Over the last 12-18 months the automotive industry has continued to find a new normal following the massive disruption of the Covid years. This has involved a number of challenges which are expected to continue with ongoing uncertainty around areas such as EV take-up and the impact of agency model.
The cost of living crisis and a general election add further uncertainty, and without any real incentives for the industry from the last few budget announcements, challenges to UK dealerships look set to continue.
Understanding where your dealership sits amongst competitors
Each dealership will have their own difficulties and focus areas, but the industry continues to be robust, seeking out as much profit from each department as possible, despite the challenges faced. Understanding the numbers, the trends and the issues in the sector has always been necessary to help individual dealerships recognise where they sit against their competitors and peers.
New benchmarking KPIs for automotive dealers
Whilst you may have access to information that shows where your business sits when compared to others offering the same brand, knowing how your dealership compares against cross brand key performance indicators (KPIs) can offer a much better understanding of where your business sits across the industry as a whole. It can give you wider insights into how and where your business may be able to improve, taking on board results and learning from a larger pool of businesses.
With this in mind, Armstrong Watson, supported by Snap-on Business Solutions (SBS), from today will be publishing comprehensive KPIs that will allow you to benchmark your dealership performance against over 80% of brands available in the UK industry (applies to cars only).
We will soon kick off this series of reports looking at April YTD numbers and trends. However, before we look at 2024 we should first recap how the industry performed in 2023. It has been a difficult year for dealers and the data helps tell the story of what was going on during the year.
2023 motor dealership KPIs recap
The key metric for 2023 is that net profit as a percentage of sales fell to 0.99% by end of December 2023, compared to 1.59% in 2022, and the data, alongside other KPIs, helps explain why this happened.
2023, when compared to the previous 12 months, showed an increase in used vehicle performance alongside an increase in the ratio of used to new sales,, demonstrating a shift in mix from 2022. Under normal trading conditions this would typically increase net profit significantly. However, net profit was severely impacted by an increase in personnel and property costs across the business. In addition, EV mix increased with some significant incentives being given to customers to switch, also reduced margin.
Increasing salary costs
Vehicle departmental expenses as a percentage of gross also increased year on year. This was primarily the result of the increase in the minimum wage, pushing up all people costs proportionally across the business. Therefore, despite the relative increase in performance of higher margin used cars, this was almost offset by the increase in costs.
Increase in finance costs
In addition, the full year effect of finance cost increases were suffered by dealers on stocking loans, which had a direct impact on the level of profit being generated. Despite the shift in vehicle sales mix to used, the dealerships struggled to reduce the associated personnel and finance costs, and therefore the levels of profit inevitably reduced. Likewise, as the used vehicle market moved towards the end of 2023, dealers also had to suffer significant revaluations of their stock, again impacting profitability.
Reduced profit in non-vehicle sales
Cost pressure also filtered through to the non-vehicle sales departments where the numbers show that expenses were too high in the workshop. Customers are typically only servicing their cars to the minimum level, choosing to wait for high value items like tyres as long as possible. This also put additional pressure on service department profitability and was a direct impact on the cost of living pressure.
Controlling costs
So the overall message from 2023 appears to be a continued focus on cost. This is nothing new in the industry but with the ongoing uncertainties expected to continue, it reinforces the message to dealerships that is essential to undertake strict cost control in the correct proportion to income generation.
Signs of improvement from Q1 2024
Q1 2024, however, has shown some signs of improvement at net profit level, bouncing back to 1.62% and perhaps giving reasons for optimism for the sector.
What will this mean for motor dealerships in 2024?
A focus on cost will remain key across the industry throughout the year, and we will be monitoring this closely using the data to hand.
We appreciate that the sector is a fluid one, and the comparison data may not always reflect the current issues facing the industry. However, we believe the ability to access data on a monthly basis will allow you to stay abreast of the key trends and issues, as change happens in the market, and as a result, make informed decisions based on a ‘whole market’ view.
Our Motor Dealerships Cross Market Reports will be available on a monthly basis, where not only will we provide you with some of the key raw data, but also analyse trends, issues and best practice enabling your dealership(s) to have key insights and opportunities to continue in the challenging environment.
We’re here to help and to discuss. We can assist your business with any service, from compliance through to company advice or individual financial planning. So for any additional information please get in touch.
