No Profit In New Cars?

It seems that new cars are great for buying and selling but as for making money, you better look elsewhere. Other departments such used cars, service, body work, or even rental cars, are for making money.

I was born into the car business, the son of a used-car dealer and wholesaler. My formative conversations with my dad were all about hot products and negotiating car deals. I grew up on the outside looking in at every new car dealership that my dad called on to buy their trade-ins.

One of my earliest lessons in manners was to keep my hands off the new cars as we'd pass through the new-car showroom on our way to the used-car department.

“Someone is going to pay a lot of money because that car is new and untouched so let's not let your fingerprints ruin their experience,” my dad would tell me. As a new-car dealer years later, I'd use the elbow of my sport coat to polish the fingerprints off my showroom cars as I'd pass by.

I'm not sure exactly when my day became consumed with studying the daily numbers, but somewhere along the line I traded my focus on the “new-car experience” for a calculator and a 20-group membership. Somehow a quarterly statement review replaced new-product launches as the center of my success. Gone were the adrenaline rushes that only a busy sales day could inspire.

It's now been over 40 years since I spent Saturday's making rounds with my father. When did the new-car business become more about accounting than cars, more about profit margins than horsepower?

In writing this, I was interrupted by a visit from my zone manger. It's not all that important which program or product he was pitching, but you better believe that I was stoked and ready for a debate when he entered.

Incredibly, he brushed aside my arguments of “too little profit margin” and “rising costs” with a confident assertion that “the new-car department isn't for making money, it's about setting up the other departments.”

His casual acceptance of the death of new-car profitability hit me like a thunderbolt.

In a flash, my arguments went limp. Rather than combat my protesting the perils of too little opportunity, this manufacturer's representative acquiesced the point that making a profit with new cars was simply too hard.

Sure, a few manufacturers reduce costs, increase volumes and strengthen residual values, and certainly their dealers make tons of money selling new product.

But most manufacturers have their eyes fixed on their shoes in silent resignation that the key brand benefit left for their dealers is the quality assurance that the new-car shingle adds to the other products and services offered under the same roof.

I'm not ready to concede victory on this point with my manufacturer. I need them to fight back. In the battle against shrinking profit margins, I'm looking for them to expand those margins, not to concede that they are unreasonably thin, and say, “So what?”

When factory reps concede that dealer new-car profitability isn't worth talking about, it won't be long before franchised dealers all over the country start rethinking their career choices.

Somewhere along the way, dealers, bankers, accountants and manufacturers all started morphing into one another; dressing alike and talking alike. We began attending the same meetings and learned each other's jargon. The lines between us have become seamless. This is bad. We are not supposed to overlap one another. We are supposed to provoke one another into being better.

Dealers serve a serious purpose in the automotive retail ecosystem. We pump energy into the process by putting a human face on the buying and selling of products that are largely commodities.

We are the differentiators who help customers realize the difference between brands X and Y, even when the products themselves are almost identical. It ain't the number of cup holders or pretty new fender lines on the Ford Taurus vs. the Chevy Malibu where the retail wars will be won and lost.

Auto makers who are hiding new-car department losses beneath other department contributions are masking a significant weakness. If Wall Street looks at that and learns the right questions, we'll all once again become serious about the new-car business.

Peter Brandow is a dealer in Pennsylvania and New Jersey.