Record Year Predicted for Dealership Throughput

DETROIT – Average vehicle sales per U.S. dealership are on track to set a record for the second year in a row, says John Frith, vice president-retail solutions for consultancy Urban Science.

If light-vehicle deliveries reach 15 million this year, then average sales per dealer, or throughput, will increase to 839 units. A record was set last year when sales per store averaged 812 vehicles, compared with 719 in 2011. Before that the all-time high was 784 eight years ago.

Most forecasters say 2013 vehicle sales easily will top 15 million units. WardsAuto predicts sales of 15.3 million units, compared with 14.4 million in 2012.

In the previous throughput high-water mark year of 2005, more than 21,600 U.S. dealers sold about 17 million vehicles.

“Today, we have fewer vehicle sales, but also fewer dealers,” Frith says. “They are selling vehicles more efficiently,” by leveraging Internet leads, using better sales processes and completing customer transactions more quickly.

The low point for throughput was 513 units in 1991 when 24,200 dealers sold about 12.2 million vehicles.

Throughput is an important gauge of dealer profitability. Urban Science expects “normal” throughput levels to settle in at about 830, Frith says. “We’ll see numbers go up and down a bit,” with the dips occurring primarily if auto makers add stores.

But surges in dealership ranks are not expected. The number of stores dramatically fell by about 4,400 in 2008 and 2009. That was mostly because of General Motors and Chrysler consolidating their retail networks as part of bankruptcy reorganization plans.

Urban Science’s latest Automotive Franchise Activity Report shows an uptick in the number of U.S. dealerships for the second straight year. The company, which advises auto makers on local market conditions and sales points, projects the retail network will stay stable for a third year in a row.

As of January, the U.S. had 17,851 dealerships, a 0.5% percent increase from the same time last year.

“In the past, a 2% dealership annual decline was considered normal,” Frith says. “But barring unexpected economic changes, network growth of 0.1% to 0.2% will become the new benchmark for the next few years.”

The states with the most dealership increases last year are Texas (25), California (24) and Florida (11). States with the highest number of dealership declines are Georgia (10), Michigan (9) and Tennessee (6). 

As of January there were a total of 31,608 franchises, which are brands that dealerships sell, not the dealerships themselves. For example, one store may sell three or four brands. 

The number of franchises increased 8% in 2012 compared with the previous year. Accounting for most of that increase is the addition of 2,277 franchises for Ram, Chrysler’s pickup truck brand that broke off from Dodge.

“If sales stabilize around 15 million, we expect the overall dealership count to remain relatively flat,” says Frith. “While there are fewer dealerships today than a decade ago, they are larger and should be able to easily manage the increased sales and throughput.”

He adds, “We have a good balance of sales and stores, allowing for fewer incentives and increased dealership profitability. You don’t want to remove or add too many dealers.”

Urban Science also reports on the status of auto-retailing in Mexico and China.

In Mexico, the number of dealerships increased 3.9% to 1,839 as of January.

Urban Science attributes the growth to new brands, including Fiat, Mazda and Suzuki, entering the market as well as other brands expanding their networks as a result of investments in new factories.

Mexican auto sales are projected at 1 million units this year, which would mark the nation’s highest level since 2008.

“While the market certainly isn’t saturated, Mexico is becoming an increasingly mature sales region,” says Jesus Tapia, Urban Science’s managing director-Mexico operations.

In China, auto makers are relying more on analytics to determine dealership numbers, rather than opening stores as fast as they can, Frith says.

That shift reflects a cooling down of the Chinese auto industry. Sales are up year-over-year but not at as fast a pace as previously. Auto makers sold about 19 million vehicles in China last year, a 5.5% increase.

As of January, China had 21,139 franchises. “It’s hard to determine the number of dealerships there because you could have 10 dealerships working from the same address,” Frith says, describing facilities resembling automotive shopping malls. “So we count franchises rather than dealerships in China.”

[email protected]