Posted on Dec 12, 2016

For dealers who want to keep control of their portfolio but also increase profitability long term, they need to focus on customer longevity.

To keep their customers in a vehicle longer, more BHPH dealers are offering some kind of warranty. Many more have optional service contracts available. Offering mechanical protection up front with the car sale increases the chances that a customer will contact the dealer if the car breaks down. Some warranties include an option for free towing; this gets the car — and customer — back to the dealership to resolve any issues.

With warranties and service contracts, of course, you need a well-run service department. The service department staff needs to focus on a good customer experience, not just keeping a car running. Staff also should understand exactly what is covered under the warranty or service contract in order to communicate with the customer and handle proper repairs.

For example, a dealer may explain up front that the customer has a full or limited warranty on any mechanical repairs for a set period of time. This option is designed to keep in contact with the customer and make small repairs to avoid bigger ones. Frequently, a broken down car equals stopped payments. Instead, the dealer offers to make repairs, eliminates this common excuse for non-payment and stays in contact with more customers.

By staying in contact with customers, the dealer can offer more options to keep them happy and making payments:

  • Get the vehicle in and inspect it proactively/make repairs
  • Provide a discount
  • Add missed payments or big repairs on the end of the existing loan
  • Get customers into another vehicle through refinancing
  • Adjust the payment schedule to support changes in circumstances

Consider offering regular spot checks on the vehicle or letting customers upgrade to a nicer model while keeping payments the same. Extra service can sustain thousands in payments each month while reducing the need to sell as many cars per month.

One of our BHPH clients recently spoke to us about outsourced bookkeeping services to free up his time to spend on repairs. He calculated that time spent in service was more valuable than in the back office if it meant getting more cars back on the road and payments in the door. In this competitive environment, the industry is advocating decisions like this, focusing more on customer longevity and extra service options. Dealers who free up their time from the back office or sales can focus on service and collections practices, including:

  • Reviewing all existing customers weekly and identifying which customers are currently behind on payments.
  • Contacting customers and inviting them to the dealership to talk about getting current on payments.
  • Offering a list of options that can support up-to-date payments.
  • Training staff on a welcoming experience that demonstrates your interest in keeping the relationship.
  • Monitoring payment habits and communicating as soon as there is a change.

Ultimately, a customer-centric approach will help your dealership become self-sufficient — with enough cash flow to reinvest in the dealership operations and enough efficiency to focus on attracting new customers (possibly through referral) and new revenue streams. If your vision is also to provide a valuable service to the community for people who need a car and can’t get one any other way, then a customer-centric approach is certainly the right business model.

Cornwell Jackson works with BHPH dealers frequently to adopt new approaches to service, cash flow and profitability. Review our previous whitepapers for your industry or contact us for a consultation. We can even assist with audits, reviews and compilations specific to dealerships to help your dealership access traditional bank financing or working capital if needed. We can also consult on timing and requirements to establish a related finance company as part of BHPH auto financing and portfolio management.

Download the Whitepaper here: Finance Competitors BHPH Can’t Afford to Ignore

Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in auto, healthcare, real estate, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

Posted on Nov 28, 2016

At the 2016 NIADA Convention, discussion of deep subprime competition on Wall Street emphasized that the model is not sustainable. But the question is not “when will the competition go away?” The question is “how can BHPH dealers compete now?”

Studies of the auto industry have shown that the average used car loan term is upwards of 63 months (5.25 years) with average monthly payments of $359. In essence, the deep subprime industry is extending the term, accepting a lower down payment and a lower monthly payment on average to increase volume.

However, successful independent BHPH dealers are limiting terms to 15-42 months, asking for at least $1,000 down and $12 more a month on average (amazing, but true).

This business model is cash focused rather than loss focused. Successful dealers limit their cash outlay for vehicles and set up transactions to recover their cash as quickly as possible. This is done by limiting their ACV to $5,000 and not more than $7,000. Also, while industry averages for customer down payments have slipped below $800, successful dealers are maintaining average down payments around $1,000.

