Looking for profits here and there

New-vehicle sales went through the roof in 1999 and are predicted to be close to as good in 2000. But with profit margins on new-unit sales shrinking, dealers are relying on the used-vehicle, F&I, service and parts departments and the body shop to bolster their businesses.

The most recent National Automobile Dealer Association (NADA) statistics show that the revenue from these departments is growing along with the booming new-vehicle market.

Total used-vehicle sales by franchised new-vehicle dealers increased in 1999 to 19.35 million units. Used- vehicle sales were 18.98 million in 1998.

Also, the average price of a pre-owned automobile increased from $12,500 in 1998 to $13,236 in 1999. In 1990, the average price of a used car was $7,540.

"The large number of off-lease vehicles is definitely driving the price up," says Jason Altman, an NADA economist. "Certification is part of it as well, but to a lesser extent."

The dearth of off-lease vehicles also has led to the increase in used-unit sales, but there is another factor, according to Mr. Altman.

"New-vehicle sales have been so strong that dealers haven't had to push too hard to sell them," he says. "So, they've moved some of the advertising resources to the used-vehicle department."

The finance and insurance department has always been a good source of revenue for dealerships, and the recent auto boom is no exception.

The F&I gross profit as a percent of new- and used-vehicle sales ticked up a percent from 19% in 1998 to 20% in 1999. This figure's best year was 1993 when the total was 21.5%.

The finance and insurance part of the 1999 equation was 12.9% and the service contract component was 7.1% The service contract perce-ntage was the best ever.

Mr. Altman says this trend can be attributed equally to the economy and improved salesmanship.

"Dealers realize that both the new- and used-vehicle customers can afford the service contract and they're being able to sell them on the security they provide."

Total dealership service department and parts sales increased from $64.02 billion in 1998 to $67.84 billion in 1999. Likewise, body shop sales moved from $6.70 billion in '98 to $7.1 billion in '99.

"If dealers are getting a 6% increase in service and parts, they're doing pretty well because the inflation rate is much lower than that," says Mr. Altman.

He adds, "Dealers are going to see a little more volume as cars get more complicated because consumers tend to go to a dealership to get them fixed because they have the original equipment parts and the expertise. The offset is that new vehicles need fewer repairs than they did years ago."

One of the most interesting dealership statistics concerns the body shop.

First, the number of dealerships with body shops has dropped more than 10% over the last decade. Fifty- five percent had body shops in 1990, In 1999, only 44% operated body shops.

"They're getting more efficient," explains Mr. Altman. "The number of body shop employees has also decreased and they're doing more business."

One of the benefits of consolidation, says the NADA economist, is large dealerships and dealership groups taking advantage of economies of scale at the body shop level.

That covers materials and labor as well as spreading the cost of high-price equi-pment and machines over more volume.