Auto Dealers, both New and Used Car, have a very high interest level in Check Guarantee due principally to the slim profit margins in the sale of an automobile.
At least those who should be in the "Know" are stating that the profit margins are thin. According to the National Automobile Dealers Association (NADA), from January through November 1995, the average net profit was $37 for a new vehicle sale, and $337 for a used vehicle sale.
While the February issue of Automotive Executive, a NADA publication, notes that the average dealer in 1995 earned $1,347 on a new vehicle sale, and $1,247 on a Used vehicle sale in 1995, both which were up over the 1994 number, these numbers reflect gross profit, rather than net.
Apparently two things were universally true during 1995; first the cost of flooring vehicles increased dramatically, and the price dealers paid manufacturers also increased.
Flooring cost (the cost of financing inventory) represents a dealership’s third largest expense, following rent and advertising, and nearly doubled during 1995. This, of course, put a squeeze on dealers, accounting for a decline in Net profit per automobile.
In addition to these interesting dealership statistics, the NADA Average Dealership Profile notes that new vehicle sales represented 58.2% of 1995 dealer income, Used car represented 30.0%, and Parts and Service 11.8%.
We must realize that when we are guaranteeing only a dealership’s Parts & Service business, we have only the tip of the iceberg in business.
If you have any question about how important it is for a dealer to be "Guaranteed" payment on a down payment check, think about how many cars must be sold at a $37 net margin, to cover a $1,000 bad check.
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