According to research firm Urban Science's midyear Franchise Activity Report (FAR), the dealership network has stabilized and remains profitable. The average number of vehicles sold per dealership is way up, and the number of dealership locations is actually increasing for the first time in decades. That could mean more dealership service bays coming online as well.
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“The first six months of the year have been very strong for automotive retailers,” said John Frith, vice president, retail channel solutions, Urban Science. “Automakers have kept their networks relatively flat, giving existing dealerships the opportunity to take advantage of increased sales volume. By doing this, and in turn achieving record throughput levels, dealers are making a profit for the first time in more than three years without having to rely on their service departments to do so.”
According to Urban Science, sales per dealership should reach 805 units per store this year, beating out the previous record high of 784 set in 2005 when overall sales were higher and there were thousands more dealerships. The company expects U.S. sales to reach 14.1 to 14.4 million in 2012.
Urban Science also released its first franchise report for China, and found that the country has 19,890 auto franchises, with projected sales this year of $19.5 million (or 980 units per dealership).
According to Frith, much of this growth is due to pent-up demand. "We went through a recession, and people put off purchasing a vehicle, so some of that demand was delayed," Frith says. "The credit situation seems to have eased a bit as well. If you put those together with a better economy, that's why we're seeing a sales increase right now."
Currently, the U.S. dealer count is at 17,770 stores as of June 2012, a 0.02 percent increase since January, and a 0.6 percent increase over 2011. Store count has traditionally declined by an average of 2 percent each year since 1990. In 2009 and 2010, both GM and Chrysler dropped thousands of dealerships (2,200 combined) during their controversial reorganizations. In fact, growth might have been higher if Saab hadn't gone into bankruptcy and closed its own U.S. stores (187 franchises and 59 stand-alone dealerships).
"The closures have stopped, and we're seeing the normal type of OEM dealer activity where they add locations in growth areas or they add a brand," Frith says. "We had so many closures the last few years, a leveling out from that trend isn’t a real surprise."
Some of that growth can be attributed to Fiat, which opened 135 dealerships last year, but even Chrysler is adding branded locations after several of years of deliberating consolidating and reducing its dealer network both before and during the economic downturn. "What we saw with Chrysler, especially in California, is that they are going back in and continuing to implement their plan of getting the Chrysler, Dodge and Jeep brands under one roof. It looks like they are adding a lot of locations, but it's really a continuation of their longer-term plans," Frith says.
California, Iowa and Florida all added the most stores in the first six months of 2012, while Michigan, Ohio and Georgia lost the most dealerships.
Although the number of dealerships is up, the number of actual franchises (the brands the dealers sell) declined to 29,233, a 1 percent decrease from January. The upside for drivers is that at least of some brands will have slightly more service bay availability. As the number of dealerships has declined, the ratio of light vehicles per service bay has soared. According to the Lang Report, the number of light vehicles per bay rose from 175 per bay in 2001 to 204 per bay in 2011, a one-sixth increase. Total light vehicle service bay count in the U.S. declined by 42,000 between 2002 and 2012. (That includes a significant drop in dealer bays, offset slightly by a rise in independent bays).
The profit mix for dealers will also change as sales increase. "Most dealers have been surviving on service and parts, and their used vehicle departments to some extent, for the past several years," Frith says. "The new car departments are making some money now. A lot of dealers have put financial controls in place in their dealerships to survive during that sales downturn. A real key will be to keep an eye on those financial controls, and don't let loose just because sales are a little better. New car sales are cyclical, so dealers shouldn't take their eyes off the ball, even though sales are up."
