Dealerships, News , ,

PITCHER Partners Motor Industry Services partner, Steve Bragg, has told GoAutoNews Premium that the Federal Chamber of Automotive Industries’ recent attack on dealers, as reflected in our article “War of words”, contained a fundamental misunderstanding of dealership operations.

The FCAI, in an online article quoting CEO Tony Weber, was arguing that the new car side of a dealer’s business was only a small element of the total profitability of a dealership and therefore a move to an agency model, which covered new car operations only, would have little impact on agents’ profitability.

The article, which GoAutoNews Premium copied from the FCAI website, initially said: “Deloitte research shows that new car sales account for less than five per cent of dealer revenue.  The more profitable areas of after sales service, parts and accessories, used cars, and finance remain unchanged under the new sales models which are designed to improve the experience of customers.

Later, the article said: “Deloitte research shows that new car sales account for less than five per cent of dealer selling gross profit.”

Steve Bragg

But Mr Bragg said that changing the statistic to selling gross is still inaccurate and misses the big picture by mistakenly simplifying the impacts.

He said that the Deloitte benchmarks for Total Dealership Gross Profit Orientation shows 37 per cent of gross profit is contributed by new car sales and gross profit percentage by department for new cars is nine per cent to 11 per cent.

“But then the FCAI took the leap from the selling gross analysis in the Deloitte benchmarks to make their assertion that new car sales only account for five per cent selling gross.  This misses the fact that new car sales are roughly 65 per cent of total dealership sales and contribute 37 per cent of total dealership gross profit.

He said the FCAI calculation was likely done as follows: New car sales gross profit is 10 per cent (9-11 per cent per Deloitte benchmarks)  and the selling gross is approximately half of gross profit for the new car department. Therefore the result is five per cent selling gross profit for new car sales.

However the correct calculation would be: New car sales gross profit is 10 per cent and selling gross is approximately half which is the same as the FCAI’s calculation. But the new car department’s gross profit contributes 37 per cent of the dealership’s total gross profit. 

“Therefore, you need to take into account the overall selling gross profit orientation of the entire dealership as done in the table below,” Mr Bragg said.

The new car department’s selling gross profit contribution to the overall dealership is 30.6 per cent!  

Nearly one third of the selling gross profit generated at the dealership is from the new car department; that’s what they are taking away. It doesn’t include F&I which we know will be impacted by agency and direct sales, not to mention the further impacts on parts, service and used cars from the fluctuations in new car sales which drive the throughput into all the dealership’s departments.

War of words

By John Mellor

Branded Financial