Auto Dealerships

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Quarterly Insight, Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 17,300 new car dealerships in the US typically manage five distinct departments: New Vehicle Sales, Used Vehicle Sales, Finance and Insurance (F&I), Parts, and Service. One-third of all US new car dealerships also offer collision and body shop services. Used car sales, financing, and parts and repairs tend to be more profitable divisions for dealers.

Dependence on Financing

Dealers purchase vehicles at the time of acquisition, not when a car is sold to a customer.

Low Profitability

Customers are increasingly savvy about the true price of a vehicle, using the Internet as a tool to find the best price and to sniff out extraneous up-sells.

Industry size & Structure

A typical new car dealership employs around 61-62 people and has total annual revenue of $65 million. New car dealerships sell an average of just over 1,000 vehicles per year.

    • There are about 17,000 new car dealerships in the US with total annual sales of almost $1.1 trillion.
    • The average price of a new vehicle is about $42,300, a figure that has tracked closely with inflation over the past decade.
    • Traditionally, franchised dealers held around 2 million domestic vehicles in inventory and 1.7-1.9 million imports. A typical dealer had a 65-75-day supply of domestic vehicles in inventory and a 50-55-day of imports. Post-pandemic, franchise dealers are holding just under 1 million domestic vehicles and about 200,000 imports. Now, a typical dealer has a 26-day supply of domestic vehicles in inventory and a 22-day of imports.
    • Popular brands include GM (14.8% of total new car sales), Ford (12.2%), Toyota (15.6%), Stellantis (Fiat Chrysler, PSA Group - 11.8%), and Honda (9.8%).
    • The largest auto dealership groups in the US include AutoNation, UnitedAuto Group, and Sonic Automotive.
                                Industry Forecast
                                Auto Dealerships Industry Growth
                                Source: Vertical IQ and Inforum

                                Coronavirus Update

                                May 17, 2022 - EVs Drive Up Dealers' Electric Bills
                                • As more electric vehicles (EVs) arrive on dealership lots, electricity bills are rising. EV charging stations are adding to dealerships’ electric loads amid rising rates for electricity, according to a May 2022 article in WardsAuto. While in the past dealerships didn’t have to worry too much about their electricity bills, the challenge of controlling the costs associated with an increasingly electric inventory has dealerships looking to demand-management software that can save them money by automatically shifting electricity use to less expensive utility rate times or times when a spike in demand is likely to occur and result in dramatically higher utility bills. The software also is smart enough to coordinate and stagger EV charging times and building cooling times to avoid spikes, saving dealerships money on electricity.
                                • Car buyers appear to prefer a hybrid model that combines in-person and online interaction when shopping for a vehicle, according to a new survey from market research firm Escalent. “What we found, pretty overwhelmingly, is that consumers prefer to buy their vehicles from dealerships,” Escalent’s K.C. Boyce told WardsAuto in May 2022, adding, “They want to do test drives, to touch and feel and see vehicles. When we look at the macro picture, the idea that (car buying) is going to move entirely online is fundamentally flawed.” The WardsAuto article suggests dealerships take a lesson from online dealer Carvana’s recent announcement of job cuts and steep first quarter loss, which Boyce says may reflect a flawed understanding of how consumers approach car buying. While online research can speed the car-buying process, the survey suggests it can’t replace the physical interaction with test drives and conversations that occur at the dealership.
                                • When purchasing a used vehicle, buyers increasingly prefer to shop online, according to a Cox Automotive Car Buyer Journey Study, which tracks consumer attitudes toward the car-buying process. In 2021, the average used-car buyer visited just two dealerships and spent less time there than ever before. About 18% of buyers completed more than half of the buying process remotely. The survey found the more buyers conducted their searches online, the happier they were with the experience.
                                • The global shortage of computer chips continues to hurt auto makers’ ability to meet demand for vehicles. The shortage could be made worse by the Russia and Ukraine conflict because Ukraine supplies half of the world’s neon gas, which is essential for powering lasers that etch semiconductor chips. Ukraine refines it from crude material supplied by Russia’s steel-making industry. Ukraine-based neon production firm Cryoin told Wired that most of its exports come to the US. The company halted production in late February as fighting broke out. When Russia annexed Crimea in 2014, the price of neon jumped 600% due to supply disruptions.
                                • Employment in the auto dealer industry increased 1.3% year over year in April 2022 and was 21% higher than in April 2020, when pandemic-related job cuts kicked in.
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