Baker Tilly automotive dealership benchmark survey - 1st quarter 2015

On a quarterly basis, Baker Tilly conducts a benchmarking study of auto dealerships. Respondents to the most recent study were primarily dealerships located in the Upper Midwest. This whitepaper summarizes key data as of and for the quarter ended March 31, 2015 (Q1 2015), with comparisons to the same period in 2014 (Q1 2014) and to the year ended December 31, 2014. Amounts and percentages noted herein are representative of the average dealership in our survey, unless noted otherwise.

The bottom line

Overall, dealership profitability rebounded after a decline in the fourth quarter of 2014. Profitability also exceeds levels at this time last year. Net income as a percentage of sales was 1.57 percent for first quarter of 2015, compared to 1.34 percent for first quarter 2014. Bottom line improvements were attributable to vehicle sales growth with an offset due to downward trending vehicle grosses and slightly rising personnel and fixed expenses compared to the four quarters ended December 31, 2014 and this time one year ago.

YTD net income as a percentage of sales

New vehicle sales

Across the industry, new vehicle sales volumes increased in the first three months of the year compared to last year. In a survey by Stephens, year to date new unit sales through March 2015 were 3.9 million versus 3.7 million last year, an increase of 5.6 percent. The majority of the increase is the result of very strong growth at the beginning of the year which tapered off by the end of the first quarter. January and February had unit sales growth of 13.7 percent and 5.4 percent, respectively, over the prior year. March growth tabled at only 0.4 percent over March 2014. Overall, grosses per new vehicle retailed (PNVR) dropped almost 2 percent compared to YTD December 2014, but still remain above March 2014 and 2013. A comparison of recent grosses PNVR follows:

YTD quarter ending201520142013
March 31$1,039$1,034$1,019
June 30 $1,062$1,010
September 30 $1,052$1,001
December 31 $1,056$1,026

Consistent with historical trends, new vehicle sales outnumbered used vehicle sales in the first quarter of 2015. However, the gap closed significantly with the ratio of new to used vehicle sales dropping from 1.16 at the end of 2014 to 1.04 at the end of the most recent quarter.

The average dealership increased new vehicle inventories in terms of days’ supply during the first quarter of 2015 mainly due to unit sales normalizing during the month of March. The days’ supply in units for the most recent quarters is as follows:

Days' supply of new vehicles

Advertising expense PNVR for the first quarter of 2015 dropped to $196 from $220 for the four quarters ended December 2014, an 11 percent decrease. The reduction is similar to last year when advertising expense PNVR decreased from $197 at the end of 2013 to $182 at the end of the first quarter of 2014, an 8 percent decrease.

Net floor plan interest (floor plan interest, net of floor plan assistance) PNVR decreased $6 from $82 at the end of 2014 to $76 at the end of the first quarter in 2015, which is quite comparable to net floor plan interest of $75 PNVR through Q1 2014.

Used vehicle sales

Grosses per used vehicle retailed (PUVR) have continued to drop since last summer’s peak when grosses were $1,545 PUVR. Through the first three months of 2015, the average dealership is reporting grosses of only $1,317 PUVR.  Low gas prices creating higher demand for new SUV’s and trucks, recent low payment lease incentives on new vehicles and an increased supply of off-lease and program vehicles have all contributed to eroding used vehicle grosses.

Following is the trend of recent quarters:

Gross per used vehicle retailed

Although used vehicle grosses have been declining, the average dealership showed another slight decrease in used vehicle inventory on hand. The days’ supply in units as of March 31, 2015 was 85.4 days compared to 95.9 as of December 31, 2014. In comparison, the days’ supply in units as of March 31, 2014 was 91.5.

Finance and insurance (F&I)

F&I income is continuing its upward trend.  One reason is more income on finance contracts sold.  Net income per contract has improved substantially over the past year - increasing 10.6 percent for new vehicles (from $603 to $667 per contract) and 6.4 percent for used vehicles (from $530 to $564 per contract).

