Dealer Financial Analysis Report – Q2 2022

Welcome to the fifth quarterly report on key financial metrics composites based on the Dealer Business Management data we compile for our AMOS clients, users of our Business Management solution. Based on their feedback, the Q2 Summary now includes ‘Exclusive’ reporting for each of the OEMs represented.

As our clients know, Q2 U.S. new-vehicle sales are expected to show a market still constrained by a lack of supply and one that is virtually unchanged since January. This is also supported by reports from Cox Automotive and NADA. With no clear timeline for any notable recovery in new-vehicle inventory levels, industry analysts are lowering the full-year 2022 U.S. auto sales forecast to 14.4 million units, down from its current forecast of 15.3 million.

Profitability increased once again as demand continues to outpace supply. ROS, now at 6.3%, also maintained a positive momentum at 1.5 percentage points ahead of last year! Overall, OEM Exclusive averages also saw an increase in Total GP % Sales to 15.2% and Operating Profit % Sales to 3.4%, an increase of 2.0 percentage points. The percentage of loss retailers / dealers has decreased further from 2.2% to 1.9% of the network.

Dealership expenses have increased as well but only slightly with Total Operating Expenses % Sales at 11.9%, a modest bump of 1.3 percentage points. Total Operating Expenses as a percentage of Gross Profit declined from 88.6% to 77.9% - essentially resulting from sustained increases in Gross Profit while keeping expenses nearly flat. This is a phenomenon we see across all brands that we work with.

New vehicles

The Composite Exclusive for New Retail Units for June YTD dropped 20% YOY from 388 to 309 units. Concurrently, the average Composite Exclusive Days Supply for New Vehicle also declined from 32 days to 24 days for the same time period. However, it was a mixed bag with some OEMs clawing back Days Supply with increased inventory deliveries.

Vehicle profitability continues to grow dramatically, as observed above. The average gross profit per unit increases significantly from $2,609/unit to $5,471/unit, a 110% YOY increase, and NV Dept GP Contribution jumped from 31.6% to 41.2%. This is especially remarkable because 2021 was already significantly higher relative to 2020.

Used Vehicles

The Pre-Owned Vehicles market mirrors the success of New Vehicles. Average Used Retail Sales increased 32% from $22,662 to $30,022 per unit with Gross Profit per unit increasing 18% YOY. Average CPO Retail Sales increased 22% from $$29,179 to $35,591 per unit with Gross Profit increasing 23% from $2,703 to $3,323 per unit.

The CPO Units sold for Composite Exclusive June YTD saw a reduction of 23.0%. In contrast, the gross profit per unit increased 23.0% YOY from $2,703 to $3,323. Average CPO reconditioning experienced a modest bump of 5.0% to $1,400/unit. Given the significant increase in profitability of used units, dealers have reduced their focus on CPO sales across the board. Industry feedback infers that used car buyers are shopping for lower priced cars (because of inflation) but the data does not yet show any softening in average sales prices.

Fixed Operations

Shortage of Labor and Parts supply has started affecting the fixed operations business too, though it may be a temporary phenomenon. The total RO count for the Composite Exclusive declined slightly by 10% (6,603 Ros to 5,953 ROs). However, the Customer Pay Sales per RO increased by 17% and the GP increased by 18% YOY.

In a similar fashion, Warranty Sales per RO increased by 17% and GP increased by 17% for Composite Exclusive for June YTD YOY.

Total Parts Sales and Gross Profit per RO increased 18% YOY and Parts Inventory increased 8% from $375,400 to $406,168.

The increase did have a modest impact on Fixed Absorption, which essentially remained flat albeit with a marginal increase to 54.8% from 53.0%.