In the last issue of Farm Equipment, we featured an in-depth special report on “Cost of Doing Business” (CODB). Based on the data compiled over the years by various dealer associations, our coverage addressed how to use the industry benchmarks established by the annual dealer survey as well as the progress, or lack thereof, the industry has seen in the past 4 decades.
Once a dealer has established where his company stands relative to his peers and identifies where his business is excelling or needs attention, the next step to truly improving overall performance is to look beyond his own industry.
Over the years, I’ve heard on more than a few occasions how farm equipment dealers tend to lag the auto dealers, particularly when it comes to marketing, creating a “customer experience” and in other areas of retailing.
Having put a considerable amount of time in preparing our coverage of the CODB, I wondered how our dealers would stack up with that of dealers selling cars and light trucks.
The “Annual Financial Profile of America’s Franchised New-Car Dealerships” report from the National Automobile Dealers Assn. presents much of the same data and benchmarks found in the Western Equipment Dealers Assn.’s “Cost of Doing Business” study.
In comparing the 2014 information in the two reports, it’s interesting to see how similar the farm equipment dealership performance is compared to that of auto dealers. In some cases, ag machinery dealers are outperforming their counterparts who sell cars. Take for example, the share of total dealership sales dollars by department. The breakdown is 57.6% new vehicles, 31% used vehicles, 11.4% parts and service for automotive. On average, the mix for farm equipment dealers in 2014 was 51.3% new, 26.9% used and 19% parts and service. With the higher percentage of revenue from parts and service, I would say the nod goes to farm equipment dealers because of the higher margins produced by parts and service sales.
Speaking of margins, the 2014 NADA report shows that, on average, total auto dealership gross margins were 13.1%, down from 13.4% in the year before. Total farm equipment dealership gross margins were 14.6% for 2014, down from 15.3% in 2013. Once again the edge goes to farm machinery dealers.
The auto dealers had a slight edge when it came to total expenses as a percentage of total sales in 2014 with an average of 10.9%. Ag equipment dealers’ total expenses last year were 11.8%.
Last year, automobile dealers invested 1.04% of total sales dollars in advertising, which amounted to about $600 per vehicle sold. Overall, ag equipment dealers invested 0.51% of sales in advertising.
When it comes to the bottom line, ag dealers’ net income before taxes was 3.35% in 2014, with a net worth as a percent of total assets of 28%. Last year, auto dealers’ net profit before taxes was 2.2%, with a 29.2% net profit as a percentage of the dealers’ net worth.
Can farm equipment dealers learn anything from their peers in the automobile business? Of course, they’re great marketers, retailers and good businessmen. On the other hand, you don’t have to take a backseat to the auto dealers. They could learn a few things from you, too. (You can find the entire NADA report at nada.org.)