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Dealer profits down in 2016

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UK motor retailers saw an increase in turnover but a decrease in profit in 2016, according to dealer profitability specialist ASE.

An open country road with breaking sunlightThe company's latest monthly report reveals that dealers ended 2016 with average profit of £178,000 per site -- down almost £20,000 from the figure at the end of the previous 12 months.

December showed an improvement in profit compared with the prior year, reflecting the growing reliance on bonuses for hitting overall targets, said ASE chairman Mike Jones.

"2016 may well go down in history as a high point in UK vehicle registrations, however it failed to live up to 2015 in terms of average dealer profitability," Jones commented. "This was not a surprise given the reaction of the manufacturers to several years of under-calling the size of the market when they set dealer targets for 2016. This resulted in dealers working harder for less with turnover going up and profits falling."

He explained: "The decline in profitability was principally down to a fall in vehicle sales & department profits, as a result of increased targets squeezing margins and hitting average profit per units. There was good news in aftersales, with increased service contribution, however this was not sufficient to maintain overhead absorption levels in the face of increased operating expenses from ever-larger facilities."

Jones also highlighted the continued evolution of the retailing model in the UK, with new vehicle sales falling 10% in 2016, while used vehicle sales rose.

"Dealers increasingly self-registered units to hit targets and retailed these cars as used vehicles," he said. "Whilst there is a danger of the system becoming clogged negatively impacting residual values, the process was well managed throughout the year as reflected by the strong used car return on investment results. Further focus needs to be placed on this in 2017, with a reduction in the days in stock being desirable."

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