Motor Dealerships Cross Market Report May 2024

2024 is proving to be a challenging year for the retail motor sector. The manufacturers have now caught up and, in some cases, overtaken demand so we are back into a supply driven market. This is forcing some sales and registration activity which we have not seen in the market since pre Covid.

In addition, the demand for EVs is 40-45% lower than the brands expected, which has unbalanced their production volumes and is creating disruption to the vehicle supply chain. It remains to be seen how the Labour Government will view existing EV targets and associated infrastructure roll out.

These issues, amongst others, are significant for retailers to manage but they come at a time of increasing uncertainty over the retail model, with some brands now actively stating they are not pursuing the Agency model, despite previously planning to migrate to the new business structure.

There is, however, cause for some optimism as we move into the second half of the year. We now have a new government, and this typically creates a bounce in consumer demand and spending, and when combined with the start of interest rate reductions, these factors may help to restore the equilibrium - as long as they are not too short-lived!

Below you’ll find a summary of some of the key performance indicators that stood out to us for the month of May 2024, as highlighted in the accompanying table.

Sales

April 2024’s figures highlighted that the cost of selling vehicles was well in excess of the benchmark. For the month of May this continued, with Sales Expenses as a percentage of Gross just under 96%, the second month in a row where they have exceeded 90%. This brings the year to date value to over 70%, 20% higher than the benchmark, with cost pressure through wages and customer incentives continuing to supress departmental profitability.

Used vehicle ROI continues to be under pressure – sitting just below 78% in May - as the focus of dealers is managing the oversupply and incorrect mix of vehicles between ICE and EV.

Service

Service department expenses remain reasonably static on the previous month, at just under 76% of GP. These continue to be too high and demonstrate that inflationary wage pressure, aligned to a continued shortage of skilled technicians, has not started to reduce. Overall efficiency has been maintained at 81% in May, against a benchmark of 100%. This highlights that the number of non-productive hours remains at unsustainable levels and needs to be addressed.

Parts

Parts stock turn has increased significantly during May, from 9.2% in April to 11.5%. This efficient management of parts departments has nudged Parts GP back to 20%.

Expenses

As reported previously, this continues to be a focus area for dealerships. Whilst the market finds a new equilibrium in sales, dealers can control their profitability through expense management. In addition, with overhead absorption at 51% YTD and 45% for May, the overall profitability of businesses is under stress. We would once again recommend for dealers to do a line by line expense review across the whole business and ask, “if it doesn’t sell a car, a part, or an hour, do we need to spend it?”

Year to May 2024 Overview

We are starting to get a sense of deja vu as 2024 progresses: ROS at 0.9%, over supply, incorrect product mix and cost pressure across the motor retail business. Are the good times of the last few years coming to an end, and are we back to the retailing of old? If we are, retailers need to focus on the controllable costs, buying the right used stock and offering all available opportunities for revenue to the customer at every occasion. These metrics may lead to further consolidation of dealers as the reality begins to set in and difficulties continue to mount. We will stay close to the numbers and bring you movements and trends as the year continues…