Factory Incentives Offset Operating Losses for U.S. Dealers

New-car dealers in the U.S. swung to an average operating loss in 2018 for the first time in at least a decade, according to the National Automobile Dealers Assn.

The group’s annual NADA Data report says dealers in the U.S. sold more than $1 trillion worth of new vehicles last year, or $61 million per dealership.

But their average operating profit, which totaled nearly $276,000 in 2016, plunged from $91,800 in 2017 to a negative $13,300 last year. Net profits as a percentage of sales have been sliding since 2015.

The trade group says dealers still managed an average net pretax profit of nearly $1.4 million in 2018, thanks to hefty factory incentives. The growing reliance on factory support is reflected in the ratio between net and operating profit: it zoomed from about 3:1 in 2015 to 15:1 in 2017.

Dealers that specialize in import brands were hardest hit, according to NADA. It says stores that represent mass-market and domestic makes were able to sustain operational profits last year.

NADA’s analysis shows that a 1% gain to $6.9 million in gross profit among U.S. dealers last year was more than offset by a 3% rise in costs.