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Auto Dealers See Sturdy Profits, Hire a Million Employees

McClean, Va. – Auto sales have seen a strong rise of late amidst a rebounding U.S. economy. Information from various sources show that auto dealership profits and auto dealership employment are up.

Employment at U.S. franchised new-car dealerships topped 1 million people last year after falling during the recession in 2009. America's new-car dealers employed 1,008,800 people in 2013, up 3.4 percent from the previous year, according to the National Automobile Dealers Association in NADA Data 2014, a report on dealership sales and financial trends. In contrast to fast food establishments, auto dealerships typically offer health care and other employment benefits to their staff. The franchisee association reports that new-car dealerships employed an average of 57 people and had an average payroll of $3 million in 2013. That is up 3 percent.

"The economic recovery is continuing, and we expect a stronger housing market, improving job prospects and continued low interest rates for auto loans to boost sales this year," said NADA chief economist Steven Szakaly in May.

In July, payroll process provider ADP showed additional evidence that auto dealers were on an employment roll. Its research arm announced that franchises added 33,350 jobs in June and that over 10,000 of those job gains were from auto dealerships.

Profits are looking strong for the nation's automobile franchisees. McLean, Virginia-based NADA states that new-car dealerships on average had a net pretax profit of 2.2 percent in the calendar year 2013.  New-car dealerships on average had a net pretax profit of $923,000, up 10.5 percent in 2013 from $863,000 in 2012. Nonetheless, the 2013 net margin compared to last year stayed the same at 2.2 percent.

"Profitability at new-car dealerships remained flat in 2013," Szakaly added. "Fierce price competition—whether from online research, a network of competing franchised dealers or compelling new vehicles—continues to dominate an industry with slim retailing margins."

Total revenue at new-car dealerships reached $730 billion in 2013, an increase of 8.8 percent.

Researcher Sageworks has a similarly upbeat take on the industry and says that with growth of 9.4 percent in the last year ending this June, car dealerships are in one of the fastest growing retail segments by sales growth. Melinda Crump, the spokesperson for the financial information firm, told Blue MauMau that new-car dealership sales were up by 10.4 percent in the 12 months ended June 30, 2014. That's a half-year time shift from NADA's numbers. The firm says this 10 percent growth is slightly higher than the 8.8 percent growth experience in the industry in the preceding 12-month period and lower than the annual growth seen in the industry during 2011 and 2012, when sales grew 17.0 and 13.2 percent, respectively.

Profitability in the industry is up just slightly in the most recent 12 months compared to the previous three years says Sagework, which provides financial analysis, risk management and benchmarking ations to accounting firms and financial institutions and private companies. From the financial information that it has gathered, it calculates that net profit margins averaged 1.8 percent in the last 12 months that ended June 30, 2014. Unlike the just recent flatness in NADA's research, Sagework asserts that auto dealers are experiencing a six-year high and an increase from the less than one percent net profit margins seen during the recession in 2009 and 2010.

Gross margins on new-car and light-truck sales continued on a downward path in 2013—falling to 3.8 percent from the previous year, according to NADA, their franchisee association. The association also added that sales in the service, parts and body shop departments at new-car dealerships increased 4.8 percent in 2013. Warranty work performed by new-car dealers totaled $14.4 billion in service and parts last year—all at no cost to the customer.

NADA's chief economist Szakaly told Blue MauMau, "The market is up. We are back to pre-recession levels." He anticipates a good run for automobile franchisees. "The rest of this year there is a real upside and the next couple of years will be just as good," he summarizes.

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