Baker Tilly automotive dealership benchmark survey – 2nd quarter 2014

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 two quarters ended June 30, 2014, with comparisons to the same period in 2013 and to the quarter ended March 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 is comparable with the same period one year ago. Net income as a percentage of sales was 1.87% through both June 2014 and June 2013. Profitability in the second quarter was stronger than the first quarter each year; however, the second quarter of 2014 yielded better results, with profitability increasing roughly 40% from the first quarter compared to a 27% increase in 2013.

New vehicle sales

Across the industry, new vehicle sales volumes are higher than last year with increases in both first and second quarters. In a survey by Stephens, year to date new unit sales through June 2014 were 8.13 million versus 7.80 million last year, an increase of 4.2%. Grosses per new vehicle retailed (PNVR) have also improved during 2014 and are $44 per unit higher through the first half of the year. A year over year comparison of recent grosses PNVR follows:

Time Period20142013Increase
Quarter ending March 31$1,031$1,0191.13%
Two quarters ending June 30$1,049$1,0054.35%

Through the first half of 2014, new vehicle sales outnumbered used vehicle sales. The ratio of new to used vehicles sold was 1.14 for the two quarters ending June 30, 2014, which is comparable to 1.15 for the same period one year ago, but down slightly from 1.21 for the year ended December 31, 2013. 

The average dealership reduced new vehicle inventories in terms of days’ supply during the second quarter of 2014 to 111.6 days, down from 146.7 days as of March 31, 2014. The days’ supply in units was as follows:

Days' supply of new vehicles

Advertising expense PNVR was $202 through the first half of 2014, compared to $181 for the first quarter, which is an 11.5% increase. In comparison, advertising expense PNVR was $178 through the first half of 2013.

Floor plan interest earned (floor plan interest, net of floor plan assistance) PNVR increased $24 from $19 for the first quarter of 2014 to $43 for the second quarter 2014. However, floor plan interest earned is still down from $57 PNVR one year ago due to higher inventory levels as compared to 2013.

Used vehicle sales

Grosses per used vehicle retailed (PUVR) were considerably stronger in the first half of 2014 compared to the prior year. During 2013, the quarterly year-to-date gross PUVR ranged from $1,475 to $1,490, and was $1,482 for the year. Through the first two quarters of 2014, the average dealership grossed $1,544 PUVR.

Following is the trend of recent quarters:  

YTD average gross PUVR

The average dealership showed a slight increase in used vehicle inventory on hand at the end of the second quarter. The days’ supply in units as of June 30, 2014 was 96.2 days compared to 90.5 as of March 31, 2014. In comparison, the days’ supply in units as of June 30, 2013 was 90.6.

Finance and insurance (F&I)

The F&I department’s improved performance during 2013 continued through the first half of 2014. Net F&I income before compensation per retail unit sold was $811 for new vehicles and $647 for used vehicles through June 30, 2014, compared with $777 for new and $594 for used during 2013. The improvement is slightly better when comparing the first two quarters of each year, as net F&I income before compensation per retail unit sold was $768 for new and $587 for used through June 30, 2013.

Following shows the trend of the most recent quarters:

F&I income before compensation per retail unit sold

Finance penetration rates are down slightly from the first quarter of 2014, decreasing 2.9% and 2.1% for new and used vehicles, respectively. A comparison of average new and used penetration rates are as follows:

Time periodNewUsed
June 30, 201466.1%56.8%
March 31, 201468.1%58.0%
June 30, 201366.1%55.4%

Although finance penetration rates decreased compared to the first quarter of 2014, extended service contract (ESC) penetration rates improved, with an increase of 2.1% for new vehicles and 2.0% for used vehicles from the first quarter. The new and used ESC penetration rates have climbed to 40.9% and 39.8%, respectively, through the second quarter 2014, compared to 39.0% and 36.7% for the year ending December 31, 2013.

Service

Service department productivity, measured as total gross per technician per month, improved 2.4% over the first half of 2013 to $9,061.  This was primarily due to a 3.9% increase in the hourly customer pay shop rate from $100.41 to $103.92 and an increase in the labor hours per customer pay repair order (RO) based on standard shop rates from .98 to .99 hours. These gains were mitigated by an increase in unapplied time as a percentage of gross profit from 2.7% through June 30, 2013 to 3.3% through June 30, 2014.

Customer pay labor as a percentage of total labor sales has been trending downward from 51.9% for the first half of 2013 to 50.4% through the first half of 2014. The decrease in customer pay labor has been offset by increases in service warranty labor sales. Although there has been a change in the mix of service work, it has not had a significant negative impact on the service department due to the productivity gains noted previously. Service gross profit decreased slightly from 66.6% for the first half of 2013 to 65.7% for the first half of 2014.

Customer labor as a percent of service sales

Parts

The increase in service productivity compared to the first half of 2013 had the expected impact on the part department. Parts productivity for the first two quarters of 2014, measured as total parts gross per counterperson per month, increased 1.7% over the same period in 2013:

Average monthly parts gross per counterperson YTD June 30:
20142013Increase
$25,992$25,5561.7%

Although total parts gross profit improved slightly from 31.7% to 31.8%, the improvement was largely driven by increased sales volumes. The average parts sales per counterperson per month for the first half of the year increased $1,463 (1.8%) from $80,420 for 2013 to $81,883 for 2014. Not surprisingly, service was a major contributor to the increase in parts sales as the average parts sales per customer service RO increased $5.48 (6.2%) from $88.56 to $94.04. 

Parts inventory levels increased to 62 days’ supply as of June 30, 2014 from 60 days as of both March 31, 2014 and June 30, 2014.

Body shop

The increases in service and parts productivity did not carry over to the body shop. Productivity, measured as total body shop gross per technician per month through June 30, decreased slightly from $9,378 for 2013 to $9,343 for 2014. Total body gross profit also decreased slightly from 58.6% for the first six months of 2013 to 58.0% for the first half of 2014.

Conclusion

Vehicle grosses through the first half of 2014 were better than the first half of 2013 and vehicle sales volumes were up industry-wide. Service and parts productivity have improved over last year, but these gains have been mitigated by decreases in service and body shop gross profits.

In order to exceed the profitability levels of 2013, dealerships will need to find ways to maintain their achievements in vehicle grosses and vehicle sales volumes, while finding ways to increase fixed operations gross profits during the last half of the year. If you would like a more detailed analysis of how your dealership compares to our survey, please contact your Baker Tilly representative or email us at autodealers@bakertilly.com.