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Dealer profitability on the rise

Figures highlighting dealer profitability for the four months to the end of April paint a rosy picture for the retail motor sector.

However there are significant signs of potential issues on the horizon warns ASE.

The average motor retailer made a £6,000 profit during April continuing the strong start to the year.

On average operators have made a £70,000 profit for the four months producing a creditable return on sales.

This has largely been a result of a strong performance from the vehicle sales department, although the results also produce a number of significant risk points for the remainder of 2010.

Used car performance has slipped over recent months and has now reached a stage where dealers need to take direct action.

Return on Investment has slipped well below the benchmark of 100% (which was being achieved in the prior year) as a result in a significant increase in used vehicle stock-turn.

Over recent weeks we have seen auction prices and the books falling.

Based on the stock-holding and stock-turn figures for April, a 4% drop in the book produces a used vehicle stock write-down of £15,000 per month.

Dealers need to mitigate these losses through an improvement in stock-turn as the current situation suggests that an average vehicle could suffer two book drops prior to sale.

One of the key drivers behind the increase in stock-turn would appear to be the continued rise in the average value of used vehicles held in stock which is now 33% higher than April 2009.

This is partially driven by the impact of self-registration activity which has definitely returned. In the current economic climate there is little indication that customers have an increased appetite for more expensive vehicles.

Dealers should consider, therefore, whether they should be re-profiling their stock to drive the average stand in values down.

This would have the effect of improving performance in the second half of the year as well as minimising any losses from drops in the valuation guides.

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