I often remind myself of something I was told when I had my first interview to get in the business as a car salesman: “Nothing happens until someone sells something.”
The statement still is true, but today there are twists and turns.
There’s a quandary in our business. We’ve just completed a record sales year, but it appears that our net profits as a percentage of sales hasn’t followed suit. In recent years, one of our biggest issues is margin deterioration on vehicle sales.
Fortunately or unfortunately, auto retailing is possibly the most transparent industry in existence. It takes only minutes for Internet-empowered customers to get pricing information. The customer can see what a dealer paid wholesale for a vehicle and also can reference a competitor’s website and compare prices.
This happens all the time. It leads to dealers possibly saying “yes” too quickly to a transaction, even though more gross potentially is available. This quick-yes situation is compounded because it can affect F&I income.
There was a time when dealers weren’t so quick to close a deal. As surprising as it may sound, more often than not we were able to get additional gross just by asking.
The fear of loss is great in our business. Due to the high level of transparency, we do not want to run the risk of losing the deal. We now also see this in the service department and to a certain degree in the parts department due to menu pricing.
Are we more inclined to accept “a deal” in service when all we might have had to do was to stagger our offer rather than propose everything be done in one service visit? For example, we could perform just the required services and wait for a subsequent visit to do other needed service work.
I referred to a dealership’s net profit as a percentage of sales. According to the National Automobile Dealers Assn., the average dealer profit on a vehicle sale is 2.5%. That’s been the case for two years now.
The good news is dealers are doing a better job of managing expenses. They also are doing better at selling a mix of products and services. The average dealership overall gross as a percentage of sales was more than 13% last year.
We have an opportunity to post a record profit year in 2016. Much of this depends on how dealers attack expenses.
We already know our floorplan expenses will increase because of higher interest rates. But that can be offset with more attention being paid to a quicker inventory turn.
We know in this election year our advertising will be in competition with politicians buying ad space and time.
However if you anticipate the cause and effect of your expense dollars, you will be in a much better position.
Tony Noland of Tony Noland & Associates is a veteran dealership consultant. He can be reached at tonynolandandassociates.com.