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Before recent markups because of parts shortages, dealers mostly made almost nothing on new cars. Even now I'd assume most of their money comes from service an

Before recent markups because of parts shortages, dealers mostly made almost nothing on new cars. Even now I'd assume most of their money comes from service and used car sales.

jasomill 4y ago
Mostly true in terms of margins, at least if you consider finance and insurance separately from vehicle sales (as all dealerships do). Nevertheless, new vehicle sales including F&I is a non-negligible factor in most dealerships' bottom line, and new vehicle sales can also be a significant driver of service volume (both organically and as a result of loyalty incentives). You're also correct in assuming COVID has been good for new vehicle sales profitability. Here are the per-segment breakdowns reported by the three largest dealership groups in the US, before and after COVID: 1. AutoNation (AN) 2019 Rv: 52.3% New, 25.6% Used, 16.7% S&P, 4.8% F&I, 0.6% Other 2019 GP: 14.3% New, 10.4% Used, 46.1% S&P, 29.0% F&I 2021 Rv: 46.7% New, 33.4% Used, 14.3% S&P, 5.4% F&I, 0.2% Other 2021 GP: 24.3% New, 13.9% Used, 33.8% S&P, 28.0% F&I 2. Penske Automotive (PAG) (excluding non-retail auto dealership businesses) 2019 Rv: 45% New, 35% Used, 6% Fleet, 11% S&P, 3% F&I 2019 GP: 23% New, 12% Used, 1% Fleet, 43% S&P, 21% F&I 2021 Rv: 44% New, 38% Used, 5% Fleet, 10% S&P, 3% F&I 2021 GP: 27% New, 17% Used, 2% Fleet, 34% S&P, 20% F&I 3. Sonic Automotive (SAH) 2019 Rv: 47.0% New, 35.0% Used, 13.0% S&P, 5.0% F&I and Other 2019 GP: 15.0% New, 10.0% Used, 44.0% S&P, 31.0% F&I and Other 2021 Rv: 41.3% New, 39.3% Used, 11.3% S&P, 8.1% F&I and Other 2021 GP: 24.1% New, 6.9% Used, 35.2% S&P, 33.8% F&I and Other (Rv = revenue as percentage of total, GP = gross profit as percentage of total, New, Used, Fleet = vehicle sales, S&P = Service and Parts, F&I = Finance and Insurance) (source: SEC filings) N.B.: Gross profit may be a misleading figure in this comparison, as it excludes major expenses (notably, salaries and commissions for non-administrative staff) directly attributable to particular business segments. Alas, I'm lazy, and these are the only per-segment percentages immediately available in all dealership 10-Ks. With all that said, I imagine many, possibly most, dealerships would remain comfortably profitable even if net (non-F&I!) profit on new vehicle sales were zero. Finally, note that fixed vehicle pricing is not exactly a new idea: GM famously introduced the Saturn marque with a similar tactic. And as with this older example, I assume Ford isn't planning to mandate fixed pricing on financing, insurance, trade-in allowances, third-party extended warranties, dealership-installed options, or anything else beyond the selling price of the vehicle itself and possibly certain minor fees related to the sale.

Before recent markups because of parts shortages, dealers mostly made almost nothing on new cars. Even now I'd assume most of their money comes from service and used car sales.

jasomill 4y ago

Mostly true in terms of margins, at least if you consider finance and insurance separately from vehicle sales (as all dealerships do). Nevertheless, new vehicle sales including F&I is a non-negligible factor in most dealerships' bottom line, and new vehicle sales can also be a significant driver of service volume (both organically and as a result of loyalty incentives). You're also correct in assuming COVID has been good for new vehicle sales profitability. Here are the per-segment breakdowns reported by the three largest dealership groups in the US, before and after COVID: 1. AutoNation (AN) 2019 Rv: 52.3% New, 25.6% Used, 16.7% S&P, 4.8% F&I, 0.6% Other 2019 GP: 14.3% New, 10.4% Used, 46.1% S&P, 29.0% F&I 2021 Rv: 46.7% New, 33.4% Used, 14.3% S&P, 5.4% F&I, 0.2% Other 2021 GP: 24.3% New, 13.9% Used, 33.8% S&P, 28.0% F&I 2. Penske Automotive (PAG) (excluding non-retail auto dealership businesses) 2019 Rv: 45% New, 35% Used, 6% Fleet, 11% S&P, 3% F&I 2019 GP: 23% New, 12% Used, 1% Fleet, 43% S&P, 21% F&I 2021 Rv: 44% New, 38% Used, 5% Fleet, 10% S&P, 3% F&I 2021 GP: 27% New, 17% Used, 2% Fleet, 34% S&P, 20% F&I 3. Sonic Automotive (SAH) 2019 Rv: 47.0% New, 35.0% Used, 13.0% S&P, 5.0% F&I and Other 2019 GP: 15.0% New, 10.0% Used, 44.0% S&P, 31.0% F&I and Other 2021 Rv: 41.3% New, 39.3% Used, 11.3% S&P, 8.1% F&I and Other 2021 GP: 24.1% New, 6.9% Used, 35.2% S&P, 33.8% F&I and Other (Rv = revenue as percentage of total, GP = gross profit as percentage of total, New, Used, Fleet = vehicle sales, S&P = Service and Parts, F&I = Finance and Insurance) (source: SEC filings) N.B.: Gross profit may be a misleading figure in this comparison, as it excludes major expenses (notably, salaries and commissions for non-administrative staff) directly attributable to particular business segments. Alas, I'm lazy, and these are the only per-segment percentages immediately available in all dealership 10-Ks. With all that said, I imagine many, possibly most, dealerships would remain comfortably profitable even if net (non-F&I!) profit on new vehicle sales were zero. Finally, note that fixed vehicle pricing is not exactly a new idea: GM famously introduced the Saturn marque with a similar tactic. And as with this older example, I assume Ford isn't planning to mandate fixed pricing on financing, insurance, trade-in allowances, third-party extended warranties, dealership-installed options, or anything else beyond the selling price of the vehicle itself and possibly certain minor fees related to the sale.