Car dealers poised for big 2013 profits?

car dealerBIZMOLOGY — The average US auto dealer did well in 2012 — very well, according to a recent survey of member dealers by the National Automobile Dealers Association (NADA). And all signs point to another good year in 2013.

The average US franchised dealership saw pretax profits rise 6 percent in 2012. Dealers averaged sales of more than $38 million, a 9 percent rise over 2011. Net profits on new car sales reached their highest level since 2004 amid higher sales volumes and per-vehicle revenue. New-vehicle sales volumes rose 13 percent last year, and the average selling price increased nearly 1 percent. Low interest rates kept a lid on floorplan costs.

Industry watchers believe US light-vehicle sales could reach 16 million units this year, which would spell another banner year for auto dealers. While dealers are generally optimistic about 2013, insiders expressed two key concerns — the impact of the Affordable Care Act and possible tightening of lending regulations, which could hurt the profitability of dealers’ finance and insurance departments. The Obama administration recently announced a delay in the implementation of certain parts of the health care rules, which buys dealers another year to make adjustments.

One weak area for profits in 2012 was dealers’ parts and service departments. Rapidly improving vehicle quality across the industry means vehicles sold two or three years ago aren’t coming in for parts and maintenance. Another sore spot was used-vehicle sales. Per-vehicle, pre-owned profits dropped to $194 in 2012 from $269 in 2011. NADA attributed the lower profits to higher costs to acquire used-car inventories, and rising personnel and advertising costs.

Overall, dealers remain upbeat about 2013, citing improving consumer confidence, a robust product pipeline from manufacturers, and economic recovery in key high-volume regions including the western US and Florida.

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Photo by Pat Pilon, used under a Creative Commons license.

James Bryant

James Bryant is a writer and editor for the First Research team at Hoover's.

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