U.S. auto sales last month raced to their highest number in a decade, but L.A.’s car dealers say it’s a checkered victory.
Aggressive manufacturer incentives and rock-bottom interest rates might draw customers to the showroom, but they’ve whittled down the margins that dealers can get on car sales. And as carmakers continue to improve quality – and customers take shorter-term leases – there are fewer opportunities for dealerships to score profits from repairs and services.
“Volume and sales are going up, and we’re seeing that in our markets especially,” said Victoria Rusnak, chief executive of Pasadena’s Rusnak Group, operator of 15 Southern California dealerships. “But the thing that has to be balanced against that is the compression in margins on a lot of new-car sales.”
According to data from Woodcliff Lake, N.J., industry research firm Autodata Corp., U.S. dealerships in May were on pace to sell 17.8 million new cars this year, the highest mark since July 2005. May figures aren’t out yet for Los Angeles, but April data from the Greater Los Angeles New Car Dealers Association showed a 13 percent jump in sales compared with a year ago and an 11 percent increase through the first four months of the year over the same period in 2014.
But the top line can be deceiving. Mike Sullivan, owner of dealership group L.A. Car Guy, said despite booming sales he’s “down to grocery store margins.”
“There’s nothing in my business that’s not under pressure,” he said.
That’s forced many dealers to build around areas where they can find profitable business lines.
Victoria Rusnak is more positive than most, but some of that might be due to one of her bigger advantages: Her company sells high-end cars, which have more lucrative margins. With wealthier Angelenos benefiting disproportionately from the stock market recovery, she’s not at a loss for BMW and Mercedes customers.
Also, as luxury customers are more likely to pay more for better service, Rusnak has been redeploying some of her resources in that direction, investing in better customer service and creature comforts to try to give her dealerships an advantage.
“Our goal is to build value in not only the vehicle but in the service and support that comes around that in order to maintain some kind of margin,” she said.
But even that isn’t as reliable a line of business as it used to be, as cars across the board need less service than they once did, said Sullivan.
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