To gauge the current health of the nation’s auto-retailing industry, consider that large dealer groups, with their potential for profit and growth, are on the top of billionaires’ shopping lists.
Warren Buffet’s Berkshire Hathaway closed a deal in March to acquire the Van Tuyl Group, the largest privately held dealership chain with 81 stores in 10 states. Activist investor George Soros through representatives has expressed an interest in possibly acquiring dealerships. Bill Gates already owns nearly 12 % of AutoNation, Inc.
Whether the issue is a multi-billion dollar acquisition, one dealer’s purchase of a store in a neighboring town, or simply growing an existing business, the prevailing wisdom is that the retail auto industry in 2015 is a good place to be.
The 29th annual WardsAuto Dealer 500 bears out this optimism. Dealerships on the list reported a record $62.6 billion in total revenue. They sold 17.8 million new and used vehicles in 2014.
“The health of the dealer industry is as good as I’ve ever seen it,” says Tim Lamb, president of the Tim Lamb Group, a dealership brokerage firm. “
Individual dealers and large dealer groups since 2011have seen consecutive years of record profitability, he says.
That hasn’t gone unnoticed.
“You’re starting to see money from outside (the industry) coming in,” he says. “Other people are starting to recognize that automotive retail is a good place to put your money.”
Among those enjoying the good times is Courtney Cole, co-owner of Hare Chevrolet in Noblesville, IN, the state’s largest volume General Motors dealership and No.153 on the 2015 WardsAuto Dealer 500.
“We’ve been trending upward big time,” says co-owner Courtney Cole.
Because of his faith in the future, Don Luke plans to make major investments at his Phoenix complex, Bill Luke Chrysler-Jeep-Dodge-Ram, No.30 on the WardsAuto Dealer 500.
“If I didn’t think it was going to stay good, I sure wouldn’t do that,” he says.
The National Automobile Dealers Assn.’s Dealership Financial Profile shows average total unit sales of its 17,000 franchised dealers at $49,165,223 in 2014, a 7.1 % increase over 2013. Total average gross as a percentage of sales is up 5%.
Average dealership net profit before taxes rose 6.7 % to $1,093,805, although at a stagnant 2.2 % of total sales. It’s a reminder of the hyper-competitive environment in which dealers live.
“At 2.2 %, this is still a very low margin business,” says NADA Chief Economist Steven Szakaly. “There’s nothing to stop anyone in the country from hopping on the Internet and buying their car from basically anywhere.”
Automakers support their dealer networks, although 2014 was a rough year for some.
“GM is setting a new industry standard for safety and GM dealers are doing an outstanding job taking care of owners impacted by recalls while maintaining high levels of satisfaction for their regular service customers,” says Kurt McNeil, GM’s U.S. vice president, U.S. sales operations.
“The record number of vehicle recalls that occurred in 2014 represented a major challenge for our dealers, and I’m proud to say they rose to the occasion.”
Although automakers mainly are concerned about new-car sales, their dealer support extends to used cars as well.
“Hyundai Certified Pre-Owned sales increased 26 % in 2014, providing buyers with an alternative to new, as well as providing dealers an additional revenue stream,” says Kimberly Walker, director, retail process and sales satisfaction at Hyundai Motor America.
She says the automaker works closely with its National Dealer Council to collectively address mutually important issues and ensure “ongoing success for both (Hyundai) and our dealer body.”
Like all dealers, the ones that comprise the 2015 WardsAuto Dealer 500 face cost and competitive pressures daily, not to mention recalls and occasional “conversations” with the factory.
But the ones WardsAuto spoke with say continuous improvement and innovative thinking contribute greatly to their sales and profitability.
The WardsAuto Dealer 500 ranking is based on total revenues, not strictly sales volumes.
Once again, No.1 on the list is Fletcher Jones Motorcars, a Newport Beach, CA, Mercedes-Benz dealership. It does such a brisk business, a traffic light with a green turn arrow is at the sprawling store’s entranceway.