Baker Tilly automotive dealership benchmark survey - 2nd 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 two quarters ended June 30, 2015 (Q2 2015), with comparisons to the same period in 2014 (Q2 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 has been rebounding after a decline in the fourth quarter of 2014. Profitability also exceeded levels at this time last year. Year to date net income as a percentage of sales was 2.03 percent through Q2 2015, compared to 1.84 percent through Q2 2014. Bottom line improvements were attributable to improved vehicle sales growth, increased vehicle grosses, and improvements in fixed operations gross profit percentages. 

YTD net income as a percentage of sales

New vehicle sales

Across the industry, the volume of new vehicle sales increased in the first six months of the year compared to last year. In a survey by Stephens, year to date new vehicle sales through June 2015 were 8.5 million units versus 8.1 million units through Q2 2014, an increase of 4.4 percent. The increase is the result of very strong truck sales, which increased 9.9 percent over the first half of 2014. Truck sales represented 54.8 percent of new vehicle sales through Q2 2015, compared to 52.0 percent one year ago. New unit sales of both domestic and import brands have grown. Domestic unit sales grew by 3.6 percent and import unit sales grew by 5.1 percent over the first half of 2014. Overall, grosses per new vehicle retailed (PNVR) have rebounded from the Q1 2015 decrease and are comparable to the year to date figure for Q2 2014. 

A comparison of recent grosses PNVR follows:

YTD quarter ending201520142013
March 31$1,039$1,034$1,019
June 30$1,061$1,062$1,010
September 30 $1,052$1,001
December 31 $1,056$1,026

New vehicle sales in units continue to outnumber used vehicle sales. The ratio of new to used vehicle sales through Q2 2015 stayed unchanged from Q1 2014 at 1.04, however, this figure is still below the 1.16 noted for 2014.

New vehicle inventories in terms of days’ supply decreased due to strong unit sales during the second quarter of 2015 mainly due to unit sales. In addition, items in stock appear to be the right vehicles, as the average cost of a new unit in stock at June 30, 2015 was $33,548 while the average cost of a new retail unit sold during the first half of the year was $33,738. The days’ supply in units for the most recent quarters is as follows:

Days' supply of new vehicles

Advertising expense PNVR through the second quarter of 2015 dropped to $184 from $202 for the two quarters ended June 2014, a 9 percent decrease.

Net floor plan interest (floor plan interest, net of floor plan assistance) PNVR was $99 through Q2 2015, which is substantially higher than the $37 PNVR through Q2 2014. This increase is not due to decreasing interest rates, as the prime rate has remained unchanged and LIBOR rates have increased slightly over the past year. Rather, the increase is due to a lower days’ supply of new vehicles held by dealers and increasing competition between floor plan lenders, thereby decreasing bank margins on variable rate floor plans.

Used vehicle sales

Grosses per used vehicle retailed (PUVR) have rebounded slightly to $1,350 from a low of $1,317 through Q1 2015.  Low fuel 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:

YTD gross per used vehicle retailed

Although used vehicle grosses rebounded slightly, the average days’ supply in units as of June 30, 2015 increased to 88.9 days compared to 85.4 as of March 31, 2015. In comparison, the days’ supply in units as of June 30, 2014 was 97.0.

Finance and insurance (F&I)

Net F&I income is continuing its upward trend. One reason  being that there is more income on finance contracts sold. Net F&I income per contract has improved substantially over the past year - increasing 6.6 percent for new vehicles (from $636 to $678 per contract) and 6.9 percent for used vehicles (from $528 to $565 per contract). Net F&I income per contract for both new and used are at the highest levels since 2013.

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

YTD quarter endingNewUsed
June 30, 201571 percent61 percent
March 31, 201571 percent61 percent
December 31, 201469 percent58 percent
September 30, 201470 percent58 percent
June 30, 201466 percent57 percent
March 31, 201468 percent58 percent

These two items contributed to net F&I income (before compensation) per retail unit sold being $903 for new vehicles and $714 for used vehicles through June 30, 2015, compared with $804 for new and $640 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:

YTD F&I income before compensation per retail unit sold

Service

Service department productivity, measured as total gross per technician per month, improved 1.2 percent over the same period one year ago ($9,174 for Q2 2015 compared to $9,061 for Q2 2014). However, this was primarily due to a 2.0 percent increase in the hourly customer pay shop rate to $106 from $104. Labor rate increases helped buoy department gross profit as a percentage of sales to 66.1 percent through Q2 2015 from 65.7 percent through Q2 2014.

There has been a shift in the mix of work within the service department over the past year. Warranty work, including recalls, makes up 21.2 percent of service sales through Q2 2015, compared to 18.2 percent through Q2 2014. Correspondingly, customer pay labor decreased to 47.9 percent of total sales, compared to 50.4 percent one year ago.  

The trend of customer pay labor as a percentage of total service sales follows:

YTD customer labor as a percentage of service sales

Parts

Unlike the service department, parts productivity, measured as total parts gross per counterperson per month, decreased 1.2 percent through Q2 2015 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$25,576$25,874$25,528
September 30 $26,422$26,400
December 31 $25,801$27,863

Margins in the parts department improved slightly, as the total parts gross profit percentage was 32.2 percent through Q2 2015 versus 31.8 through Q2 2014. This increase was mainly driven by a 6.0 percent increase in parts body shop customer gross per RO ($208 through Q2 2015 compared to $196 through Q2 2014).

Parts inventory levels have continued to increase each quarter since September 2014. The average dealership had a 61 days’ supply as of June 30, 2015, compared to a 57 days’ supply as of September 30, 2014. 

Body shop

Total body shop gross profit as a percentage of sales for Q2 2015 was 58.8 percent, which is an improvement over Q2 2014 (57.5 percent). The increase in the gross profit percentage has been driven by customer pay work, as labor rates have remained relatively flat. Body shop customer labor sales per RO (based on standard labor rates) averaged 13.9 hours through Q2 2015, compared to 13.5 hours through Q2 2014. The following shows the trend of YTD body shop gross profit percentages for the most recent quarters:

YTD body shop gross profit percentage

Our previous study noted a concern about unapplied time, which rose to 5.1 percent of total body shop gross profit for Q1 2015, compared to 0.9 percent for all of 2014. That appeared to be an aberration, as unapplied time through Q2 2015 was at 0.6 percent of total body shop gross profit.

Conclusion

Overall, through Q2 2015:

  • Vehicle sales volumes were up industry-wide
  • New and used vehicle grosses rebounded from Q1 2015 levels, but the average used vehicle gross was still $195 less than the average gross from one year ago
  • Fixed operations gross profit levels have improved over last year, but the gains in service have been driven by labor rate increase, while the parts and body shop increase have been larger body shop tickets

In order to exceed the profitability levels of 2014, dealerships will need to maintain their achievements in vehicle sales volumes and grosses, while finding ways to improve productivity in the service department. 

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