Baseline profits could grow from 2% of gross sales to 6% over next several years
Southfield —Astute auto dealers will find opportunities to strengthen their balance sheets and increase net worth in 2012, according to predictions by Plante Moran, PLLC, one of the nation’s largest accounting and business advisory firms, in its just released 2012 Auto Dealer Outlook
Following several brutal years of plunging or stagnant sales, surviving dealers will be rewarded for their persistence and perseverance through tough times, says Dianne Wells, a partner and Industry Group Leader of the firm’s automotive dealer practice.
“With fewer showrooms for customers to choose from, pent up demand and lower financing rates, there is huge potential for higher profits,” Wells explains.
“Traditionally, baseline profit for a dealership was 2 percent on gross sales. In this slimmed down environment, a variety of indicators drive us to conclude that a new baseline will be set moving forward and high-performing dealers could see net profits in the 6 percent range in the next several years.”
Strong merger and acquisition activity is expected in 2012 as dealerships log increased profitability, and capital in the equity markets becomes more readily available, according to the Plante Moran report. New dealer locations could also open with manufacturers like Kia, Subaru, Tesla and Fisker expanding or entering the U.S. market.
Despite a positive outlook, increased sales do not necessarily mean increased profitability and challenges with manufacturers remain, Wells notes.
“Manufacturers are concerned with strengthening their brand image to meet the demands of an increasingly discerning customer base,” Wells notes. “There continues to be pressure on dealers to make factory-mandated facility improvements. Even relatively new showrooms are being targeted to meet more stringent guidelines, and factories are less willing to overlook dealers that are slow to take action.”
While the environment is ripe for auto dealer success, increased profitability won’t come without new investments in technology. When organizations work with old, unreliable systems that employees no longer trust, workarounds can undermine efficiency and threaten the quality of the information result.
Dealers who understand the value of technology in helping to enhance customer satisfaction and service will have an edge that can lead to increased sales and profits, according to Plante Moran’s 2012 Outlook
In addition to technology investments, Plante Moran recommends auto dealers consider the following investments to help them thrive in 2012:
Online sales: Without a viable website and online presence, dealers risk losing valuable traffic and sales, especially as showroom size is expected to decrease as online sales increase. Dealers should consider adding an e-commerce sales director to their team to be responsible for setting goals and managing the dealer’s online presence for sales and service. Websites must be designed to allow current and potential customers to browse through inventory, look for deals and schedule service.
Social media: Social media can help build relationships with current and future customers. The use of smart phones and mobile applications are transforming how people buy. Mobile devices place powerful information at a customer’s finger tips when they want it, where they want it. Dealers need to determine how to use this powerful technology to build loyalty and increase showroom floor traffic. Words like SEO (search engine optimization), tweets, and viral need to become as commonplace to dealers as the traditional industry words OEM, tier and incentives.
Security systems: Loss of client data could lead to loss of clients. As technologies evolve and new ones emerge, more threats to data will be uncovered, and there will be increased attention and focus on security and privacy. Dealers must know where and how customers’ personal and financial data is being collected and stored. Sound policies and controls need to be in place to eliminate unwanted exposure and protect customer relationships.
Amid all the economic and market turmoil affecting auto dealers, in some respects, little has changed since the start of the automotive industry 150 years ago, Wells concludes.
“Dealers that focus on customers’ needs and expectations and provide them the car they want at a reasonable price will find ways to grow and prosper.”
Read the complete Plante Moran 2012 Auto Dealer Outlook
About Plante Moran, PLLC
Plante Moran is among the nation’s largest certified public accounting and business advisory firms, providing clients with tax, audit, risk management, financial, technology, business consulting, and wealth management services. Plante Moran has a staff of more than 1,600 professionals in 21 offices throughout Michigan, Ohio, and Illinois with international offices in Shanghai, China; Monterrey, Mexico; and Mumbai, India. Plante Moran has been recognized by a number of organizations, including FORTUNE magazine, as one of the country’s best places to work.