Front-end gross profit — excluding finance and insurance revenue — rose to $2,483 on the average new vehicle in 2021, up more than $1,000, according to NADA data Kerrigan shared. The average used-vehicle front-end profit rose more than $900 to $2,524.
The average dealership net profit margin was 5.8 percent, according to NADA figures.
Dealerships are seeing the economic benefits of less inventory, and many do not plan to return to a lower-margin model, Kerrigan said. Even if a margin in the 5 to 6 percent range might be difficult to sustain, dealerships wouldn’t return to the 2.5 percent spreads experienced before the COVID-19 pandemic, she said.
“Today’s business model is just simply a better one,” Kerrigan said.
Kerrigan said dealership buyers expect some of the industry’s structural efficiency and higher grosses to remain “even after supply meets demand.”
Dealership blue-sky valuations — the value of a dealership beyond its physical assets — are now based on expectations of future profits, “which is a change,” she said.
Historically, buyers based their estimates on how a dealership performed in the past.
