Data delivered at the recent Deloitte 2022 Automotive Industry Overview online conference shows that the average dealer net profit on revenues is now running at four per cent compared to just 0.5 per cent in 2019.
Lee Peters, national automotive-sector lead partner at Deloitte Australia, said this was the highest average net profit on sales number ever achieved in the 25 years that firm was gathering data; currently from 1650 contributing dealerships.
He said that the top 30 percent group of profit performers were achieving an average of six per cent net profit on sales.
Delegates were told that the jump in dealer profitability was so great and so sudden that administrators of the Profit Focus platform had “numerous examples of dealers being flagged, as part of our data quality reviews, for extraordinary gross levels” and that “a lot of dealers got a lot of phone calls. And they all proved to be actuals”.
Deloitte’s Dorian Lapthorne said: “It’s crazy. It’s literally unprecedented … that those business rules have moved that far and that fast.
He said the top 30 per cent of dealers “were doing better than that”.
“The top 30 per cent of dealers, when you look at retail gross, were 21 per cent higher than the average dealer. And they were doing that by selling about the same number of cars, but with less sales staff.
But the firm warned that the growth in profitability was being driven almost totally by new car department margins which in turn were being driven by an absence of discounting to make sales. However, in the second half of 2021, profitability in departments other than new cars was beginning to decline due to rising costs across those departments.
Deloitte also warned dealers that sales they have already made, which would not be delivered for many months, would mean dealers would not receive the revenue from those sales until well down the track. This would have significant implications for cash flow.
Meanwhile, Mr Peters outlined the profit performance of dealers since 1997 saying that net profit as a percentage of revenue was a “key metric” for tracking performance of the retail car industry over time.
Lee Peters
He said that for the first 10 years of data collection, from 1997 to 2007, the total bottom line for the average dealer during this period was “bumping around one to one and a half percent”.
“The period from 2009 to 2015 was really an era of heightened growth and profit for this industry. The digitization of business processes played a role. It was the golden age of F&I, new vehicle volume growth happened up to 1.2 million units per year, and the consolidation of the large dealer groups,” Mr Peters said.
“So there were a lot of factors that led to this performance improvement of the industry up to a high in 2015 of 2.5 per cent bottom line. So (we went) from a period of one per cent to a period of 2.5 per cent.”
Mr Peters said the period from 2015 to 2019 was difficult and challenging.
“We had increased regulation in the industry, capped price servicing and declining gross levels in our vehicle departments.
Dorian Lapthorne
“We reached a point during this period where the average selling gross for the average dealer in the new car department was negative.
“We were really bound by this pursuit of targets. Target achievement became 250 per cent of an average dealers profit. You hit target, you made money, you didn’t hit target, potentially you lost money.
“And then we had obviously the rise in salaries and human capital and with the rise of property and rent and capex.
“So there was a really challenging period and pre-pandemic, we got down to a period of 0.5 per cent profit as a percentage of revenue for the average dealer and one in three dealers who were reporting to eProfitFocus were losing money. So not a period many of us were enjoying.
“And then interestingly … the pandemic happened and we bounced up to four and even five per cent average bottom line net profit as a percentage of sales,” he said.
By John Mellor
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