What’s in 2.2 percent? As a percentage of total sales, it’s a number that represents the average pretax, net profit at U.S. franchised new-car dealerships, according to NADA Data 2014.
And what may be a startling fact is that the 2.2 percent profit, which accounts for sales in the new- and used-vehicle, service and parts departments, is more than a one-percentage point LESS than what many other retailers earn.
This figure has remained the same for the third straight year. And this dynamic is attributed to fierce competition at dealerships that benefits car buyers. In fact, a recent study from the Washington, D.C.-based Phoenix Center proves that price competition among auto dealers lowers car prices for consumers, often by $500 or more per car.
Employment at new-car dealerships is also at a near all-time high. Last year, more than 1 million people worked at dealerships across the country, which was higher than any other auto-related industry. Dealers, on average, employed 64 people per dealership in 2014.
Additionally, dealers pay one of the highest wages for any retail trade. Nationwide, the annual payroll last year was more than $58 billion—with employees, on average, earning more than $55,000 a year.
Clearly, the retail-automobile industry is a pillar of the nation’s economy, and the dealer-franchise network remains the best, most-competitive and most-cost efficient way to distribute and sell new cars.
So why would anyone want to upend such a system for Tesla’s attempt to gain special treatment and a vertical monopoly, a failed concept that was dispatched about a century ago?
Because it’s good for that company but bad for consumers.
Think about it. If a manufacturer like Ford (or Tesla) owns all sales points for a car and parts it can set the price without competition. But the independent dealer structure provides for many different dealers all selling Fords against each other. Tesla wants to avoid this more competitive structure so it can keep its prices as high as possible. They win. Consumers lose. In other words, they want a pricing monopoly.
We’ve been down this road before. Both GM and Ford experimented with factory owned stores in the 1990s. Before that, car companies in the early 20th century attempted to do the same. They subsequently abandoned these plans because they didn’t work. So why would we upend a successful Arizona and American system knowing how this story is going to end?
In Arizona, we have the highest number of employees per dealership in the United States with an average of 96 per dealership. Arizona auto dealers employ over 28,000 people statewide and generate approximately 28 percent of ALL retail sales tax revenue in the state that funds schools, public safety, roads and other government functions. At a time of recovering state revenues why would we want to jeopardize this?
Car dealing is one of the most competitive businesses on the planet. Let’s keep it that way in Arizona rather than revert back to vertical monopolies and failed ideas from the past that are remarkably both anti-business and anti-consumer. Just because it is a relatively new car does not mean any of this is a new idea. Or innovative. Or good.
— Bobbie Jo Sparrow is president of the Arizona Automobile Dealers Association.