Dealer Check-up Reveals Widespread Profit Loss

Matt Posky
by Matt Posky
dealer check up reveals widespread profit loss

U.S. light-vehicle dealers reported an operating loss for the first time since the National Automobile Dealers Association (NADA) began collecting data in 2009. While everyone continues reporting pretax net profits, concerns are beginning to swell around their dependency on factory incentives, which are not included in operating tabulations.

NADA’s analysis of 2019’s first-quarter auto sales shows that incentive spending is down compared to the same period a year ago. The group expects above-average discipline from automakers in terms of incentive spending throughout the year. According to J.D. Power, average incentive spending per unit was down $119 to $3,821 through March 2019 — with the brunt of that going toward trucks. However, if sales remain low, spending may creep back up to help clear out languishing inventories.

NADA’s own report ( which can be found here) states that operating results shifted to an average loss of $13,338 in 2018, compared with a gain of $91,774 in 2017. Meanwhile, cumulative pretax profit slipped by 2.6 percent to $1.36 million.

Automotive News, which examined the issue in a recent article, noted that the gap between net and operating results has grown significantly — indicating an increasing reliance on incentives. Back in 2015, average net profits were estimated to be 3.1 times greater than operating profit. In 2016, the difference had grown to 5.3 times. By 2017, average net profit was estimated to be 15 times greater than operating results. But now dealers groups are reporting operating losses.

“Dealers are willing to dig deeper in their own pockets — sometimes operating at a loss — to go after those incentive targets that are set each month or each quarter,” Patrick Manzi, senior economist for NADA, told Automotive News in an interview. “That [operating] loss is indicating that almost all the profit comes from OEM money.”

Dealers are expected to slash their advertising budgets and cut costs wherever possible while leaning increasingly on servicing and parts to help them endure a less-than-optimistic 2019. Average advertising expenses already declined 3 percent last year and were down 1.4 percent in 2017 from the previous year.

[Image: Nissan]

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  • Danio3834 Danio3834 on Apr 09, 2019

    That NADA report is a good overview and commentators here should read it if they ever wondered why automakers don't actually want to own the sales channel.

    • See 16 previous
    • Danio3834 Danio3834 on Apr 25, 2019

      @ToolGuy Yes I read and understood the report and dealer financials. Dealer net profit as a % of sales is listed as 2.2% where automakers are 3-4x that amount. Your assertion that it would be a benefit to automakers to shell out billions in inventory and overhead for 2.2% when they could use that same money to make 8 in their current vested business is a bit silly. If you understand how the OEM/dealer relationship works, you'd see there isn't much to be consolidated or saved. The cost of sales is still there, but the OEM would take them on. Recession hits and now it's the OE taking the losses, which is the crux of the article. That many dealers are losing money.

  • PrincipalDan PrincipalDan on Apr 09, 2019

    We're getting back to "stacking 'em deep and selling 'em cheap" time again. Judging by the lots around here it doesn't even seem like "Tax Refund Time" made much of a dent in dealer inventory. GM rolled out 0% for 72 months a few months back and I've been supersized to see it hanging around. Good for me that I'm planning my next vehicle purchase within the next 3 or 4 months.

    • See 1 previous
    • ToolGuy ToolGuy on Apr 10, 2019

      @trackratmk1 Unpopular thing to say out loud: If the only reason you can swing the down stroke on your new vehicle purchase/lease is because of a tax refund, you might want to re-evaluate your life choices, including that same new vehicle transaction.

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