Another reason for the continuing improvement in F&I is increasing finance penetration rates.  A comparison of average new and used penetration rates are as follows:

YTD quarter endingNewUsed
March 31, 201571%61%
December 31, 201469%58%
September 30, 201470%58%
June 30, 201466%57%
March 31, 201468%58%

These two items contributed to net F&I income (before compensation) per retail unit sold being $901 for new vehicles and $717 for used vehicles through March 31, 2015, compared with $791 for new and $642 for used during the same period last year. The following graph shows the trend of net F&I income before compensation for the most recent quarters:

F&I income before compensation per retail unit sold

Service

Service department productivity for the first quarter of 2015, measured as total gross per technician per month, improved 4.8 percent over the same period one year ago ($9,078 for Q1 2015 compared to $8,664 for Q1 2014). This was primarily due to a 2.9 percent increase in the hourly customer pay shop rate from $103 to $106. In addition, service labor sales per repair order (RO) increased 4.8 percent from this time one year ago ($181 per RO to $190 per RO). These gains were mitigated by an increase in unapplied time as a percentage of gross profit (4.2 percent for Q1 2015 compared to 3.8 percent for Q1 2014).

Customer pay labor as a percentage of total labor sales increased in the first quarter of 2015 after four consecutive quarters of declines (see graph below). The decrease in customer pay labor over the last year had been offset by a steady increase in service warranty labor sales, which increased for the fifth consecutive quarter in March 2015 (a 7.1 percent increase over the four quarters ended December 31, 2014 and a 25.4 percent increase over March 2014. Service gross profit for the first quarter of 2015 was 66.2 percent, which is comparable to the previous four quarters’ range of 65.8 percent to 66.3 percent.

Customer labor as a percentage of service sales

Parts

Unlike the service department, parts productivity for the first quarter of 2015 remained very consistent with the same period one year ago. Parts productivity, measured as total parts gross per counterperson per month, increased 0.8 percent over the same period in 2014.  A comparison of parts productivity measures for recent quarters follows:

Average monthly parts gross per counterperson YTD
YTD quarter ending201520142013
March 31$25,916$25,723$24,596
June 30 $25,874$25,528
September 30 $26,422$26,400
December 31 $25,801$27,863

Total parts gross profit increased from 31.8 percent for the first quarter of 2014 to 32.1 percent for the first quarter of 2015. This increase was mainly driven by year over year increases in parts body shop customer gross per RO ($223 for Q1 2014 compared to $231 in 2015) and higher volumes of parts sales per customer body shop RO ($716 in 2014 compared to $751 in 2015).

Parts inventory levels remained comparable at 60 days’ supply for the first quarter of both 2014 and 2015, compared to December supply (59 days in 2014 and 58 days in 2013).

Body shop

Total body shop gross profit as a percentage of sales for Q1 2015 was 58.0 percent, which is a slight improvement over the 2014 year (57.6 percent), but behind Q1 2014 (58.3 percent).  Productivity, measured as total body shop gross per technician per month, was $9,673 for the first quarter of 2015 compared to $9,389 for 2014, yet still lags levels one year ago ($9,764 for Q1 2014).  The following shows the trend of YTD body shop gross profit percentages for the most recent nine quarters:

YTD body shop gross profit %

The productivity gains in Q1 2015 were driven by an increase in customer-pay work, as the average customer labor hours per RO increased to 14.5 hours for Q1 2015 from 14.2 hours for the 2014 year. One concern is unapplied time, which rose to 5.1 percent of total body shop gross profit for Q1 2015, compared to .9 percent for all of 2014.  Only time will tell if this is an aberration or the beginning of an unfavorable trend.

Conclusion

Vehicle grosses have continued to decline during the first quarter of 2015, with used vehicle grosses taking a much more significant drop than new vehicles. Overall, new vehicle sales volumes were up industry-wide. Service and body shop productivity have improved over last year, but these gains have been mitigated by increases in unapplied time. Parts productivity and gross profit has remained comparable over the past year.

In order to exceed the profitability levels of 2014, dealerships will need to maintain their achievements in vehicle sales volumes, while finding ways to offset the effects of downward trending grosses per vehicles retailed.

For more information on this topic, or to learn how Baker Tilly dealership specialists can help, contact our team.