For many, buying a new car is a complicated, stressful, and harrowing experience. Aggressive sales tactics, inconsistent information, imperfect stock availability, a bajillions of forms, and a general operating speed best described as ludicrous leaves many wondering what they just signed, and why. It’s not fun for the consumer, and, according to a new Automotive News report, not fun for dealerships either, which are relying more and more on automakers’ incentives to turn a profit.
According to Patrick Manzi, senior economist for the National Automobile Dealers Association (NADA), dealerships are becoming more reliant on the “below-the-line” money.
Data from NADA revealed U.S. dealerships, on average, turned an operating profit of just $91,774 in 2017. Net profit, which includes incentive payments, averaged $1.4 million. That makes the net profit 15 times greater than the operating profit, a significant increase from 5.3 times greater in 2016 and 3.1 times greater in 2015. But what does this mean?
Well, not all dealerships are suffering the same, with domestic stores faring much better overall. In fact, domestic-brand dealerships turned an average operating profit of $244,258 in 2017 and a net profit of $1.1 million. That means General Motors dealerships selling GMC, Buick, Cadillac, and Chevrolet don’t have to chase factory incentives as much as their foreign and luxury competitors to turn a profit. That really marks a significant about-face from a decade ago, when GM and its dealers were among the worst offenders when it came to abusing incentives, and is a testament to the strategy implemented by the “New GM” to do business without relying on incentives.
Dealerships will continue to seek factory incentives as new-car sales decline and competition grows. One of the most common incentives dealerships strive for is a volume sales target. If a dealership hits a specific sales volume figure, it gets a bonus. If that target is missed, it often gets nothing. In some rare cases, the dealer gets a small portion of what it could have made if it hit or exceeded the objective.
Thin profit margins are never comforting when running a business, and operating a dealership is as about as far from a walk in the park as you can get. Traditionally, dealerships have relied on service departments to help turn a profit, but those trying to save money often elect to service their vehicles elsewhere in hopes of saving a few bucks. If anything, the thin profit margins could mean that dealerships may be willing to lose money on a sale so it can hit its sales target, and that – ultimately – is a win for the consumer.
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Comments
Stair step programs can be a risky proposition for some dealerships. Sure the manufacturer loves these programs because they are making money no matter what happends. But dealers are stock piling inventory trying to hit numbers to get the bonus money. It really comes down to is it susatinable with the current trend of rising floor plan rates. I think dealers that are so deep in these stairstep programs really need to start taking a look at getting their inventories healthy so it can be sustainable for them.
I think you meant “it gets a bonus.” No editors available?
If a dealership hits a specific sales volume figure, it get a bonus.
Hey Rob do you have an insightful comment about this article? Anything you would like to add that may be of benefit to someone that reads this article?
I did’nt think so…
No, I don’t have an editor because I don’t need one. I typed up a quick response to the article that actually presents a different perspective on the topic.
What contribution are you making other than being a pri*k?
I was talking to Anthony, you know, the writer of the article. Considering you didn’t say the text I quoted and corrected, you’d think you’d realize that. Man, you are a complete idiot.
Thank you for proving my point. You’re an incredible piece of sh*t.
You don’t have a point, you only have the delusion of thinking you do. Exhale on the ego, this had nothing to do with you Mr. “I resort to trying to insult others to feel better about myself when I think someone insulted me first and I really don’t have an intelligent argument so I use vulgarities.” So juvenile.
The first thing you did was come in here and criticize the writer of the article lol. You really are a special kind of stupid. Aren’t you. Mighty hypocriticaltical of you I might add.
I’ll ask you again Rob and read it really slowly so it will sink into that thick head of yours.
Do you actually have something to contribute to the article? Maybe an opinion or how about an example of how the writer/reader could think differently about this topic?
Nope did not think so. You’re just a guy who likes to point out grammar issues but has nothing of any intellectual value to offer.
I am done here. I sure don’t want to cut into your grammar nazi time.
Have you ever considered that even though you don’t care much about being seen as professional, the writer might?
As if you know anything about being an intellectual. Ha ha, thanks for the laugh and interesting display of stunted human growth, childish behavior and subhuman interaction.
Hooked on phonics worked for Rob!
You attacked my post thinking I was talking about you and instantly resorted to vulgarities, what a plenary buffoon you are.
You’re right I was wrong for that and I apologize. Can we end this now shake hands and walk away?
Or a round each, it’s only fair. : )
Absolutely, I also apologize for my end of it, have a great night!
Cool beers on me!! Have a good one sir!!
Now let’s all “rate up” our own posts to try feel even better about ourselves, woo hoo!
See how the reply button works? I wasn’t even talking to you LMAO