US dealership sales climb in 2013 but profit margins remain unchanged
US new-car dealers saw sales and revenues rise in 2013, yet average profit margins stayed at 2.2% amid tough competition and narrow retailing spreads.
US new-car dealerships increased their sales and total revenue in 2013, but average profit margins remained flat at 2.2% as competition kept retailing spreads tight. The National Automobile Dealers Association (NADA) reported that while unit sales and overall turnover improved, the typical dealership’s bottom line showed little movement compared to the previous year.
US Dealerships Sales Rise but Profits Stay Flat
Dealership Margins Under Pressure
Despite the recovery in the US auto market, dealerships faced unrelenting price competition. NADA attributed the pressure on margins to several factors: customers making greater use of online research, a dense network of franchised dealers in most markets, and a steady flow of attractive new models from manufacturers. These factors combined to keep retail mark-ups lean, even as volumes improved.
The 2.2% average margin reported by NADA covers the full range of dealership business, including new and used vehicle sales as well as parts and service operations. This figure was unchanged from 2012, indicating that the rise in sales did not translate into higher proportional profits for the typical dealer.
US dealership revenue reached $730 billion in 2013, up 8.8% year-on-year.
Sales Growth and Market Conditions
US new car sales in 2013 rose 7.6% from the previous year, reaching 15.6 million units. This marked a strong recovery from the recession years and reflected improved consumer confidence, a strengthening housing market and continued low interest rates for auto loans. The positive trend was visible in both new and used vehicle segments, with dealers also benefiting from increased service and parts revenue.
Early figures for 2014 suggested that the upward momentum continued, although a harsh winter slowed growth to 3% in the first part of the year. April 2014 saw sales rise 8% over the same month in 2013, giving dealers hope for further gains through the remainder of the year.
What Flat Margins Mean for Dealers
For dealership owners and staff, the combination of rising sales and static margins means more work for similar returns. High volumes help cover fixed costs, but the lack of improvement in profitability per vehicle sold leaves little room for error. Dealers have responded by focusing on efficiency, customer retention and expanding their service operations, which typically offer higher margins than new car sales.
The NADA report highlights the ongoing challenge for US dealerships: while a growing market brings more customers through the doors, competition and consumer access to information keep profit margins under constant pressure. The industry’s focus remains on driving volume and finding incremental gains in aftersales and customer service.
Factors Affecting Dealership Profitability
- Greater use of online research by consumers, making pricing more transparent and putting pressure on dealers to keep prices competitive.
- A dense network of franchised dealerships in most regions, increasing local competition and reducing the ability to mark up prices.
- Manufacturers releasing a steady stream of new and compelling models, which encourages price competition as dealerships try to attract buyers.
- Customer expectations for discounts and incentives, especially as information about deals is widely available online.
These factors, combined with the cyclical nature of the auto industry, mean that even in years of strong sales growth, dealerships may not see a corresponding rise in profitability. The industry’s slim average margin highlights the importance of operational efficiency and the need to diversify income streams beyond just vehicle sales.
Dealership Strategies in a Competitive Market
To adapt to these challenges, many US dealerships have invested in improving their service departments and parts sales, which tend to yield higher margins than new car sales. Customer loyalty programmes, improved aftersales support, and digital marketing efforts are also being used to retain existing buyers and attract new ones. By focusing on these areas, dealerships aim to offset the low margins in vehicle sales with more profitable activities elsewhere in their business.
Additionally, dealerships are paying closer attention to inventory management and cost control. Efficient stock rotation, minimising floorplan interest costs, and training staff in customer service and sales techniques have become priorities. The goal is to ensure that every customer interaction maximises both immediate sales opportunities and the potential for future business.
Looking Ahead: Market Outlook
Industry analysts and the NADA expect that the US auto market will continue to benefit from factors such as a stronger housing market, improving job prospects, and sustained low interest rates for auto loans. However, the competitive pressures that have kept margins flat are likely to persist. Dealers will need to remain agile, focusing on service excellence, operational efficiency, and innovative sales strategies to maintain profitability as the market evolves.
While the US auto market’s recovery has brought higher sales and revenue, dealerships must continue to adapt to a landscape where volume growth does not automatically translate into higher profits. The coming years will test the ability of dealerships to innovate and find new ways to thrive in a competitive environment.
