Dealership expenditures, excluding cost of goods sold, reached $81 billion in 2003, up from $60 billion in 1998, according to the National Automobile Dealers Assn.
Total retail sales totaled $700 billion in 2003, up from $534 billion in 1998.
The expenditures were about 12% and 11% of sales respectively for those years.
This 1-percentage point increase in five years of record is huge, considering that many dealerships struggle to make an annual profit equal to 1% of sales.
Up to now, most U.S. dealers have faced big obstacles in getting the best prices for goods and services. Dealers place relatively small orders, and they were limited in time and data to compare vendor offerings. They also were hampered in dealing with far-flung suppliers.
But the anytime-anywhere Internet knocks down many of those barriers. It is spawning dealership buying groups that give dealers more information on products and services with resulting lower prices.
This new technology brings dealers and their suppliers together with both groups benefiting from the efficiencies available in this virtual world of ours.
The future keys to success in dealership procurement appear to be:
- Joining or creating a member-dealer body large enough to have buying power
- Minimization of dealership inventories
- Availability of product selection and quality
- On-time delivery of products
- Pervasive pressure on margins and honesty in business negotiations
- Use of technology and skill to drive down distribution costs
- Reduction of administration costs within the dealership
- Self-generating income since dealer-members are buying from their own company
With cost control so important to dealerships, who has figured out the best way to do it?
Americans tend to think of ourselves as worldwide leaders in automotive retailing. We seem to be leading the charge when it comes to finance & insurance, fixed operations, vehicle retailing and even franchise protection.
But, when it comes to procurement, it seems Canadians have been looking at us in their rear-view mirrors.
Leader Auto Resources Inc., based in Montreal, brings together car dealers and suppliers to create cost-saving volume opportunities for the purchase of supplies.
To increase its buying power, Leader Auto has joined Tecar International with its seven European members. Currently Leader Auto serves dealers in eastern Canada and the Northeastern U.S.
With its own procurement and integration software complementing its web site and electronic catalog, Leader Auto assists dealers in the selection of products and services. It serves as a single contact point for purchases covering all aspects of the dealership operations.
There are regional dealership buying groups in the U.S. such as Auto Dealers Co-op and Jobbers Automotive in Ohio and Metro Jobbers in Michigan. And some auto makers have set up cooperative buying for their dealers.
Dealership buying groups are an idea whose time has come. Cooperative buying gives conventional dealerships the purchasing power of public companies and major dealership groups.
Don E. Ray is a CPA with the Dixon Hughes Dealer Services Group. He's at 901-684-5643 and [email protected].