NADA, the National Automobile Dealers Association, has released its 2020 survey of financial results of its members, and the numbers are as big as the trucks and SUVs they’re selling. The average U.S. dealership booked a net pretax profit of $2.1 million last year, a 48 percent leap from 2019. The 2020 figure also topped the previous record of $1.5 million, recorded in 2015.
The reasons? The pandemic tightened inventories, reducing or eliminating the need for dealer incentives. It also created incentives to reduce manpower, as selling increasingly went more on-line and virtual. In fact “selling” wasn’t really much needed in 2020; it’s was more like “this is what we have in inventory, take it or leave it, because it’ll be gone by tomorrow”. A seller’s market, in other words. And that spikes profits like nothing else.
The average gross profit per new vehicle jumped to $2,444 from $2,010, and to $2,675 from $2,375 per used vehicle, up 22% and 13% respectively from 2019.
Costs were trimmed an average of 5.6%. Increased digital retailing increased productivity. And floorplan expenses were trimmed due to lower inventory and interest costs.
And most US dealers took out forgivable Paycheck Protection Program loans last spring. It’s not possible to tell precisely how those affected profitability, but most likely there was an impact.
IIRC correctly, it is acknowledged by a number of folks who study such things, that about 8 million jobs were lost in the recession of 2007-2008, and one quarter of those were jobs that employers had wished to cut prior to the recession but did not, for a variety of reasons. In other words, the recession gave them cover.
Something similar may have gone on in 2020. Advances in technology and the shift to online work and retail – already occuring and increased exponentially by the pandemic – made a second great job cut possible, probably also in excess of what was the direct result of the pandemic.
Company owners and managers were the winners, and employees were the losers. Thus it has ever been; thus it will always be.
When unemployment is low and business is good, businesses may be hesitant to cull the worst performing employees because they can’t find anyone better or are afraid they won’t be able to.
I expected higher margins and some reduction in staffing to lead to higher profits. I Hadn’t thought of the reduced floor plan costs as another of the benefits to the dealer caused by the tight supply of new vehicles. But yeah when the load is mostly spoken for before the transporter is unloaded floor plan costs drop dramatically.
Definitely a sellers market, at least in most segments, and happily for the dealers those are the more profitable segments.
Around here in Real Estate it is also the strongest seller’s market I’ve ever seen, due to extremely low inventory and a lot of desperate buyers, many of whom seem willing to cash out a big chunk of their portfolio to pay cash to win.
Very interesting. A few random thoughts:
– Profits surged to record levels, but as far as I know, actual sales were down. Which points even stronger to operational changes (online sales, workforce reductions, reduced inventories, etc.) being the cause.
– Even though sales themselves weren’t numerically high, they’re higher than what one would expect during a global crisis of this magnitude. Scoutdude above points to the real estate market, and it’s a similar phenomenon with auto sales… the past year’s recession has been highly asymmetrical… the social and economic restrictions were largely targeted to specific sectors (mostly service sectors, hospitality, travel, etc.), and those sectors employ mostly low wage-earners. Many (most?) higher wage earners were not much affected in a purely economic sense, so a large chunk of the consumer population ended up with money to spare. This supported the unlikely amount of demand for major purchases like cars & houses.
– I wonder how much retailers like CarMax, AutoNation and Carvana are credited with changing the ways of new-car sales this year? Seems like those companies have been very successful by offering a sales experience that is largely online, and often characterized by single pricing and quick-and-easy sales processes. Will franchised new-car dealers now take over that model quickly, now that they’ve seen the profit potentials involved?
– From a purely economic standpoint, many sectors will likely return to normal rather quickly. But what will Normal be like for car sales? Will we see a further migration to online selling and low inventories? Additional dealer consolidation? Other things? It’s all interesting to ponder.
A lot of people didn’t see their income reduced. Many of those were probably surprised with how much money they had left over at the end of the month when so many things were cut out of the budget.
I am a little surprised though that car sales have done as well as they have with so many people driving significantly less they haven’t racked up as many miles and they don’t spend as much time in them anyway.