Remember that the competitive landscape is increasing your risk. Your customers accept the benefit of lower-priced cars by putting some skin in the game with a higher down payment and higher weekly or biweekly payments. The National Bureau of Economic Research estimates that – all things being equal — extending a given buyer an extra $1,000 in credit correlates to an increased risk of default rate by 15 percent. Consider a customer putting $1,000 down on a $5,000 vehicle. The customer already has 20 percent equity in the deal, which has been shown to motivate more customers to make payments and not lose their initial investment. In turn, the BHPH dealership is receiving more cash up front.

A study for DriveTime noted that charging 20 percent APR is a fair return for risk in the current deep subprime market. Depending on caps in your state, reasonable APR can be as high as 23 percent, which puts your monthly interest payments at just under 2 percent.

Be aware that simple interest is a better method of accounting for BHPH dealers than accrued interest. The customer’s next interest payment is based on the previous month’s balance and doesn’t matter whether the customer makes a payment on the first day or last day of the billing cycle. Simple interest is a fairer process for dealers, especially with the variety of payment options offered to customers.

Now, if your salespeople are focused more on commissions than on securing a high average down payment, you may not be achieving the highest possible down payment available. Calculate the average down payments in your portfolio. Are the down payments fairly similar from one transaction to another? If so, then you may have a sales process problem. You will need to observe how salespeople are handling deals to make sure they are asking for higher down payments relative to the total sale price.

Cash Flow is Still King

As we have written about before, a healthy BHPH dealership has financial flexibility. That occurs through careful management of cash flow. With financial flexibility, your dealership can seize on opportunities that range from inventory purchases to upgrades in the service department and more sales or office staffing.

Cash flow can be improved by restructuring your business model and ensuring that transactions in your portfolio are achieving higher down payments and healthy margins. Old contracts should be replaced at a healthy rate while keeping customers in their vehicles as long as possible.

We also observe that dealers who control warranties and flexible service contracts also have stronger ongoing cash flow. These income streams make BHPH dealers more competitive as they encounter more of the “least-able-to-pay” customers in the market.

Some BHPH dealers are also exploring Lease Here Pay Here programs. This is not for every dealer. First of all, because the car title remains in the dealership’s name under a lease agreement, the dealership could be held vicariously liable in some states if the customer has an accident. Dealers need to carry “contingent” or “excess” liability insurance to mitigate the additional risk.

Monthly payments are smaller compared to financing, however dealerships can defer taxes because they can depreciate their inventory. Sales tax expense is typically reduced because it is remitted gradually over the course of the lease with each lease payment.

The residual value of the car at the end of the lease can make it easier to sell the car because the customer gets more car for a lower monthly payment. Most of the time, the customer will opt to extend the lease on the same car or lease a different car. If the customer opts to return the car at the end of the lease, this supports inventory at a time when finding vehicles at lower price points is difficult.

Another alternative source of cash flow is to sell part of the dealership’s entire credit portfolio. Although the credit portfolio is a dealer’s best asset, not every dealer has the skills or interest to manage it well. Certain financial services companies are offering programs to purchase all or part of the portfolio in exchange for up front cash — lowering long-term risk and eliminating any service or collections issues. The down side to this option is less control over the customer relationship and potentially less flexibility in deal structuring.

Continue Reading: Traditional BHPH Income Opportunities

Cornwell Jackson works with BHPH dealers frequently to adopt new approaches to service, cash flow and profitability. Review our previous whitepapers for your industry or contact us for a consultation. We can even assist with audits, reviews and compilations specific to dealerships to help your dealership access traditional bank financing or working capital if needed. We can also consult on timing and requirements to establish a related finance company as part of BHPH auto financing and portfolio management.

Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in auto, healthcare, real estate, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

Posted on Nov 11, 2016

Subprime lending is alive and well on Wall Street, and not just in real estate. Low interest rates and less consumer demand are prompting brick-and-mortar and online lenders to tap into subprime auto finance more than ever before. Rather than focus on this increased competition for indirect loans, auto industry experts recommend that BHPH dealers focus on operational efficiency and alternative sources of revenue. Dealers who improve cash flow through after-care products and customer retention can ride out the subprime boom. As a bonus, a more efficient dealership will be less reliant on working capital financing in the future.

In our last article about BHPH structuring and scalability, we wrote about ways to maintain compliance on bank financing, filing an accurate and clean tax return and operating at a profit. For start-ups and independent BHPH dealers, a clean structure will create more cash flow and level the field with subprime lenders at banks, credit unions and online. As we’ve said before, your best asset is not your inventory; it’s your credit portfolio. Let’s take a closer look at your competitors in auto financing. By learning about your dealership’s competitive advantages, you can add more streams of revenue, get more customers to finance on site and get more customer referrals.

