Pub. 56 2015-2016 Issue 3

22 Numerical Overview To understand better a franchised dealer’s business and daily risk as well as the value the dealer delivers to the fabric of the economy, the following information is key. According to NADA, there are approximately 16,396 new mo- tor vehicle dealerships in the United States, representing 2,253,208 direct, indirect, and induced jobs (1,072,773 direct jobs and 1,180,645 indirect and induced jobs).The payroll at these dealerships throughout the United States represents $58.1 billion with an average annual earning of $54,170.00 per employee and 64 employees, on average, per dealership. In Texas, the franchised motor vehicle industry is responsible for 213,217 direct, indirect, and induced jobs (97,750 direct jobs and 115,567 indirect and induced jobs).The Texas payroll at these dealer- ships is just under $6 billionwith the average employee per dealership grossing over $61,300.00 per year. A Texas franchised dealership is located in 284 cities and towns. According to TADAmembership data, the following chart applies: Population No. of Dealerships No. of Cities (2010 Census) (As of 2/22/16) (As of 2/22/16) 0 - 5,000 116 81 5,000 - 15,000 190 83 15,000 - 50,000 248 64 50,000 - 250,000 351 47 2 250,000 + 392 9 3 TOTAL 1297 284 $ 52,143,971.00 Average annual dealership revenue - $ 45,367.254.00 Paid to manufacturer for cost of vehicles and parts $ 6,776,717.00 - $ 5,610,042.00 Operating expenses including payroll, rent, insur- ance premiums, interest payments, advertising, and state and local taxes $ 1,166,675.00 Net profit before federal income tax The generation of over $52 million in revenue is quite removed from the dealer’s net profit before federal, and if applicable, state income taxes. The Texas franchised dealer provides consumer access and choice. By locating in 284 cities and towns, the con- sumer, manufacturer, and community are served by the franchised dealership model. The amount of revenue necessary to make a profit in the industry is also instructive. The monetary “oil” to keep the dealership engine moving forward is daunting–especially in light of the marginal net profit obtained. The approximate 2.2% net profit for the average fran- chised dealer before federal income tax is paid reveals the competitive nature of the franchised dealer system as well as the dealer’s “tight” margins. This business model an- swers any economist’s concern for whether the franchised dealer is subject to intense competition as well as “tight” margins. 5 Whether a 2.2% net profit before federal income tax is a “comfortable” profit margin as allowed for by Pro- fessor Schneider, is certainly debatable. The dealer’s small net profit also belies the economist’s perspective that the manufacturer or the consumer is filter- ing a subsidy through to a dealership. 6 It also contradicts Professor Sappington’s statement that “if we just take look at profit, Dan [Goldberg] has already mentioned, there’s a substantial profit of the dealers these days.” 7 Again, the franchised dealer meets if not exceeds the FTC’s stated mission and vision for consumer choice and competition as shown by the many available dealerships and the 2.2% before federal tax profit margin. A break down of the average dealership’s annual revenue of $52,143,971.00 is as follows:  DEALER FRANCHISE — CONTINUED FROM PAGE 20 Fifty-eight percent (58%) of the towns in Texas that have a franchised dealer are under 15,000 in population and rep- resent 24% of the total dealer count. 4 In addition to Texas, the industry provides numerous well-paying jobs and taxes for their community, state, and country. The NADA Dealer Financial Profile for year-end 2015 shows that nationally, the franchised dealer made a 2.2% net profit, on average, per dealership on sales of $52,143,971.00. The net profit in 2014 stands also at 2.2%.