Net pretax profit for the average franchised store slid 33.4 percent through the first half of 2024 compared to a year ago—one percentage point more than the profit decline for the previous three months.
That is according to the recently released Presidio-NCM Average Dealership Performance Benchmark report. Sponsors of the poll observed that as the decline is showing signs of leveling off and questions remain if the industry’s Great Normalization journey is nearing its end, the slowdown in that earnings falloff is a positive signal.
Despite that decline, the average dealership’s net pretax profit was still 1.7 times 2018’s level, according to a Presidio-NCM analysis.
Profitability Outlook
Additionally, nearly two-thirds of dealers expect dealership profitability to decline over the next year. Their outlook over the next three years is moderately better—just less than half of respondents expected a profit dip, and the share of respondents expecting profit growth over that longer horizon was nearly double the share expecting it for the next 12 months.
What stood out to George Karolis, president of The Presidio Group, is that many dealers aren’t acting quickly enough to rein in expenses that occurred during the pandemic profit boom. The average dealership has seen its variable gross profit plunge 32 percent since 2022 compared with total personnel expense dropping just 6 percent during the same period.
Inside those numbers, the average dealership recorded personnel expense of $2.0 million through the first six months of 2024, compared with $2.1 million for the comparable period in 2023. That is an expense decline of just 4.5 percent during a period in which the average store’s pretax profit dropped 33.4 percent.
Adjustments Needed
“We’re surprised that the typical dealership hasn’t adjusted its spending and variable costs as quickly and appropriately as it should have given the decline in profitability over the last two years,” said Karolis in a press statement with the quarterly reports release. “This is a time when dealers must be nimble and adjust quickly to the industry’s changing circumstances, and many of them have not.”
Dealership profitability is down 50 percent from its peak in 2021, it’s 69 percent higher than it was in 2018. But Presidio officials noted dealerships representing certain brands continue to operate at an elevated level, while stores representing other brands have seen performance revert to levels closer to their historical norms.
The Presidio-NCM Average Dealership Performance Benchmark is based on responses from approximately 3,900 U.S. franchised dealerships that work with NCM Associates, which provides 20 groups, consulting and training to dealers across the country. A slightly smaller pool of dealerships than is typical contributed to the data for this period because the June cyberattacks on CDK Global delayed many dealership groups in reporting their results.
Sales Down 1.4%
The average dealership retailed 410 new vehicles through the first six months of 2024, down 1.4 percent. Total revenue per store came in at $40 million, down 3.4 percent. To be sure, vehicle volume and total revenue for the average dealership were likely hurt to some degree by the massive disruption caused by the June 19 cyberattacks on CDK.
With sales flat to down, inventory levels rising and interest rates up, dealers’ floorplan expenses are rising, too. In 2024, the average dealership’s net floorplan interest has firmly swung from a credit to an expense.
Per-vehicle gross profits have continued their slide this year as average gross profit per new vehicle retailed dropped by 32.9 percent to $2,408. The average gross profit per used vehicle dropped 22.9 percent to $1,404. Finance-and-insurance income declined by 0.6 percent to an average of $1,574 for the first half.
Luxury Market
On the fixed operations side, gross profit rose 3.0 percent for the average dealership through the first half of 2024. Fixed-ops gross as a percent of total gross profit came in at 50.1 percent. The average dealership’s fixed absorption rate was 69.3 percent for the first half.
Luxury brand dealerships continue to be more resilient than their peers but still down— dropping 29.3 percent for the first half compared to the same time a year ago, according to the Presidio-NCM benchmark.
The average gross profit per new vehicle for the luxury segment was $5,700 through the first six months — up from the first quarter’s $5,589 but down from the average of $6,538 for all of 2023. The average luxury store recorded gross profit per used vehicle of $1,916
The average import-brand store saw a 35.1 percent slide for the same period, and the average domestic-brand store recorded a 33.1 percent drop.
Renewed Focus Needed
The domestic segment posted the next best gross profit per new vehicle, averaging $2,146, down from $2,278 in the first quarter and $3,132 for all of 2023. The average domestic store posted gross profit per used vehicle of $1,453. The average import-brand store recorded a per-new vehicle gross profit of $1,867, down from $1,940 in the first quarter and $2,694 in 2023. The average import store posted gross profit per used vehicle of $1,229.
During this time of change, dealers should be adjusting their businesses models for whatever the new normal ends up being, said Paul Faletti, CEO of NCM Associates.
“The extraordinary profits that dealerships enjoyed in 2021 and 2022 have contributed to what now appears to be a slip in focus by some operators,” said Faletti. “The Presidio-NCM benchmark data now clearly shows that dealers have more work to do when it comes to managing expenses. It is crucial for all dealers take a close look at their operational metrics to ensure they are maximizing their earnings during this time of normalization.”
