Posted on Mar 16, 2017

If you’re like many dealers, your vehicle inventory may have yo-yoed over the last few years. You likely experienced a glut of new cars during the recession, while used cars generally continued to move — sometimes with not enough supply to meet the demand. Then, typically, your manufacturer adjusted production, sending fewer cars — and far fewer trucks and SUVs — your way.

Perhaps more than ever, you must stay focused on your inventory. Here are five tips to help your dealership keep its supply at a realistic level.

1. Avoid overstocks in the first place.

One way is to regularly evaluate your inventory control tools and establish some best practices for sustaining a feasible volume. Consult with your technology adviser, for example, to see what new vehicle-tracking hardware and software have hit the market.

Also reassess any inventory rules of thumb you may follow. One line of thinking holds that an inventory-to-sales ratio should be about 2-to-1. If you plan to sell 50 units, you should keep at least 100 vehicles on your grounds. But which formula works best for you in today’s market?

2. Share your stock.

Consider teaming up with other dealers selling the same brand to reduce your new-car stock. Just be sure these “pooling partners” are close enough geographically to make sharing practical, but far enough away to avoid direct competition.

3. Order only what you know will move quickly.

Closely track pattern failures in any or all of the vehicles you stock. Meet with your CPA regularly to discuss whether you’re getting the inventory data you need and assessing it properly. And do what you can to make your inventory turn.

If a used car customer is interested in a particular vehicle that’s out of stock, for example, keep a record of the request in case the vehicle comes into inventory later. Put this document in a shared (electronic) place that all salespeople — including your auction buyers — can reference.

4. Evaluate your website and online practices.

If business at your dealership is still slow, use the extra time to assess your website and overall Internet presence with the simple goal of moving more stock. Remember, most buyers do homework on the Internet first, and you want potential customers to linger on your site — not skip off to your competition’s website. Consider using video, which can be effective in getting potential customers to act. Web research firm eMarketer estimates that currently, 88 percent of all Internet users are video viewers.

Some dealerships feature sports stars or other celebrities in their videos to attract viewers. And video customer testimonials can be a powerful tool. Also be sure to evaluate your e-mail responses.

5. Do your homework.

Always do your homework to make sure your prices are competitive, and that these are the prices you’re advertising. One strategy holds that you should price vehicles for subprime (and other) buyers. Some dealers, for example, look for vehicles they can buy $1,000 to $1,500 under wholesale book, believing that allows them to cover their lenders’ fee structure and still make a good gross profit.

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.