Every year, I love reviewing NADA's full-year report. I enjoy extracting the trends and sharing what that means for your dealership next year. You'll find many experts sharing their insights on these reports. But, in this article, you'll see the translation of these predictions into role based considerations and actionable steps.
I'll highlight a few insights from the report. I'll discuss the trend and potential compensation impact across different dealership roles. That usually takes us to pay plans. And yes, these are general observations! So, the data aggregated at this level may not be what you are seeing at your dealership.
New Vehicle Inventory and Days Supply By Year
NADA Data: You know the story for new vehicle inventory. Numbers are rising from the lows experienced in 2021, but not back to the historical averages in 2023. Inventories should continue to rise through 2024 due to higher interest rates and economic conditions.
The Q4 2023 Cox Automotive Dealer Sentiment Index survey points this out. OEM incentives are also growing as incentive levels increase. The NADA team notes that average transaction prices are expected to remain flat in 2024.
Our Insights: Heading into 2024, we expect more aggressive pay plans as dealers work to move stagnant inventory. Margins will likely decrease, putting pressure on dealerships and OEMs to sell vehicles. All these factors should hurt your sales and F&I teams.
What does this mean for a General Manager/Owner?
- Expect lower compensation earnings than the previous year.
- Expect payroll as a percentage of revenue to increase in 2024.
What can you do about that?
- Evaluate and Adjust Pay Plans: Review and adjust pay plans to reflect the expected decrease in margins and to incentivize performance.
- Enhance Training Programs: Invest in training programs that focus on selling techniques and customer relationship management to improve sales effectiveness.
- Increase Focus on Service and Parts: Shift focus towards the service and parts departments to balance revenue streams and mitigate the impact of lower new vehicle sales margins.
Share of Total Dealership Sales Dollars
NADA Data: New vehicle dealerships slightly increased year-over-year in 2023. The distribution of sales dollars across departments shifted:
- Used vehicles dropped by 3.3%
- New vehicles increased by 2.9%
- Service and parts increased by 0.4%.
Our Insights: Buyers will shift from used to new vehicles as inventory numbers return to historical averages. Service and parts will grow with that. But the average selling price drops and the margins continue to get squeezed from car sales.
What does this mean for a Sales Manager?
- Keeping your current employees at current pay rates will be a challenge.
- Focusing on Parts & Service profitability is a must for the future.
What can you do about that?
- Fight Turnover with Employee-Centric Pay Plans: Develop competitive pay plans that focus on employee retention and satisfaction.
- Optimize Labor Efficiency: Invest in training to improve labor efficiency and profitability in the parts and service departments.
Take action
Check out our Dealership Pay Plans That Get Results article. You'll see our recommendations and best practices around dealership compensation.
New and Used Vehicle Department: Vehicles Sold per Salesperson Increased
NADA Data: According to NADA, new vehicle sales (per salesperson) increased by eight units from 2022. Used vehicle sales only increased by one unit. So that totals to nine more vehicles sold per salesperson in 2023.
Our Insights: The increase in vehicles sold per salesperson highlights a trend towards higher efficiency and productivity in dealership sales departments. With fewer salespeople required to sell more cars, dealerships can optimize their workforce and reduce payroll costs. However, this also means increased pressure on sales teams to perform. Implementing real-time earnings tracking and providing robust support and training can help maintain high morale and sustain this level of productivity, ensuring that sales staff remain motivated and effective.
What does this mean for a Sales Manager?
- Increased Productivity Expectations: Sales managers should expect higher productivity from their sales team, as data shows sales per salesperson are increasing.
- Potential for Higher Turnover: Higher productivity expectations may lead to burnout and higher turnover if not managed properly.
What can you do about that?
- Implement Real-Time Earnings Tracking: Use tools that allow salespeople to track their earnings in real time, which can motivate and increase satisfaction.
- Provide Adequate Support and Training: Ensure your sales team has the support and training they need to meet increased productivity expectations without burning out.
Service and Parts Department: Express Service Operations
NADA Data: According to NADA, total service and parts sales continued to rise, with a $5 billion increase from 2020 to 2023. However, the share of dealerships with express service operations declined by 1.5%, reaching the lowest level since 2018.
Our Insights: The decline in express service operations presents both a challenge and an opportunity for dealerships. As fewer dealerships offer express services, those that do can differentiate themselves by providing faster, more convenient maintenance options. Investing in express service operations can attract time-sensitive customers and boost overall service and parts sales. This strategic focus on efficiency and customer satisfaction can help offset the competitive pressures on vehicle sales margins.
What does this mean for a Service Manager?
- Opportunity for Differentiation: The decline in express service operations presents an opportunity to differentiate your dealership by offering efficient, quick service options.
- Potential for Increased Revenue: Investing in express service operations can lead to increased revenue from service and parts sales.
What can you do about that?
- Reintroduce or Enhance Express Service Options: Evaluate the feasibility of reintroducing or enhancing express service options to attract more customers.
- Optimize Service Operations: Invest in training and technology to streamline service operations and improve efficiency.
Body Shops: On-Site Body Shops Decline
NADA Data: The percentage of dealerships operating on-site body shops has declined from 39.2% in 2017 to 34.3% in 2023.
Our Insights: The decline in on-site body shops suggests a strategic shift towards more profitable service centers. The consolidation in the collision repair industry in 2023 with the Big Five (Caliber, Gerber, Crash Champions, Classic Collision, and Joe Hudson's) continuing to acquire and develop over 550 shops may also be influencing this trend. Dealerships should consider whether focusing on other areas could improve profitability and adjust compensation plans accordingly.
What does this mean for an Operations Manager?
- Reevaluate Body Shop Operations: Consider whether maintaining an on-site body shop is the best use of resources or if focusing on other areas could yield higher returns.
- Adjust Compensation Plans: Modify compensation plans to align with the strategic shift towards more profitable service centers.
What can you do about that?
- Conduct a Profitability Analysis: Evaluate the profitability of your body shop operations and consider reallocating resources if necessary.
- Invest in High-Return Areas: Focus investments on service centers and other high-return areas to maximize profitability.
Employment and Payroll: Payroll as % of Revenue and Head Count Declines
NADA Data: The report shows payroll as a percentage of revenue declined from 7.9% to 7.7%, and headcount declined by one person per dealership.
Our Insights: The decline in headcount, alongside increasing sales, suggests improved efficiency, possibly through technology. Compensation plans should reflect these efficiencies, rewarding employees who contribute to this increased productivity.
What does this mean for a CFO?
- Benchmark Payroll Costs: Compare your payroll costs as a percentage of revenue to these benchmarks (7.7%).
- Reward Efficiency: Adjust compensation plans to reward employees who contribute to improved efficiency and productivity.
What can you do about that?
- Identify Payroll Discrepancies: Take a look at payroll metrics to understand if employee management is out of line or if compensation packages need to be changed based on your findings.
- Implement Performance-Based Compensation: Introduce performance-based compensation plans to incentivize and reward high-performing employees.
Challenges? New opportunity?
As we all know, every year brings different challenges and opportunities for dealerships. The best dealerships pivot, adjust, and stay ahead by taking care of their employees and customers.
