From a dealer perspective, 2005 had its share of challenges. Quarterly interest rate increases, a high days' supply in some franchises during certain time periods and increased personnel expenses taxed the average dealer's net profit.

For the second year, our average client's dealership expense increase was greater than gross. The exception was the regular import dealerships, as seen in the chart below.

2005 Versus 2004
NCM Average Dealer Data
Category High Line Import Regular Import Domestic My Dealership?
Total Dollar Sales + 9.3 % + 8.6 % - 0.6 % %
Total Gross +12.8 % +10.2 % + 3.0 % %
Total Expense +14.4 % + 9.2 % + 3.5 % %
Other Income +19.6 % +14.6 % + 3.5 % %
Net Profit Change + 4.9 % +16.3 % - 11.4 % %

The individual department's net profit contribution to the total departmental net profit broke down as seen on the pie chart.

2005 Departmental Profit Contribution

The year 2005 presented used-vehicle sales opportunities. Most dealers concentrated on improving their used-vehicle operations, especially wholesale performance. In all category cases, there was year-over-year improvement. I know, from speaking with hundreds of dealers, that their used-car focus is stocking the correct inventory, not allowing it to age and concentrating on the turn.

2005 Versus 2004
NCM Average Dealer Data
Retail Sales Volume High Line Import Regular Import Domestic My Dealership?
New Vehicle + 4.7 % + 2.5 % - 4.1 % %
Gross PNVR + 3.0 % + 5.7 % - 0.8 % %
Used Vehicle + 8.5 % + 8.3 % - 1.8 % %
Gross PUVR + 2.9 % + 8.5 % + 7.0 % %
Gross PUVW $ 45.00 $ 31.00 - $ 12.00 $

Expense management remains a key to success. Each dollar of excess expense is a dollar of net profit lost. By having the proper processes in place to monitor and manage your expenses, you can control the expense as a percentage of your gross.

2005 Versus 2004
NCM Average Dealer Data
Expense Category High Line Import Regular Import Domestic My Dealership?
Advertising + 8.0 % + 3.2 % -2.8 % %
Floor Plan Interest + $101,431 + $ 69,398 + $107,187 $
Employment + 11.0 % + 7.8 % 0.7 % %
Cost To Sell PRV + 7.5 % + 5.6 % 7.6 % %

NCM clients focused attention on employee productivity by two methods. One is increasing gross profit. The other is right sizing, or basing staffing needs on actual versus anticipated sales and gross and then raising the level of personnel performance accountability. Measure and monitor monthly.

2005 Performance
NCM Average Month Dealer Data
Gross Per Employee High Line Import Regular Import Domestic My Dealership?
Average Dealer $ 9435 $ 8205 $ 6951 $
Benchmark® Dealer $ 11800 $ 8730 $ 7360 $

Predictions:

Due to new vehicles this year, domestic auto makers should see a better year, and nothing appears to slow import sales.

From an expense standpoint, the quarterly increase of interest rates should cease after the first quarter of this year. Smart dealers are taking advantage of their personal owner databases and the Internet as a source of potential customers. Personnel benefit costs in the form of health insurance will continue to increase, but at a lesser rate than experienced in 2004 and 2005.

It all means 2006 can be a very good year if you and your team establish a game plan and then work your plan.

Good selling.

Tony Noland is the president and CEO of NCM Associates, Inc. He is at tnoland@ncm20.com.