Dealer Insights - November-December 2015 - Dealer Digest

Published: Oct 23, 2015
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New rules could swell dealerships’ overtime costs

The Department of Labor (DOL) has proposed changes in labor rules that would raise the level of pay at which certain types of employees are considered to be exempt from receiving overtime pay. If they become effective, the changes could result in more dealership employees becoming eligible to receive overtime pay.

Currently, employees who primarily perform executive, administrative or professional duties (as defined in DOL regulations) and make more than $23,660 a year are exempt from the requirement that they receive overtime pay for working more than 40 hours per week. The proposal would more than double the exemption threshold to $50,440 a year.

The threshold for receiving overtime pay hasn’t been raised since 2004, failing to keep pace with inflation. If the threshold is raised — and this could happen before year end — experts say that as many as 5 million more employees nationwide could become eligible to receive overtime compensation.

Dealership profitability lags behind many other retailers

According to data released by the National Automobile Dealers Association (NADA), the average gross profit margin for U.S. auto dealerships is 13.1%, while the average net profit margin is 2.2%. This net margin is at least a full percentage point lower than that of many other retailers, NADA notes.

The trade association attributes dealerships’ relatively low net margins to fierce competition among dealerships and a large and always-growing choice of car models. These factors make auto dealerships what NADA calls “a perpetual low-margin business.”

But the low-margin factor doesn’t seem to deter entrepreneurs from opening new dealerships. There were 16,396 new car dealerships in the U.S. at the end of 2014. That figure represented an increase of more than 200 dealerships from a year earlier. These dealerships employ more than 1.1 million people, earning an average annual salary of $55,000.

Bill would revoke CFPB auto lending guidance

Two years ago, the Consumer Financial Protection Bureau (CFPB) issued a guidance bulletin on auto lending that has been strongly opposed by most dealership groups. The guidance would require auto lenders to impose controls on dealer interest-rate markups or eliminate the dealer’s discretion to mark up loans, instead requiring dealers to use another reward mechanism.

Now, the U.S. House Financial Services Committee has passed a bipartisan bill (H.R. 1737) that would revoke the CFPB’s auto lending guidance bulletin. In addition, the bill also would require the CFPB to give notice and have a public consultation before issuing guidance, as well as making a full study of the costs and impacts of any guidance on consumers and businesses, including dealerships.

Dealer Insights - November/December 2015