Sustainable and Profitable in a Changing Market
The hottest topic in my 20 Groups lately has been deciding to accept (or not) additional inventory being pushed by the manufacturer. The latest incentive asks dealers to chase a sales number that keeps changing, in order to receive a per unit incentive (that keeps changing), if you accept (buy) additional units from them. This, along with a forecast of flat sales, is creating an even higher dependency on the factory for dealership profitability. The conversations have not been all doom and gloom, but there is serious concern about profitability and the value of their franchise. What is a dealer to do!
During WWII, my Grandfather was a car dealer with no cars to sell. He sold and repaired bicycles and operated a tow truck. It wasn’t easy, but he made it work with what he had. He went on to become a top Oldsmobile dealer in the country by making the most of the opportunities he had. There are huge challenges facing dealers here in 2019. Sales are flat or declining in some markets, interest rates on the rise, and dependency on factory incentives are at an all time high. Now is the time to make the most of your opportunities. During my last few 20 Group meetings, we discussed and agreed that our business needs to be sustainable and profitable without the New Vehicle Department. Take a look at page RC3 in the Composite (if you have one on hand). This page shows your dependency on new vehicle sales. No matter if times are good or bad for new vehicle sales, we all need to shoot for 100% absorption including Used Gross. There are still some dealers with 100% absorption with Fixed Gross.
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Focus on Service and Parts
What is your plan to grow your Fixed Ops business? Who at your store will have the largest impact on the Service and Parts Department? The answer is the number one gross producing employee in the entire dealership, with the highest impact on CSI, and the most customer contacts daily. Service Advisors
Service Advisors should be your #1 position of importance. Give them every opportunity to maximize each RO and hold them accountable for their results. Do they have a written process? Are they trained? Is it ongoing? They can add more to your bottom line than anyone else in the dealership!
Technicians are hard to find. So hire entry level techs and give them a career path. Pay whatever you need to in order to get the best, as you will never be sorry with this type of investment. In some markets, A+ techs are making $50 per hour. If you are paying $25 in these types of markets, two things will happen. You will either not find the best techs to begin with, or you will see them leave your shop shortly after they hear of a much better pay rate down the street.
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Used Vehicles
Right now, the used vehicle business is strong. This should be your primary source of gross. Use all the tools available to make sure you are at the top of the page on searches and left of the page on the Composite. Become used vehicle focused by always striving to stock the ideal inventory, by keeping recon costs (and turnaround time) low, and make sure your sales staff isn’t giving away unnecessary discounts just to make a quick deal. If you stock the right cars, they will sell quickly, and for profit!
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Use Your Resources
Great dealers are adaptive and utilize the resources available to them. If you are a 20 Group member, your membership is one the best things you can do to help your business. Your 20 Group is always available to be your source of help, encouragement, and advice. Make sure you use the intelligent and experienced minds around you, as they may have already conquered a challenge you are currently facing. Follow through on your commitments to improve!
Dealers in 2019 may face different challenges to the time of my Grandfather, but there is one universal truth that has continued to endure. Your business’s future is up to you, not to outside influences. Make sure you are adaptive and ask yourself what you are going to do about it. Those that do, will be the successful dealers of the future.
This strategy comes directly from the insights gained from our NCM 20 Groups. Have any questions for our automotive experts? Please feel free to reach out in the comments section below!