Same-store used vehicle retail unit volumes for the seven publicly traded dealership groups rose 6.5% in the first quarter of 2013. It represented the 15th consecutive quarter in which there was a gain.
Higher volumes were accompanied by greater operating efficiencies, faster inventory turns, and strong F&I income. As a result, profits were at record levels despite the ongoing decline in gross margins. Quarterly margins relative to their year-ago level have declined for 13 consecutive quarters.
Given that future F&I income will likely be under greater pressure, dealers will need to stem in the deterioration in upfront grosses. But, given the competitive nature of the used vehicle marketplace, it is unlikely that margins will increase. So, from our last posting on the dealership groups, we would repeat the two implications that flow from narrow margins.
- Thinner margins mean that the linkage between the retail and wholesale market will become tighter. Changes in one market will be more quickly, and more acutely, felt in the other. With the cushion of wide margins gone, look for subtle shifts in retail demand to be quickly reflected in wholesale buying.
- As average margins narrowed, so too has the range of grosses on individual transactions for individual dealers. Lacking “home-run” (high gross) deals, dealers can now ill afford the outsized losses associated with buying the wrong car at the wrong price. So, for commercial consignors, who often benefited from that one dealer paying too much in a speculative bid, the need of getting their portfolio in front of right buyer - the first time - takes on added importance.