2001 was best year ever at many car dealerships

Most enjoyed profit at least 5% to 7% higher than in 2000

Zero percent loans helped

January 04, 2002|By Ted Shelsby | Ted Shelsby,SUN STAFF

As Maryland new-car dealers close their books on 2001, a majority are finding that it was a very good year, according to industry officials and analysts.

"It was the best [year] ever for about 60 percent of them," said Jacob J. Cohen, managing director of the auto retailers group of American Express Tax and Business Services Inc. Based in Timonium, American Express provides accounting and financial services for many of the state's new-car franchises.

For the year just ended, Cohen said, most dealers saw their profits rise a minimum of 5 percent to 7 percent over what they were in 2000.

"We won't have our final financial statement yet for another week, but I already know that 2001 was a great year for us," said Joseph B. Aiello, president of JBA Chevrolet in Glen Burnie.

He said a flurry of fourth-quarter sales, stimulated by zero percent financing, resulted in record sales of cars and light trucks.

Industry observers attribute the good times to a number of factors, including a decline in loan interest rates that enabled the average dealer to save $50,000 or more on the cost of financing cars in inventory.

"There is no question about it, `floor planning' is a big expense for dealers," Peter Kitzmiller, president of the Maryland New Car and Truck Dealers Association, said of the cost dealers incur from financing the vehicles displayed on their sales lots.

Cohen said the difference between a 7 percent floor planning rate and 9 percent rate on a typical inventory valued at $5 million is about $100,000.

He said floor planning, labor and advertising are a dealer's largest expenses.

Paul Taylor, chief economist for the National Automobile Dealers Association, which represents more than 19,000 new-car dealers in the country, said the drop in interest rates cut the average dealer's floor-planning cost by $45 per vehicle last year.

Taylor said the average dealer's used-car sales also jumped last year, by $500,000.

"Dealers were clearly helped by a boost in large, luxury sport utility vehicles late last year," he said. "Sales of these units were up 24.2 percent in November and, for dealers, they are twice as profitable as cars."

A year-end rally in the sale of big-profit, sport utility vehicles also helped the bottom line of most dealers, according to Taylor.

He said dealers also benefited from a boost in used-car sales and added business in their parts and service sections.

Taylor said the average dealer profit as a percentage of sales was 13.2 percent in the first 10 months of 2001. This is up from 12.8 percent in the corresponding part of the previous year.

Kitzmiller said 2001 turned out better than most dealers expected. "They expected things to be tight," he said. "They tightened their belts and tried to keep expenses in line. They focused on being more efficient."

"The $64,000 question is how much the flurry of sales in the last quarter of 2001 will impact sales in the first quarter this year," Kitzmiller said. "At this point, nobody knows the answer."

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