What do you plan to do differently this year to improve your dealership performance?
Hopefully, you and your staff feel you made progress as an organization during 2007. But there may be areas for improvement. If there are opportunities, what are your plans to take advantage of them?
About 16.1 million new vehicles were sold in 2007. In 2008, if forecasted sales drop by as much as 500,000 units, we will see sales of 15.6 million units, or the same industry volume as that of 1998.
While there are legitimate reasons to be concerned with the current and forecasted state of the industry, let me offer another way of looking at the real impact of this forecasted decline.
In the U.S., there are approximately 21,500 new-car dealerships. If we take this forecasted 500,000 unit decline and divide it equally, the average dealership would sell 23.2 less new vehicles in 2008.
Assuming fleet sales represent 15% of the total volume; the average dealership's retail number would decline by 19.8 units or 1.6 units per month.
This example is simplistic, but the predicted decline in vehicle sales will not come from any one manufacturer or dealer. As a reminder, we have just experienced something similar; in 2007, we sold 500,000 fewer new vehicles compared with 2006.
Although the forecasted decline for 2008 isn't good news, it becomes more palatable when you break it down to the individual dealership level.
If retail customers are, in fact, waiting for a more stable economic and employment environment before buying a new car or truck, it stands to reason they must maintain their current vehicle.
This presents an opportunity for us in the service department. The most profitable item we sell is labor. Labor is normally associated with auto parts, another good profit-margin opportunity.
The single most important underlying fact is this: we must get our expenses in line with our sales and gross. Don't wait for a decline. Start identifying areas where these necessary expense cuts might come from.
For example, a smaller new-vehicle inventory coupled with reduced interest rates should afford a degree of savings.
Turning your used vehicle and parts inventory more quickly increases cash, which potentially allows you the chance to pay down your new inventory obligation, further reducing that expense.
Look at each dealership expense and rate it as either an essential expense or not. If it's not essential, why does it exist? If it is essential, what steps can we take to reduce it? It's about efficiency. We must get ourselves into a position of being profitable based on the business we are actually doing, or anticipate doing.
For comparison purposes, the following are a series of year-end 2007 measurements based on the NCM client database broken down by franchise category. Compare your operation to these key performance measurements:
While you can't save yourself into a profit, you can focus on the positive results you will achieve when you maximize your productivity and control your expenditures.
Tony Noland ([email protected]) is the president and CEO of NCM Associates, Inc.
|Gross Per Employee Total Dealership||$9603||$11877||$8314||$|
|Gross Per New & Used Combined Employee||$13376||$17455||$12238||$|
|Gross Per Service Employee||$6403||$7761||$5075||$|
|Gross Per Parts Employee||$14376||$20327||$13552||$|
|Gross per Body Shop Employee||$5763||$6255||$4796||$|
|Day's Supply New Car/ New Truck||72/43||50/30||81/87||/|
|Day's Supply Used Car (cost)||54||60||62|
|Day's Supply Used Truck (cost)||60||49||60|
|Day's Supply Parts||47||54||58|
|Contracts in Transit - Days||3||3||3|
|Benchmark® - Expense Category As % Gross||Import||Highline||Domestic||Us|
|Floor Plan (Net) As % Total N&U Departmental Gross||3.50%||4.50%||4.30%||%|
|Net Advertising/Promotion As % Total N&U Departmental Gross||10.1%||7.2%||9.6%||%|
|Total Employment Expense As % Total Dlrshp Gross||33.40%||32.50%||35.90%||%|
|Memo- Employee Benefit % Employment Expense||25.40%||23.40%||25.40%||%|
|Parts/Service Policy Expense As % Total Dlrshp Gross||0.70%||0.90%||0.70%||%|
|Memo - Fixed Coverage||66.90%||77.70%||65.30%||%|
Questions or comments about this column? Send us an e-mail at [email protected].