Add-On Services Emerge as Car Dealers' Profit Generator

First Up 04/08/19

Trump Backing Off Mexico Border Shutdown a Big Relief for U.S. Carmakers as Auto Sales Tumble
President Donald Trump's decision not to follow through with a shutdown of the Mexican border comes as a big relief for U.S. automakers, especially considering the industry is already struggling with the administration's tariffs on imported aluminum and steel and a slowdown in U.S. sales, reports CNBC. Nearly every major automaker saw sales fall in March and for the first quarter as a whole with Cox Automotive predicting U.S. new vehicle demand will be off as much as 7 percent for all of 2019. The president will have to decide what to do by next month but could enact up to 25 percent tariffs on cars and car parts imported from many parts of the world. As with the border shutdown, the impact could hit even American-made vehicles, Toyota estimating such a move might raise the price of a Kentucky-assembled Camry sedan by $1,600. That, trade groups such as the American International Automobile Dealers Association have warned, could really send the U.S. car market crashing, raising concerns about not only the 1 million Americans working at auto and auto parts plants, but the hundreds of thousands of others at dealerships and other related businesses. Read more here. 

Auto Dealers Losing Money on Operations
Dealers on average lost money on operations last year for the first time in at least a decade, leaving the retailers more dependent on automaker incentives for profits, reports Automotive News. In 2018, U.S. light-vehicle dealers reported an operating loss for the first time since the National Automobile Dealers Association began tracking the data in 2009. Dealers are still reporting pretax net profits, but those are largely driven by automaker incentives, which are excluded from operating results. Operating results swung to an average loss of $13,338 last year, compared with a gain of $91,774 in 2017, according to the NADA Data 2018 report, the annual financial profile of U.S. franchised new-vehicle dealerships from NADA. Net pretax profit slipped 2.6 percent to $1.36 million. The gap between net and operating results is widening, indicating greater reliance on factory incentives. In 2017, net profit was 15 times greater than operating profit, which was still in the black. In 2016, net was 5.3 times greater that operating profit, and in 2015, it was 3.1 times greater. Read more here. 

Add-On Services Emerge as Car Dealers' Profit Generator
As dealers’ profit margins on new-car sales shrink, they are relying more on selling extended warranties, paint-protection plans, and other add-on services pushed by salespeople in the finance office, reports The Wall Street Journal. “Where dealers really keep their head up is boosting interest rates from the bank and throwing in products like extended warranties,” said Earl Stewart, owner of Earl Stewart Toyota in North Palm Beach, Fla. Dealerships made an average of $908 per new vehicle last year on their finance and insurance business, far more than the $420 they earned off the actual vehicle sale, according to research firm J.D. Power. Last year, 46 percent of new-car buyers purchased an extended warranty from the dealer, for example, up from 40 percent in 2013. Nearly 84 percent of new-vehicle buyers last year arranged financing through a dealership, according to J.D. Power. Read more here. 

Nissan Shareholders OK Ouster of Ex-Chairman Ghosn
Nissan’s shareholders approved on Monday the ouster from the Japanese automaker’s board of its former chairman, Carlos Ghosn, who is facing allegations of financial misconduct. According to The Detroit News, the approval, which was expected, was indicated by applause from the more than 4,000 people gathered at a Tokyo hotel for a three-hour extraordinary shareholders’ meeting. Other votes had been submitted in advance. Ahead of the vote, Nissan’s top executive apologized to shareholders for the scandal at the Japanese automaker and asked them to approve Ghosn’s dismissal. Chief Executive Hiroto Saikawa and other Nissan Motor Co. executives bowed deeply in apology to shareholders attending the extraordinary meeting at a Tokyo hotel. Shareholders also approved the appointment of French alliance partner Renault SA’s Chairman Jean-Dominique Senard to replace Ghosn. Renault owns 43 percent of Nissan. Senard, introduced to shareholders at the meeting’s end, thanked them and promised to do his best to keep the automaker’s performance on track. Read more here. 

Speed Limit Increases Are Killing Thousands of Americans, IIHS Study Finds
Increased speed limits have killed nearly 37,000 people over the last 25 years, according to new research by the Insurance Institute for Highway Safety (IIHS). While experts remain concerned about traffic crash deaths caused by alcohol, cellphone use, and drugged driving, speeding is a significant safety crisis on American roads, reports USA Today. In 2017 alone, about 1,934 were killed because of increased speed limits, IIHS found.  "Every time you raise speed limits, you see more deaths," said IIHS vice president for research and statistical services Charles Farmer, who conducted the study. "Sure, you save a little bit of time driving, but there’s this trade-off that you have to admit is there and decide whether or not it’s worth it." The study concluded that a 5 mph increase in the speed limit causes an 8 percent increase in death rates on interstates and freeways. It causes a 3 percent increase in deaths on other roads. Read more here. 

Smart Technology Sets the Pace for Accelerating Sales
Your service drive is rife with profitable opportunities to sell customers cars, as long as you know how to find them and communicate them in the right way. AIADA’s April AutoTalk features Kendall Billman, AutoAlert Senior VP. Listen on  Tuesday, April 16th at 2:00 p.m. EDT as Kendall discusses: 

  • Service drive sales and Smart Technology helps you predict, and even drive customer behavior 

  • Use the service drive to re-engage customers and convert new prospects 

  • Leverage geo-framing technology to deliver targeted ads at the right time

To register, click here.

Around the Web

This 187-Mile Acura NSX Just Sold for $151K [Road and Track]

BMW Explains the Science of 0-60 MPH Times [MotorAuthority]

New Nissan Frontier Pickup Coming in 2020 [Autoblog]

Toyota's Plan: All Pickups on 1 Platform [Automotive News]