Auto Financing Trends

According to a report by the Center for Responsible Lending, car pricing information available online helps consumers more effectively negotiate the sales price of a car. Because this has reduced the profit margin dealers receive on the sale of cars, all dealers are relying heavily on profits generated after the sale of the car — extended warranties, credit insurance, guaranteed asset protection (GAP) insurance, vehicle service contracts and so on.

In the case of auto financing, however, information is not readily available. Consumers can’t really shop around because financing is based on things like the type of car, the sales price and possible trade-in value as well as the consumer’s credit worthiness. An application for financing is submitted after most decisions are made — and that application could happen online or with the customer’s local bank or credit union.

Due to most consumers’ large appetite for used vehicles and lower tolerance for debt, BHPH dealers face increased competition from brick and mortar lenders and online deep subprime lenders. These lenders are accepting a larger share of consumers to finance for smaller loans than they would prior to the recession. BHPH dealers are a final destination for the least credit-worthy consumers who can’t get a loan anywhere else. This demographic is not easy to manage in collections anyway, which is typically why many BHPH dealers focus on repossession and resale more than on collections and service.

We get it. The competition to control financing is tough. Cash flow is tight. Inventory at auction isn’t what it used to be. You are competing for fewer cars with higher mileage and higher average cost per vehicle (ACV). However, BHPH dealers who focus on what they can control are faring better with customers and profits. A good place to start is to seek outside expertise from professional associations and your CPA.

Continue Reading: Focus on BHPH Business Model

Cornwell Jackson works with BHPH dealers frequently to adopt new approaches to service, cash flow and profitability. Review our previous whitepapers for your industry or contact us for a consultation. We can even assist with audits, reviews and compilations specific to dealerships to help your dealership access traditional bank financing or working capital if needed. We can also consult on timing and requirements to establish a related finance company as part of BHPH auto financing and portfolio management.

Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in auto, healthcare, real estate, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

 

Posted on Nov 3, 2016

There are three key advantages for buy here pay here (BHPH) auto dealers to establish a strong partnership with their CPA firm: maintaining compliance on bank financing, filing an accurate and clean tax return and operating at a profit. When these three advantages are realized, the dealership is set up properly to sustain cash flow and avoid costly penalties by state or federal agencies like the IRS. In this article, we explore common accounting mistakes made in BHPH dealership structure in the areas of discounting, reporting, remitting sales tax and customer service — and how to add more structure to efficiently scale up your operation.

Used cars are in high demand — and not just by people with no credit or bad credit. Debt-averse consumers of all stripes are shopping a wide variety of used inventory online or with their favorite dealer.

Sub-prime lenders also view used cars as a hot commodity again, and have become competition for buy here pay here dealers and their Related Finance Corporations (RFCs). As the industry saying goes, “NOW is the best time…” for BHPH dealers to make sure their systems and records are efficient and clean to compete in this competitive landscape.

There are three distinct advantages to operating a clean and efficient BHPH dealership. Dealers can more easily document and satisfy bank financing terms during an audit. They can plan ahead and file an accurate tax return and remit accurate sales tax. They can also attract and keep more customers in vehicles for a longer period of time.

In our experience, problems with accounting or collections or sales tax remittance often don’t come to light until an audit or tax return preparation. That timing may lead to a costlier process to fix problems, including potential penalties by the IRS, state department of revenue or even the Consumer Finance Protection Board (CFPB).

For a few hours a month — and the right knowledge about which data to record and which reports to review — your dealership can be efficient, competitive and scalable. The following blogs contain key ways to add structure to your BHPH dealership, based on popular topics discussed at the 2016 NIADA National Convention in Las Vegas.

If you are looking for a strong CPA partner to assess your software, budget, KPIs or processes, talk to the business services group at Cornwell Jackson. We work with dealers on a monthly basis to keep their accounting and reporting organized for proper compliance, better cash flow and enhanced profitability. Plus, we understand the regulatory issues and competition that impact the bottom line of this industry.

Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

Posted on Oct 26, 2016

If you are not doing everything you can to be the BHPH dealer of choice, it may be time to ask the question: Why should the market allow your business to exist?

In this very consumer-driven market, cars are commodities. Start-up dealers should not operate as BHPH based on a few self-financed used cars. It is too expensive a proposition and too regulated without a clear business and community purpose.

Are you fulfilling an unmet need? Are you offering a wide selection? Do you accept trade-ins? Are you a fair dealer with a service focus? What is different about your dealership that will build a solid foundation for referrals?

Many new business owners begin with a business plan, usually to satisfy bank or partner requests. But a plan is also good for the owner to outline the exact research, steps and benchmarks to support success.

After writing the plan, expect to make changes along the way. You don’t have to follow things that aren’t working. You should also anticipate what-if scenarios and be ready with alternative steps.

Some key KPIs for start-up dealers can include:

  • Customer visits/calls per day to sell one car
  • Gross profit per car
  • Net income projections (gross minus expenses per month)
  • Cash on hand (2.5 times monthly expenses recommended for 2017)
  • Retained earnings (to put back into buying cars rather than bank financing)

Following a few key KPIs can help you measure whether the dealership is on track or if it will run out of money. KPIs can also help you monitor and identify unnecessary expenses or staffing issues.

At first, start-up dealers will be wearing all the hats. They will buy the cars, manage the books, sell the cars, communicate with customers and collect payments. When it’s time to hire some help, dealers usually hire office support staff to answer phones and handle repetitive processes. Then comes a salesperson or someone in collections. Before hiring, dealers should understand what they do best and where their time should best be spent for the benefit of the business. Hire employees who are strong in key areas to balance the dealer’s strengths and skills.

As you hire more people, you will need clear, repeatable processes for operating the business — even if you’re not there all the time.

  • What is the process for purchasing? Reconditioning?
  • What is the process for taking in trades, selling and delivering and servicing vehicles?
  • What is your process for accurately remitting sales tax?
  • What is your collections process?

A process manual should be part of every independent used car department, and used for training and a back-up plan if a key employee isn’t available to perform the tasks. Once created, it needs to be updated annually or as necessary to remain relevant.

Like any business, a buy here pay here dealership is created to serve a market demand and to make a profit for its owners. It can also have the side benefits of creating good jobs and helping other people keep jobs by having reliable transportation. The pressure to succeed is higher as competition increases, but the most successful dealers will put the right tools and safeguards in place to scale up and build a positive reputation.

If you are looking for a strong CPA partner to assess your software, budget, KPIs or processes, talk to the business services group at Cornwell Jackson. We work with dealers on a monthly basis to keep their accounting and reporting organized for proper compliance, better cash flow and enhanced profitability. Plus, we understand the regulatory issues and competition that impact the bottom line of this industry.

Download the Whitepaper Here: How to Add More Structure and Scalability to your BHPH Dealership

Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

Posted on Oct 20, 2016

The tried and true formula to increase profitability is to either increase revenue or reduce expenses. Is your dealership as profitable as it could be? Is there room to improve your BHPH Budget? How do you know?

You could compare your dealership to other BHPH dealers and against industry benchmarks. If you discover that you are receiving less gross profit per car than the industry benchmarks, you may be leaving money on the table. It could be time to reassess your plan…or your plans.

BHPH dealers need several plans to oversee their budgets because it is a very cash intensive business. Your plans should include:

  • Six to 12 month revenue plan
  • Expense plan
  • Profit plan
  • Cash flow plan

In your cash flow, for example, if you are budgeting a $1,500 average in down payments but are really averaging $700, you will run out of money to buy more cars. If you are budgeting your expenses based on this cash flow, your budget will be off quickly.

In your revenue plan, are you projecting net new account growth or is it going to shrink? The more mature a portfolio gets, the harder it is to attain new growth (e.g. 20 paid off, 20 charged off, 40 loans a month = zero growth). Some dealers choose to chase aggressive sales without considering if the deal is a good one to put on the books. Charge-offs will eat up profitability more than any other expense, and it is usually a self-inflicted expense due to poor deal structures and underwriting.

Poor deal structures and underwriting sometimes stem from a lack of training for staff. Dealers should consider staffing and proper training as investments in gross profit rather than as expenses. Too few or untrained staff lead to shortcuts and mistakes. As you gain productivity from staff and consistency in deal documentation and communication, you can increase your gross profit per sale.

