Dealer Financial Analysis Report – Q3 2022

Our sixth quarterly report on key financial metrics composites (based on the Dealer Business Management data of our AMOS clients) is now based on ‘Exclusive’ reporting for each of the brands. We made this change based on our clients’ feedback and hope it provides better insights for analysis!

New Vehicle inventory in Q3 still continues to constrain the US New Vehicle sales and drives the trend down 20% year over year, according to NADA reporting. In a report from Mercer Capital, the October 2022 SAAR was 14.9M units, up 12.7% from October 2021 and up 9.8% from last month. This month’s SAAR comes as a bit of a surprise, as the last three months’ sales pace settled at around 13.4 million units (Q3) and seemed to have stabilized at a short-term equilibrium. However, meaningful improvements in inventory balances and other tailwinds like natural disaster-related demand contributed to the second-highest monthly SAAR total this year.

Profitability continues to climb up, ROS is at 6.1% compared to 5.2% previous year, but it seems to be slowing down, compared to last quarter at 6.3%. Total GP % Sales still hold higher at 14.9% and Operating Profit % Sales increased to 3.1%, an increase of 1.2 percentage points over last year. There is a slight uptick on the percentage of loss retailers / dealers from 1.7% to 1.9% of the network. This is the first increase YOY for the past four quarters.

Total Operating Expenses as % Sales slightly increased to 11.9% from 10.8%, however, with Gross Profit continued to be strong, the total Operating Expenses as a percentage of Gross Profit declined from 88.6% to 77.9%. The Gross Profit as % of Sales increased 2.2 percentage point to 14.9% from 12.7%. This upward trend in Gross Profit continues in all OEMs in this composite group.

New Vehicles

The Composite Exclusive for New Retail Units for September YTD dropped 20% YOY from 65 to 52 units/dealer. As NADA’s Chief Economist, Patrick Manzi said “…the inventory on the ground and in transit has finally started to increase meaningfully.” This is reflected in the Composite average Days Supply for New Vehicle. For the first time in the past 12 months, Days Supply increased from 18 days to 28 days. This new trend seems to be the same phenomenon in all OEMS.

New Vehicle sales price continues to increase, Q3 composite average shows an increase of $4,292 per unit or 10% up YOY. New Vehicle profitability continues to be strong, although showing a bit of cooling off and not as strong as last quarter’s three-digit increase. The average gross profit per unit increases from $3,069/unit to $5,280/unit or 72%.

Used Vehicles

The Used Vehicles market is in a flux too with the added impact of rising interest rates. The consensus among the automotive analysts is that gross profits for used vehicles have fallen in recent months. Depreciation has resumed as demand fell due to a combination of higher prices and higher interest rates. Some consumers have decided to wait in the hopes of finding a lower payment in the future.

We are seeing evidence of that in the 27% increase in the Average Retail Sales of a Used vehicle in Q3 with a concurrent decline in both CPO unit sales (-21%) as well as Total Used unit sales (-16%). We also noted a drop in the Gross Profit Contribution of the Used Department. This result is unique among the OEM group reporting in this sample compared to the industry average.

Although the unit volume has declined, the positive news is that those fewer units retailed represent a PUVR of $5,280, which is 72% higher than a year ago. The Days Supply has jumped by 51%, but at 28 Days average, it still represents a shorter supply than the 52 Days Supply reported by Manheim Auctions for the industry at the end of September.

Fixed Operations

In Q3, the total RO count for the Composite Exclusive decline trend continues at 12% (9,951 ROs to 8760 ROs). However, the Customer Pay Sales per RO increased by 19% and the GP increased by 20% YOY. 

In a similar fashion, Warranty Sales per RO increased by 20% and GP increased by 20% for Composite Exclusive for June YTD YOY.

Total Parts Sales and Gross Profit per RO increased 18% YOY and Parts Inventory increased 6% from $396,747 to $421,018.

Fixed Absorption is positively impacted by the upward trend, which essentially drives the marginal 2.3 percentage point increase from 53.1% to 55.4%.

Trends to Monitor

There is agreement among the industry analysts that these are the trends impacting the automotive retail market:

The prospect for Q4 remains cautiously optimistic with industry supply chain conditions beginning to improve. Dealers will continue to experience strong profitability as significant pent-up demand for new vehicles continues.