest level in the year so far with a NP%S result of 1.6% for the total industry. While this result is comparable to what the industry experienced in July 2013, the YTD position of 2.0% in 2014 is 1 percentage point below the calendar YTD result of last year of 3.0%.
- Given the correlation we have historically seen between dealer profitability and new vehicle volumes, the above NP%S results are not surprising with vehicle sales continuing to be down compared to the prior year. A total of 649,816 vehicles have been sold so far in 2014, this being 14,218 vehicles (or 2.1%) less than the same period last year.
State by state
Compared to the strong profitability levels we saw in June, the average dealer in all states was less profitable in July when comparing month-on-month. When comparing to last year, the results were mixed with NSW/ACT, QLD and WA being the state groups that had a more profitable July month in 2014 than they did in 2013.
New South Wales/Australian Capital Territory
The average NSW/ACT dealer achieved a profitability result of 1.3% in July 2014 – this being 0.3 percentage points below the industry position for the month and 0.5 percentage points below the state’s YTD result. When comparing the July month to YTD performance, the average dealer in NSW/ACT saw higher results in sales, gross and selling gross (when expressed on the basis of per employee) in July. However, in July, the average dealer made $998 net profit per employee compared to $1,333 across the 2014 year so far. This can be attributed to a 1.5 percentage point difference in fixed expenses as a percentage of total gross profit (July – 50.6%, YTD – 49.1%) as well as F&I contributing less to the bottom line in July with the average NSW/ACT dealer earning $106 less per new finance contract they wrote.
At 2.1% NP%S, QLD dealers once again had the second highest level of profitability across state groups for July month. While new vehicle operations in QLD contributed more to total gross profit when compared to the industry average (36% and 35% respectively), the month of July saw the average QLD dealer being more back end orientated compared to their operations across the year so far. This can be attributed to less volume coming through for QLD in the month (vehicle sales in July 2014 was 4.6% less than July 2013) and $35 less gross per new vehicle retailed when compared to the state’s YTD performance. However, the shift in orientation this month can also be largely attributed to increased service department activity, with labour sales and labour gross per chargeable figures both above benchmark at $16,167 and $12,282 respectively.
South Australia/Northern Territory
The average SA/NT dealer saw a NP%S result of 1.0% – the lowest profitability level we have seen from the state group in more than two years. The major contributing factor to the result was softer performance in new vehicles with selling gross (as a percentage of department gross) arriving at 17% in July which is a significant drop of 15 percentage points from the 30% experienced YTD. While the state group continues to be well ahead of the industry in terms of new vehicle grosses, earning $3,142 per new vehicle retailed in July, this was $256 less than what they have been achieving across the year so far. This shortfall in the total gross profit pool, as well as softer performance in used, parts and F&I, increased the challenge to recover costs for the average SA/NT dealer in July with total expenses (direct and fixed) as a percentage of gross at 120%.
The July month and YTD profitability result for the VIC/TAS state group was 1.0% and 1.8% respectively. Profitability in new cars continues to be a challenge, and aside from pressure on grosses, it is worth noting that new car stock levels in VIC/TAS were the highest amongst the state groups with the average dealer recording a days supply of 115 days in July. This was reflected in the in the 18% of the department’s gross being spent on floorplan – a figure that was 4 percentage points above the industry average. However, turning to fixed operations, VIC/TAS dealers are above the industry average in parts performance with the gross margin and selling gross of the average dealer at 24% and 62% (compared to the industry average of 23% and 60%).
WA was the most profitable state in July and the only state to achieve a monthly NP%S above their calendar YTD – with results of 2.7% and 2.3% respectively. Looking at the front end, greater volume (non-retail for the new department and retail for the used department) increased the gross profit pool in both departments. This gave the average WA dealer a better position to recover their expenses, with selling gross for the month in each of these departments being 4 and 3 percentage points above their YTD positions.
- The results for the July month were on par with July 2013 for the volume and prestige segment at 1.6% and 1.7% for each segment respectively. The luxury segment saw the greatest improvement when comparing against the prior year, with the July month result this year of 1.9% being 0.4 percentage points above the July 2013 result.
- The prestige segment remains the most profitable segment with YTD NP%S at 2.1%, followed by the luxury segment at 2.0% and the volume segment at 1.9% where the monthly results of each segment were below their YTD position. However, the luxury segment continues to benefit from its growth in vehicle sales with it being the only segment to have a July 2014 YTD NP%S above its July 2013 YTD position.
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