Automobile dealerships are rarely the money machines they are sometimes thought to be. Their profit margins are often so narrow in fact that some people have suggested labeling them auto supermarkets.
Like a supermarket, the typical dealership is a modest-size enterprise. In 1982, the most recent year for which complete National Automobile Dealers Association (NADA) figures are available, the average dealership had 28 employees, total sales of $5.8 million, and a gross margin of $799 million (13.9% of sales). Net pretax profit on average came to $74,820, or 1.3% of sales.
New-car sales accounted for 61.4% of the average dealership's revenues in 1982, and the average new car sold for $9,910. Used cars contributed 22.8% of total sales, while parts and service made up the remaining 15.8%. A dealership is relatively capital-intensive, with the typical dealer carrying a new-car inventory worth close to $700,000. In 1982, March, May, and November were the peak selling months.
Although sales figures have risen fairly steadily since 1976 (1980 was the only year in which they actually fell), dealerships have experienced a significant drop in profitability over the years. Measured in constant 1967 dollars, for example, the average dealership netted $42,881 in 1976 and just $25,880 in 1982. Only recently, with the recession over, has the market snapped back. According to estimates, dealers are now seeing an average 2.2% return on sales. Most, moreover, seem to expect the good times to continue: In January of this year, NADA's "Optimism Index" stood at an all-time high of 180.