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AUTOMOTIVE

Franchised automobile dealers made 2006 one of the eight strongest years for new vehicle sales. During 2006, total dealership dollar sales exceeded $675 billion. Sales were down about three percent from 2005. More than one million people are currently employed in the automotive dealership industry and total payroll expense exceeded $52.9 billion in 2006. Moderate growth within the U.S. economy, high energy prices and political unrest around the world has recently affected the nation’s new car and truck dealers. Vehicle sales continued to be driven by generous incentives such as cash rebates, competitive pricing and low-rate financing and lease options. As many dealership expenditures are made locally, dealerships provide vital support to their communities’ economic well-being.

The automotive industry in the United States is an intensely competitive, fragmented and mature market, with a significant number of competitors in the field and little differentiation between suppliers. U.S. consumers are driven by price considerations as opposed to technical specifications. Dealerships of all sizes and makes continue to rely heavily on profits generated from used vehicle sales due to modest returns on sales of new units. Dealership owners can work with their IPA consultants to distinguish their companies from their competitors by offering various incentives such as such as certified used vehicles programs and finance packages, as used vehicle buyers are sensitive to the availability of credit.

Financial pressure on the automotive market in the United States has recently caused industry participants to undertake measures to preserve their margins including accelerated cost-cutting, increasingly aggressive restructuring plans (including strategic partnerships, particularly necessary due to workforce reductions within the industry) and the spin-off of profitable assets. In an effort to compound the effect of these cost-cutting measures, suppliers need to be aware of potential shifts in market share, due to selective supply interruptions or faster product cycles, as aligning products with market demand will reduce inventory levels and optimize profitability. Company owners should discuss these shifts in market share with their IPA consultants.

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