Another Record Year

Click here to see a listing of the Top 500

It's another record year in total revenue for the nation's top dealers on the Ward's Dealer 500. That seems reason enough for them to break out the champagne and celebrate, right?

Many dealers are losing money, others have gone out of business while others are barely hanging on, but the Ward's 500 members continue to sail along. Who cares that the total revenue for the group only increased a meager $39 million? It is still a record.

So if your dealership is on the list go ahead and party. Grab your wallet and head to Vegas, or write a check for that yacht or plane you've been eyeing for years. Better yet, surprise your significant other with a trip to a South Pacific island. You've earned it.

Uh, not so fast. Better take another look at those numbers.

At first glance, the numbers seem to indicate the Ward's 500 had a strong year in 2006.

Dig beneath the numbers, though, and troubling trends begins to emerge. The number of new units sold dropped by almost 40,000, the first time that has happened in recent memory. Similarly, used vehicle sales also went down by 16,000 vehicles.

If sales continue to decrease, dealers on the Ward's 500 likely will see their overall revenue drop in the next couple of years. Decreasing sales has a cascading effect on other areas of the operation, such as service, parts and financing.

Sam Pack, who has two Dallas-area Ford Motor Co.-branded dealerships (ranked 46th and 131st), admits it is a challenge offsetting the impact vehicle sales has on all of the operations.

“We study the markets, we are again trying to make sure that we're taking advantage of the opportunities that exist,” he says. “We aren't focused just on vehicle sales. We're respectful of the impact of vehicle sales, but we also know we have to have the revenues of all the other departments.”

Pack's Carollton store gained nearly $20 million in new-revenue, while his North Richland Hills dealership lost almost $30 million in new-car sales.

Despite that, Pack says 2006 was a strong year.

“It was a year in which we performed from a competitive point of view at a very high level,” he says. “We were successful in growing our business and protecting our margins. We continued to gain share of the market.”

Pack's dealerships saw large jumps in parts revenue and in finance and insurance sales, while service and used-car sales provided modest gains.

“We were very disciplined in our approached to the market,” Pack says.

Dig into the overall revenue numbers a little deeper and there is even more cause for concern. There is an increasing difference between the haves and the have-nots, even for dealerships on the Ward's 500.

For example, the top 100 dealerships on the list increased their total revenue by nearly $505 million compared with 2005 revenue.

But dealers who make up the bottom 100 of the list, may want to put away the champagne glasses. Those dealerships as a group saw $556 million less in total revenue compared with 2005.

One can almost predict the brand trends (See Franchise Average Chart on page 20). Not counting the single-point Porsche dealership on the list, Toyota Motor North America Inc. dealerships led all brands with an average store revenue increase of $6.8 million, good for $139 million per store.

Of course, it helps when you have Greg Penske's Longo Toyota beefing up the numbers.

The El Monte, CA, dealership continues to set new thresholds year after year in both total revenue and vehicles sold. In 2006, the world's largest dealership sold more than 27,300 new and used vehicles while generating more than $703 million in total revenue.

Interestingly, two domestic brands fared well improving their average per-store revenue.

General Motors Corp.'s two Buick Pontiac GMC dealerships increased their per-store revenue by $3.9 million.

Meanwhile, DaimlerChrysler's eight Dodge dealerships also increased their revenue by $2.5 million.

But, the 11 Chrysler-Dodge-Jeep dealerships experienced a miserable year, watching their per-store revenue plummet by $9.7 million.

Cadillac dealers also had it tough losing a whopping $16.9 million in average store revenue.

Not surprisingly, Ford Motor Co. dealerships also suffered as average store revenue fell $3.5 million.

So what is the bottom line for these trends? It means the ability to grow quickly is becoming the sole property of a few large dealerships or groups owning large stores.

As large dealerships get bigger, their value increases, putting them out of reach of smaller and mid-sized stores. If the trend continues, it is not far-fetched to see a world in which only public dealer groups or large private investment firms have access to the type of capital that can net profitable and attractive stores.

Dave Conant, who owns a large group in southern California — his Honda Superstore of Cerritos with $252 million is 18th on this year's Ward's 500 — is concerned about the trend.

He questions Irv Miller, a vice president for Toyota Motor Sales, USA Inc., during a panel in May at an American International Automobile Dealers Assn. gathering, about a Toyota dealership in Arizona that recently sold for reportedly more than $15 million.

“How do you keep metro points in the hands of private dealers?” Conant asks.

Miller says prices for some of their dealerships are coming down, and that Toyota would like to keep private owners in control of their dealerships as much as possible.

“There will be a balance between public and private ownership of our dealerships,” Miller says.

Toyota can accomplish this, and does, with strict framework agreements that dictate how many stores any one person or company can own.

But over time, as private dealers find it increasingly harder to grow their portfolios, one has to wonder if the future of automotive retail will be controlled by large corporations.

If so, that could signal the end of the era of strong, individualistic and entrepreneurial dealers.
— With Emily Prawdzik Genoff

About the Ward's Dealer 500

In its 20th year, the Ward's Dealer 500 is a list of the top U.S. dealerships ranked by total revenue, including sales from new and used vehicles, finance and insurance and the fixed operations departments (service, parts and body shop).

Participation in the Ward's 500 is voluntary and we appreciate all of our readers who understand the value of what a list such as this provides.

We realize there are some dealerships that potentially would make the list, but for various reasons, refrain from participating.

If your dealership is missing, and you believe its revenues may qualify it for future inclusion on the Ward's Dealer 500, e-mail Emily Prawdzik Genoff at [email protected]. You may also call her at 248-799-2610.