If you owned a Chevrolet, Ford, or Cadillac franchise during the 1960s or 70s, it was easy to make money. In fact, it was easy to make A LOT of it, and you had to really screw up badly to not make money back in those days! If you owned a Honda, Toyota, or many imports store during the 80s it was also easy to make money. Then the high-line franchises began to blossom in the 90s and it was easy to make money with Lexus, Acura, Mercedes, Infiniti, and others. Then, something huge happened in our industry. The 2008 recession hit, and the market rules and game changed. Having the right franchise today is no longer a no-brainer for making money.
What does this have to do with fracking wells? Surprisingly, quite a bit. Recently, I found myself watching “Aerial All-America: Texas” on television, and they were showing photographs of the early oil fields. In the late 1800s and early 1900s, when oil was discovered in Texas and Oklahoma, all you had to do was poke a hole in the ground and money came out. It was easy to make a lot of money in oil at that time. However, after years of pumping with the technology of the time, the once fruitful wells weren’t producing enough to continue operations, so they were shut down. Then along came well fracking technology, which allowed all the gas and oil trapped in little cracks and crevices of the wells to be tapped. Suddenly, wells that were thought to be worthless were producing substantial amounts of oil and gas. This is exactly the cycle we’ve seen in the retail automobile business since the 2008 recession.
How to start finding additional profits
As the dealer, you are the operator who must recognize this change, acknowledge it, and figure out how to frack gross profit and expense dollars from your dealership wells. Those who do this in today’s market will be the top-performing, net-profit-producing dealers.
So where do you start? Begin by gathering your management team and focus on a specific area or process in your dealership, and dig into the details. I mean really DIG into the details! Block your calendar off and spend three days in your service lane looking at every little minute detail in your customer handling process.
Where to dig:
- Listen to phone calls.
- Examine how customers are met and greeted.
- Look at and listen to every specific detail in your advisor walk-around process.
- Try booking a service appointment online through your website and do the same thing by telephone.
- Call every phone number that shows up on your website and see how it gets handled.
- Make sure to take notes on your process as a consumer. Is it friction-free? Or aggravating?
- What’s the impact if you picked up additional customer appointments every day and increased your flat rate hours per day?
Next, look at your shop productivity. Generally, the value of one hour of labor and parts gross profit is anywhere from $120-$180. So, what if you asked all your fixed ops managers, service advisors, parts employees, and technicians one simple question: What could we do to improve technician productivity just one flat rate hour per technician, per day? I guarantee you will be floored by the suggestions and eye-openers that come out.
Let’s quickly look at some numbers. Say you have 20 technicians and the value of one additional hour of their time and labor and parts gross profit is $120. That calculates out to $2,400 per day in additional gross profit and equates to $50,400 per month! What impact would that have on your mechanical service department and parts department net profit? What’s the impact on your level of customer service?
Follow this process in other departments
Take the same approach in your sales department. Every dealership has a customer product, dealership presentation, and sales process, but do you have a specific, strategic, detailed presentation process to support your appraised value on a customer trade-in? Most dealerships will throw the customer a number and/or cash difference when the customer has already done the research online and has all the documentation. All you need to do to improve is have a specific process in action that utilizes documentation to your advantage.
Simply put, are you still using negotiation tactics instead of developing trust and credibility through transparency by using documentation? What if on a trade-in that you know is a wholesale piece you add the transportation auction fees to the reconditioning expense? Let’s say it’s $300. Sure, not all the customers may buy that, but if 50% agreed, you just picked up $300 per car.
Let’s shift to the sales desk and penciling deals. How many additional discounts are your managers giving off the internet price on used cars? If you’re already pricing below 100% of the market, why do you need to discount more?
Then, take a look at your average price drops by manager. You may be surprised to find some managers are still dropping hundreds of dollars off the internet price when it may not be needed. The first question you need to ask is “What is your process to substantiate your price to the customer?” Many times, this will halt any unnecessary discounts by simply thinking through why a discount would be given out. Now, if you’re going to drop the price, make sure you are doing this properly. Start by dropping at some small, odd amount like $42 or $78. This supports your position to the customer that you are already pricing the car to the market. If you pick up $1-$200 per deal with this approach, what’s the impact on your bottom line?
Your expenses are the single greatest collection of examples that illustrate the value in digging into the details. Here are a few of my favorites:
- Dealerships in most areas of the country experience increment weather of some kind. Typically, they have carpet runners at all the door entrances, and they’re usually on a rental plan. Have you looked at your invoice in-depth to see if you’re having the same number of change out cycles during the nice weather months that you have during bad weather months? Most likely you can reduce expense by 25% to 40% just by adjusting the change of cycle by season.
- Take an in-depth look at service coupons and discounting. One of my service directors in a very large store really dug into the details and found about $40,000 a month in coupons and discounts that were totally unnecessary.
- When was the last time you really dug into the list of monthly, subscription-based apps that all dealerships have? These are all those neat little programs that your manager signed up for, because “it’s only $XX per month!” Make the vendor give you the utilization report and see who is actually using what, how often, and what the ROI is. Make your managers prove the value of the apps. If they’re not being used, or if they’re not making you money, you shouldn’t be paying for them.
These are just some glaring examples that have come up in 20 Group meetings. They are a result of the dealer operator, GM, and management teams disciplining themselves to focus on digging into the details, questioning, and reviewing every step of every sales process and tracking every expense.
Just remember, your additional net profit in your dealership is sitting in all the cracks and crevices of your sales processes and expense management procedures! All you need is the discipline and focus to begin the process. It’s time to dig!
Learn more from Joe and our other automotive consultants by joining a 20 Group, scheduling dealership consulting, or registering for automotive training in the NCM Institute. You'll be glad you did!