DELOITTE’S long-standing performance improvement platform for Australian dealerships, Profit Focus, shows that despite the automotive industry tightening with the rest of the economy back to the challenging pre-COVID times, the ‘benchmark’ dealers’ (the top 30 per cent) profitability remains extremely strong.

It said that these dealers had “pulled back a bit” from the last few years of good times, but was still holding up reasonably well.

The dealer benchmark program managed by Deloitte and explained by its head of its Motor Industry Services division, Lee Peters, also brought to the fore the “pragmatic and determined” attitude of the majority of dealers.

Deloitte partner Lee Peters

“The ‘benchmark’ dealer is holding profitability really well, posting results up at around 4 per cent bottom line (net profit as a percentage of sales, NPS),” he said. 

“In contrast to that, the ‘average’ dealer is back under 2 per cent (1.8 per cent NPS for 2024 CY) for the first time since before COVID.

“Performance”, Deloitte Profit Focus data

“And then, unfortunately, the bottom 30 per cent of dealers are having a really tough time navigating some of the challenges of the current landscape, and many of them are back to losing money already.”

Mr Peters said that “pragmatic and determined” was the general response from the audience this week at Deloitte’s annual Automotive Industry Overview, hosted in Melbourne and Sydney, which looked to bring to life key elements of the automotive eco-system and dealership profitability for 2025 and beyond.  

He identified three key ‘takeout’ areas for dealers – Performance, Loyalty and Electrification.

Performance:

“We note that the variation between an ‘average’ dealer and a ‘benchmark’ dealer has never been as large as it is right now,” he said.

“And therefore the focus on benchmarking and the intense pursuit of benchmark performance levels has never been as important as it has been right now.

“2025 will be a critical inflection point for the automotive market, and the industry needs to have clarity about the core and key elements of a ‘benchmark’ dealer.”

He said that there was “acknowledgement and understanding” that the automotive retail industry was at the end of the COVID “sugar-hit cycle”.

“I don’t think the fact that we are back down the ‘profit mountain’ is a surprise to many – or any – and I think 2025 will be an important period to determine the operational and financial success of dealers in the near future.”

He said that in 2024, the average dealer posted profit levels of 1.8 per cent bottom line, which was more consistent with where the industry was in the few years leading up to the COVID period. 

“It’s still much higher than where the industry had got to in 2019, where the average bottom line was under 1 per cent,” he said.“So whilst much higher than 2019, there are a few worrying trends.

“Now we are trying to make sure industry stakeholders fully understand the importance of 2025, where vehicle gross margin squeeze will continue, coupled with the increase in the cost-base of retail dealerships, both fixed and variable expenses, and so there is a very real chance that the 1.8 per cent could get squeezed more. 

“Eventually, this could go back to 2019 levels, which is what all of the industry is trying to avoid.”

Mr Peters said this brings to the fore the importance of having a ‘lighthouse’ that is helping to guide the industry.

This was the role that the ‘Profit Focus’ data and benchmarks play, and have been doing so for nearly 30 years now.

Mr Peters is rather upbeat and optimistic about the outlook.

“Because of the high profitability experienced by the industry over the last couple of years, most of the dealers have a really strong balance sheet,” he said.

“This will be crucial to support their strategic choices over the coming few years. 

“With a strong balance sheet, if profit is constricted, there should be the ability for dealers to be resilient in the short-term, and then be able to adjust their business to capitalise on the business opportunities going forward.”

Loyalty:

In a further takeout from the Deloitte Automotive Industry Overview, and in reference to Deloitte’s recently released Global Automotive Consumer Study, Mr Peters said that it was “fascinating” that the research into ‘consumer loyalty’ showed a large 49 per cent of Australians changed brands with their last new vehicle purchase.

“Brand Loyalty”, Deloitte Global Automotive Consumer Study 2025 (Australia)

“In addition, 51 per cent intend to change brands for their next car,” he said.

With reference to ‘consumer experience’, the Deloitte data showed that 88 per cent of new vehicle customers said they wanted to physically interact with a dealership and that 86 per cent said they needed to test drive the vehicle before confirming purchase.

“But, 46 per cent of those consumers surveyed noted that they want to limit the need to visit a dealer and change what the dealership experience currently is,” he said.

“Consumer Experience”, Deloitte Global Automotive Consumer Study 2025 (Australia)

Electrification:

Another takeout from the Deloitte Automotive Industry Overview this week was in reference to the industry’s transition to electrification, and the evolution of the consumer when considering Electric Vehicles (EV) as their next car.

Mr Peters said that 89 per cent of survey respondents expected to charge their EV at home or work, and that public charging didn’t appear to be as important as supporting home charging capabilities.

“Charging Expectations”, Deloitte Global Automotive Consumer Study 2025 (Australia)

“However, of course, the survey continued to show that there remain two primary concerns around EVs – cost and range,” he said.