There’s little doubt the Internet has helped boost business across a wide range of industries. From advertising and customer engagement to online retail, the Internet can be credited as the best employee at companies everywhere.
One exception, however, has been at car dealerships. While the digital age has improved profit margins in many industries, car dealerships are finding that the Internet has actually been working against them in more ways than one. In fact, 2014 marked the third consecutive year that net pretax profit at new-car dealerships remained unchanged at 2.2%.
How are car dealership profit margins becoming stale while so many other industries are seeing substantial booms? In short, the Internet provides more information to car shoppers. And armed with this wealth of knowledge, consumers are now beating car salesman at their own game. Let’s examine how car dealerships can better protect their gross margin profitability in a more Internet-centric market.
When your used car inventory needs to be re-stocked, there are only so many places you can turn for quick, cost-efficient cars. Whether your dealership’s turnover is greater than projected or you’re having a hard time closing trade-ins, you need a reliable source of pre-owned inventory to meet your goals. If you’ve ever been in this situation, you’ve probably relied on a wholesale auction to fill in those empty spaces on your lot.
If you work at a car dealership in 2016, you’re in a good place. The most recent NADA Data Report says that “the past six years have been the longest period of new-vehicle sales growth since the 1920s,” and this year’s outlook shows the trend continuing.
Here are some of the milestones attached to that assessment:
- Total dealership revenue across all stores in the US reached a new high of $862 billion in 2015, a 6.9 percent increase over 2014.
- Franchised new-car dealerships sold more than 17.3 million new cars and light trucks.
- Average selling price of a new car/light truck: $33,419 (2.5 percent increase over 2014)
- Average selling price of cars from used vehicle inventory: $19,397 (2.9% increase over 2014)
Perhaps more exciting than growth for the auto industry is growth for local economies. Almost 150 new dealerships opened in the past year, and more than 1.1 million people were on a car dealership’s payroll. That’s a 4.3 percent increase over 2014. Dealerships employed 67 people on average last year.
These numbers are compelling, and they say good things about the health of the auto industry overall, but we know that dealers are always looking to do better. Where is the next big opportunity?