The 2016 NADA Data report is out, and it tells a sobering story for the average franchised car dealer.
By all indications, we’re entering a period of increasing margin compression over the remainder of the year (increasing inventories, new car incentives at all-time highs, a wave of used cars coming off lease, weakening consumer demand, softening sales, used car prices dropping and interest rate increases).
The NADA Data highlights the pressure on one of the key metrics for dealerships: Net Profit Per Vehicle retailed, for both new and used units.
New car net profit per vehicle retailed is now negative $217 per car sold. Meaning that dealers are losing money on each vehicle sold, which they have to make up for with the associated trade-in, F&I, manufacturer incentives and (hopefully) Service revenue. This figure dropped into negative territory back in 2014, but it is accelerating to the negative.
Used car net profit per vehicle retailed is also under increasing pressure, down 50% year-over-year to just $65 per car sold.
In an environment that is getting tougher, it’ll be crucial for dealers to be very vigilant by keeping a close eye on managing both new and used vehicle operations like a hawk: ensuring that inventories on the lot are healthy and priced at market. Over the remainder of the year, vehicle supply will be increasing while there’s a good chance that consumer demand is going to start to dry up, putting even more pressure on profit margins.