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.