Special Management Report:
How Much Margin Does a Dealership Need?
Dealers report that the way that equipment rollover programs are currently constructed leaves them with “skinny” margins at best. In some cases, it’s are a zero-sum game.
So what margins do dealerships need from their wholegoods sales to make a little money or at least break even?
One dealer, who asked not to be identified, says that based on surveys of dealerships throughout North America, most need 6-7% on new and used sales to run a sales department. For the entire dealership, they typically need margins in the 10-12% range. “If your aftermarket absorption is under 100%, you need wholegoods margins to help pay the bills. If dealers hope that volume will come to the rescue — it’s a really fine line,” he says.
Here’s a fairly typical scenario of how it all breaks out.
Sales Department New & Used Sales=$30,000,000 ($15 million new and $15 million used) and new equipment is sold for 0% margin and used at a 4% margin.
Total New & Used Gross Margin=$ 600,000 (2%)
Volume (6% of $15 million)=$ 900,000
Expenses (inc. interest)=$1.95 million (6.5%)
Net income (loss)=$450,000
In this example, the dealership would need to generate the $450,000 income from service and parts sales to recoup the sales department losses.
Based on these numbers, the dealership would need an average margin of 3.5% just to break even in the sales department. At minimum, a dealership should make a 5-7% margin on the sale of new and used machinery. Volume should take the dealership to 8-10% net income in its sales department.