We’ve had a good run. From 2010 to 2015, new car sales steadily increased and total dealership gross profits trended up along with net profits and blue sky values. But, beginning in the middle of 2015, things started to change. Some franchise sales rates began to flatten out. Then, the overall market started to level. Manufacturers began clawing for market share by raising incentive spending, and it became harder to sustain our customary net profits.
The evidence is in: Net profits are falling
Concerns about net profit aren’t just anecdotal. Within the thousands of car dealerships and 30-plus vehicle lines that we track at NCM, all but three vehicle lines had increased net profits year-over-year from 2014 through June 2015. Mid-2016, however, only seven car lines out of the 30 we track had improved net earnings year-over-year from 2015 through June of 2016. The remainder had YOY net profit decreases.
Build your plan
It’s no news to anyone that it will be challenging to generate the same net profits in the coming years. The real question is, what you are doing about it? As a dealer or general manager, it’s your responsibility to recognize what’s changing in the marketplace, acknowledge it, and adapt.
Having been through oil embargoes, manufacturer strikes, 21% prime rates with 14 percent unemployment and several recessions, I can help. Carefully consider the following list of questions, then use the answers to develop your strategy:
- Are you making excuses? Or taking action?
- Have you accepted the reality that you will have to make some adjustments in your business plan going forward?
- Based on the volume of business and gross profit you know you will develop, have you built a financial model that generates your desired return on investment?
- Have you set a date to initiate changes?
- Have you shared the information with your management team and challenged them for suggestions and solutions?
- Have you reviewed your organization chart to determine if you have the right number of people?
- Do you have the best people in the right position?
- When have you last ranked your management team on leadership abilities and results?
- When have you last sat with your CFO/controller and reviewed expenses line by line?
- When have you last sat with each department manager and discussed expenses line by line?
- Have you identified areas in which you are under performing and determined the cause?
Success is still possible
You can still make a lot of money and do very well in a flat market when you identify changes, acknowledge them, and take action to adapt.
During my years spent working with dealers and business owners, I have consistently found that sharing and reviewing financial data with management teams, and then showing them how to improve a particular financial performance metric, is one of the most effective ways to identify opportunities and increase market share and profits.
If you are a member of an NCM 20 Group, it’s even easier to do this. I recommend a page-by-page and line-by-line composite review with your department managers at your dealership. It will be a productive meeting and, once they understand how to change a number, you’ll be amazed by the suggestions and ideas they have for improvement.
Need more help? See how Joe Basil and his NCM colleagues can help your dealership through 20 Groups and in-dealership consulting.