Plan your expenses in advance as you do your revenue projections. You should know your expense per car sold, including closing and underwriting costs, staffing, service and follow-up care and collections.

Continue Reading: Start-up dealer? Do it right the first time.

If you are looking for a strong CPA partner to assess your software, budget, KPIs or processes, talk to the business services group at Cornwell Jackson. We work with dealers on a monthly basis to keep their accounting and reporting organized for proper compliance, better cash flow and enhanced profitability. Plus, we understand the regulatory issues and competition that impact the bottom line of this industry.

Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

Posted on Oct 14, 2016

 

Collections best practices are designed to increase the number of payments received on every contract — increasing cash flow and potentially increasing sales from referrals. A shut-off box on a car is no substitute for good collections practices. You are also discouraged from making field calls, as it can violate CFPB rules — not to mention be potentially dangerous. The key is to make your payment a top priority in the mind of the customer, specifically because customers trust and perceive that your dealership is willing to work with them to find a solution.

Nothing can really motivate a customer to pay for a car except a strong relationship. This approach is harder than billing and repossession. It takes a different mindset among your collections and service staff, but it can be efficient if you establish a positive rapport and understanding from the beginning of the transaction.

Your process and paperwork should be consistent and clean every time, no matter who is closing the deal. Emphasize that you expect payments on or before the agreed due dates. If you can, set up an electronic funds transfer (EFT) with customers around their payroll time. You can’t require it, but you can make it attractive by offering a discount. Outline the process of what will happen if they can’t pay on time. If the car malfunctions and if they need to re-figure the payment terms due to a change in circumstances, talk through those situations too.

Establish a clear process for communicating, which in some cases may be opt-in text messaging. You can now use SMS for automatic payment reminders, service reminders and late payment notices. In any and every case, keep the lines of communication open.

Follow up with a check-in call. Congratulate customers on their purchase and ask them if they have any questions. Make it clear that your team is there to help, so that their first contact with you is positive rather than a delinquency call. Provide clear contact information for customers to reach their “account rep.”

Results show that a strong closing process with full disclosure followed by a welcome check-in call reduces the need to chase down payments and also increases the number of payments made. This won’t happen on every transaction. There will still be cases of repossession, but dealers can reduce the chances. A full inventory of cars is not what you want.

Deal with service issues quickly.

One of the biggest reasons that customers stop making payments is that the car has a problem. Make it clear during the closing process that any issues with the car will be handled, whether through a limited warranty or service call. Depending on the issue and timing, work out how the customer will participate in paying for the service. Calculate the cost of the repair against the benefit of more monthly payments, and often the benefit is on the side of more monthly payments and a happy customer willing to refer your dealership to friends and family.

Keep in mind that your inventory is not your biggest asset; your portfolio is the golden egg. Accounts need to be worked every day by collections; don’t just wait for the phone to ring. A 30-day past due notice equals four to six missed payments. If you have 100 accounts, a good rule of thumb is to have four collections staff and one part-timer in the wings to pitch in when necessary.

Continue Reading: Budget and Expense Oversight

If you are looking for a strong CPA partner to assess your software, budget, KPIs or processes, talk to the business services group at Cornwell Jackson. We work with dealers on a monthly basis to keep their accounting and reporting organized for proper compliance, better cash flow and enhanced profitability. Plus, we understand the regulatory issues and competition that impact the bottom line of this industry.

Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

Posted on Oct 7, 2016

One of the common questions we hear from BHPH dealers, aside from how to get financing, is “am I doing the accounting correctly?” Although BHPH dealers have very robust dealer management software to track inventory, sales and customer accounts, they must consistently input the right data to leverage the software’s functionality.

Dealer Management Software

Common problems we see in dealer reports when working with clients include improper set-up of the chart of accounts, incorrect discounts recorded in the book of notes, and inaccurate deferred income (which impacts accurate sales tax remittances). If the dealer has an RFC, we will find that notes are improperly recorded when passed back and forth between the dealership and the RFC after sales and repossessions. Inaccuracies can lead to tax noncompliance and penalties in addition to inaccurate financial statements.

