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AutoObserver.com: Dealership Profitability Down 25 Percent

October 08, 2008

SANTA MONICA, Calif. — Dealers' sales figures are down by an average of 20 percent, but their profitability is suffering even more, according to Edmunds’ AutoObserver.com.

Edmunds calculated the following effects of the current economic crisis on dealer profitability:

· Based on comparisons of total gross profits from new vehicle sales this year and in 2007, 25 percent of gross dealer profits were lost.

· Thirty percent of dealers dropped from more than 55 monthly new sales in 2007 to fewer than 55 this year.

· Of the 70 percent of dealers who saw a drop in total gross margin this year, 28 percent lost more than half of their gross margin.

"The Big Three U.S. automakers have been trying to get rid of their weakest dealers for years, but the weeding-out process has gone far, far more slowly than automaker executives have wanted," reported Dale Buss for AutoObserver.com. "This year's double whammy of economic shocks – explosive gasoline prices that stunned consumers, followed by the current financial crisis that is constricting credit at every level – has already begun culling out U.S. car dealerships at a rate far faster than General Motors, Ford and Chrysler brain trusts could even dream was possible by their methods."

There are over 20,000 car dealerships in the U.S. that collectively employ more than one million people. Dealerships account for approximately 18 percent of total retail sales and deliver hundreds of millions of tax dollars to state and local governments each year, according to figures collected in 2007 by the National Auto Dealer Association (NADA).

"Not everyone suffers when the chips are down," said Jeremy Anwyl, CEO of Edmunds Inc. "Good dealers will thrive as shoppers become ever more careful about where they spend their money."

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