After years of struggle, U.S. car dealers are reporting strong earnings and record sales.
After years of struggle that saw 3,000 U.S. retailers shutter their showrooms, this could be a record year for American auto dealers.
Profits are back and sales are likely to reach an all-time high, at least on a per-dealership basis, according to a new report by the Detroit-based consulting firm, Urban Science. Meanwhile, industry officials note that dealers are investing billions of dollars in showroom updates and expansions designed to not only improve customer service but to also handle the anticipated growth as the U.S. market finally recovers from years of recession.
“It looks like we’re going to hit a record this year,” said John Frith, who oversees retail network research for Urban Science. “Automakers,” he noted, “have kept their networks relatively flat, giving existing dealerships the opportunity to take advantage of increased sales volume. By doing this, and in turn achieving record throughput levels, dealers are making a profit for the first time in more than three years.”
More importantly, they aren’t having to rely on their service department to generate those profits, Frith said.
Recent years have been tough ones for automotive retailers in the U.S. during the depths of the recession – when overall new car sales hit their lowest level in decades – several new car dealers were closing every week. On top of that, General Motors and Chrysler moved to shutter thousands more of the dealers who survived as part of their bankruptcy turnaround plans.
Retailers fought back, winning support from Congress for an arbitration plan that saved many slated for closure. But the dealer count is still down about 3,000 from the period prior to the nation’s economic downturn. On the positive side, Urban Science reported, the showroom count has begun to revive. It stood at 17,770 as of June 30th, a modest 0.02% increase from January and a 0.6% jump from a year earlier. But the consulting firm notes that over time – if traditional trends hold – the retail network will continue to see a 2% annual attrition rate.
That’s actually what many manufacturers would like to see – especially those in Detroit. The general consensus today is that there are still too many dealers and those selling the same brands – such as Ford or Chevrolet – often compete with each other.
For those retailers who have survived the shake-out, attrition might also be a good thing. The typical U.S. new car dealer is expected to sell approximately 805 vehicles this year, Urban Science forecasts, which would be an all-time record. That’s a significant jump from last year’s 719 and would surge past the previous all-time record of 784 vehicles per dealership set in 2005 – when the U.S. market was itself running at near-record levels.
(Chinese dealers selling far more vehicles per showroom than U.S. retailers. Click Herefor that story.)
That and the relative stability in the retail market means that profits are also rebounding, said Frith, noting, “We’re seeing tremendous consistency across the country and perhaps one of the most stable, profitable periods for dealerships in 20 years.”
Of course, the final numbers will depend upon the health of the overall economy – and the performance of the U.S. car market, in particular. Based on the first half of the year, many manufacturers began raising their forecasts for 2012 to as much as 14.5 million vehicles. Citing recent weakness in the economy, some are adjusting that downward to between 14.0 million and 14.3 million.
Nonetheless, dealers appear to be optimistic about the future and taking steps to improve their showroom appeal and capacity. Just two luxury brands, Lexus and Mercedes-Benz, have reported that their retailers are in the process of making capital investments collectively nearing $5 billion.