When setting up dealer management software, there are few shortcuts in the beginning. Ideally, staff is properly and frequently trained on better ways to use the system. There are also standard forms that can be used as templates and customized to simplify documentation and reporting, such as:

  • Sales applications
  • F&I forms
  • Disclosure forms

Sometimes the standard forms are just fine to start with, and as the dealership grows, staff may prefer customizing the reports for easier review and decision making.

Monthly or quarterly, the system should be reviewed for any recording errors or miscalculations, which will save the dealership time and money when it is time to remit/file taxes or report to financing partners.

Continue Reading: BHPH Dealer Collection Best Practices

If you are looking for a strong CPA partner to assess your software, budget, KPIs or processes, talk to the business services group at Cornwell Jackson. We work with dealers on a monthly basis to keep their accounting and reporting organized for proper compliance, better cash flow and enhanced profitability. Plus, we understand the regulatory issues and competition that impact the bottom line of this industry.

Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

 

 

Posted on Jul 28, 2016

Your dealership likely prepares and sends operating reports to your manufacturer every month. How you use the reports beyond sending them to the factory can have a big impact on your dealership’s profitability.

Here are three ideas for using your monthly operating report as a tool to stay on track as the year progresses.

1. Keep an Eye on Revenue.

Every manufacturer’s report is different, but yours likely contains, in some format, a summary of that month’s operating revenue. These figures can quickly tell you which departments are the moneymakers and which lag behind expectations.

Let’s say that the current month’s operating report for a dealership shows that it brought in the following in gross revenues: $2 million in new car sales, $750,000 in used car sales, $140,000 in parts sales, $61,000 in service income and $56,000 in body shop income.

You also can see how income from your store’s various departments compare with the prior month, as well as a year ago, the dealership’s projected budget, benchmarks and so on. Let’s assume that you projected $2.25 million in new car sales for the current month. With sales coming in at only $2 million, you are concerned that first quarter sales are off to a slow start and, thus, choose to move up by several weeks a new car sales promotion you had planned to run in two months.

Another example involves gross revenue versus turnover. Take Dealer A, who buys a vehicle for $20,000, holds it for 90 days and finally sells it making a $3,000 gross profit. Many dealers would be pleased with this outcome. But let’s also consider Dealer B, who spends the same $20,000, sells the vehicle in 30 days but only achieves a 10 percent profit margin or $2,000 gross profit. The difference is that Dealer B does three times the sales in the same 90 days, doubling his total gross income compared to Dealer A.

There are many other ways to use your operating report to analyze front-end operations.

2. Figure Out the Reasons Behind the Numbers.

When you analyze the back end of your operations, for example, you’ll look at income and expenses in the service, parts and body shop departments.

Let’s say that you have a gross profit of $33,000 in the service department. This alarms your manufacturer, because it’s less than 55 percent of your monthly service sales and shows that your gross profit percentage has slipped from the target of 65 percent. But it shouldn’t be a major concern if the reason for the shortfall is that the department was busier than usual refurbishing used cars for sale next month — and profits for that venture won’t start showing up until the following month.

3. Consider other Benchmarks.

Monthly operating reports are also a way for you to measure your dealership’s performance against more complex benchmarks. Consider, for instance, the concept of “service absorption.” This is defined as the sum of total parts, service and body shop gross profits divided by the sum of total fixed expenses plus dealer salary plus parts, service and body shop sales expense. (If your report doesn’t have this category, you could calculate it from the other data provided.)

Let’s say that your store’s benchmark range for service absorption is 85 to 100 percent, but your current operating report shows your store coming in at 83.8 percent for the month. This figure is only slightly below the bottom of your benchmark range. Nonetheless, you might want to take steps to lower expenses or bump up revenue for the next month to be sure your store is in the benchmark range.

Achieving a service absorption of 85 percent or higher will give you a competitive advantage over your competition, because the new and used departments only need to cover 15 percent or less of your dealership’s total fixed expenses. Thus, you can afford to take less gross profit on an individual sale.

Knowledge Can Be Golden

By studying your manufacturer’s operating reports, you can arrive at countless insights, from your day supply of vehicles to the gross profit per technician to determine an adequate employee count in the back end. All of this knowledge can be golden, because it helps you recognize strengths, pinpoint weaknesses and set goals for the rest of the year. Don’t let it go unnoticed.