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NADA Reports Three Point Drop in 2007 Gross Profit

May 13, 2008

McLean, Va. -- Gross margin on the sale of new units fell almost 3 percent in 2007, according to the 2008 NADA Data report released in May.

The drop follows a 2.3 percent increase in 2006.

The decrease reflects a tough marketplace and highlights the importance of profits generated by finance, insurance and service contracts to the new-vehicle department. Aftermarket income increased from 27.6 percent in 2006 to 28.5 percent of new- and used-vehicle department gross in 2007.

The increase reflects a renewed focus on F&I, a greater emphasis on customer satisfaction in dealer financing, the report states.

Improvement in vehicle quality and warranties led to a drop in service contract penetration from a 32 percent in 2006 to 31 percent this year. The rate peaked at 35 percent in 1986.

Despite a slowing economy, declines in the housing market, and rising energy prices, the nation’s franchised new-car dealers sold 16.1 million units in 2007, down 2.5 percent from the previous year’s 16.5 million units. This year will see a continued decrease of about 3 percent, but the average dealership saw sales rise in almost all departments for the year, the report states.

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