According to an annual study conducted by the National Automobile Dealers Association (NADA), U.S. auto dealerships’ profits increased in service and parts in 2016, while dropping in both new and used vehicle sales.
NADA Chief Economist Steven Szakaly explained that the increased profits follow the broadening of service departments by a minimum of one bay by approximately 33 percent of all U.S. light-vehicle dealerships, in an effort to secure additional revenue from service. Szakaly predicted that “customer loyalty is going to be very key for dealers” as they enter a sales plateauing year. He believes that expanding the revenue derived from fixed operations is the best way to retain customer loyalty.
Initial findings from the NADA Data 2016 study indicate that service, parts and body shop gross profits increased to 47.3 percent of an average dealership’s total gross profits last year, up from 45.4 percent in 2015. New vehicle gross earnings in 2016 dropped to 27.8 percent of total gross revenue from 29.5 percent in the previous year, while revenue from used car sales dropped slightly to 24.9 percent from 25.1 percent in 2015.
Overall revenue from sales for an average dealership increased by 5.1 percent in 2016 to reach $59.6 million, while the average number of new vehicle sales per dealership increased to 928 from 916 in the previous year.
Unfortunately, total expenses for an average dealership increased by more than sales revenue, with pretax profit margin dropping to 2.5 percent last year, down from 2.7 percent in 2015 and 2.6 percent in 2014. The study findings show that a significant component of the increased expenses was derived from staffing, with an increase in direct employees of 2.4 percent in comparison to 2015.
Szakaly explained that dealership employees earn one of the highest average salaries of any industry, with average weekly earnings per employee reaching $1,122.
“The service-tech shortage is reflected in the rising wages and earnings,” Szakaly said. “That’s why you see these rising wages in what you pay people so you can attract people to the industry.”
He further explained that dealership consolidation led to a decrease in the number of back office employees on average, while additional service bay workers were hired over the past year.