Real estate is more understandable as people are spending more time at home and those that hadn’t previously worked from home might want a place with room for a dedicated home office, or to get out of an apartment and have their own yard.
I do wonder if there will be a long term shift in the economy as people found other ways to spend their money and in the case of something like a car or Real Estate may have commited to a long term loan based on not spending money at all those places they used to.
The most important factor was higher average transaction prices (“ATP”) which topped $40k in the 4Q of 2020 for the first time ever. So yes, fewer sales, but significantly higher ATP, and reduced costs. Which equals higher profits.
People are awash in money. 10 million may be out of work, but the rest are getting cash showered on them by the government as well as having much fewer places to spend it on. So it’s being spent on stocks, real estate, home improvement and cars, along with a few other categories.
It blows my mind that the ATP is over 40k now. Not too long ago, that was solidly in entry-level luxury territory. I assume a big factor is all those 50k to 60k trucks, like the one just reviewed by JK. As one who favors CPO and has paid 35k tops for any car (including one each from Mercedes, Audi and BMW), and who makes a decent income, I don’t know how so many people are willing to sign on the line for far more.
Gee Paul, you nailed that.
Yep pretty much this one sucked for some segments but was great for many others. One of the weirdest recessions ever. I do know people who had their income take big hits this year but most saw theirs rise or at least stay the same. Which in economic terms shouldn’t happen because the pool of potential employees grew, except those employees skills mostly transferred to other jobs that were also effected.
Our family income was about the same but would have been up except one of my wife’s jobs closed for most of the year.
As some one else mentioned lots off people that didn’t drive every day and had older or no cars traded up or bought in due to the virus this year. This drove up used car prices like crazy which then pushed some of those buyers into new cars. (as an aside wholesale prices are coming down but the retail prices aren’t dropping at all as inventories are still a little light and most dealers have more cash on hand then normal and are less worried about floorplanning)
My wife works in the wholesale side of the business, in August the wholesale side was really high too, not she is seeing cars trading at 60-65% of what the dealers are asking retail.
You also have huge growth in RV and boat sales which is driving the sales of Trucks and SUV’s for towing, and growth in home repair sectors driving sales of pickups.
Basically right now is a good time to sell a house or car but not a great time to buy.
I wonder how many sales were to people who had formerly been carless-by-choice or “car lite” (in which case the household might be bulking up from one car for multiple drivers to a multi-car household), given people were actively encouraged to avoid public transportation to allow an uncrowded ride for carless (sometimes not by choice) essential workers early in the pandemic and so many formerly walk-in services were converted to drive-through? Surely that caused a tightening of the used-car market although if it were a main driver (no pun intended) you’d think it’d be more at the low end of the market while the boom has been higher up (literally given the spike in the existing trend to trucks and SUVs)
My grandparents used to buy Cadillacs from the iconic Casa de Cadillac in LA (in this post’s featured pic). Over time, grandpa soured on the customer service and opted to give his future business to Lexus, where he bought much better cars until he passed about a decade ago.
In the ’90s, my uncle had a red ’59 Caddy that he received as payment for work that he did. He had it restored and drove it around LA for a few years before the novelty wore off. He sold it to Casa de Cadillac, and they put it in the showroom for awhile. It was the perfect car for that showroom.
Randell O’Toole over at the Antiplanner website regularly posts transportation stat’s. His latest:
Americans drove 89.7 percent as many miles in December 2020 as they did in December 2019, according to data released yesterday by the Federal Highway Administration. This compares with transit and air travel, which were each about 37.5 percent of 2019 levels, and Amtrak, which was 22.4 percent of 2019. These numbers continue to demonstrate that motor vehicles and highways are the most resilient forms of travel we have.
Cars are king during a respiration-transmitted pandemic, whereas collective transportation is shunned.
I suspect that single-family RE vs. multi-family RE is similarly affected, and why car dealer profits are up and single-family RE is in such high demand.
Good today, maybe not so much tomorrow.
Maybe a bit of herd mentality?
Let’s compare 2021 vs 2020 next year and see what the numbers say.