Factory incentives and other discounting programs put pressure on new-car gross profits. Compounding this is a fuel-efficiency shift towards smaller vehicles with smaller margins. Adding to it are Internet-empowered customers who expect great deals.
You can wring your hands over recent trends. Or you can craft a comprehensive strategy that will yield success, if properly executed.
Accordingly, here are nine areas to master. They form an organic whole, each being a precondition for the others.
- Cost cutting
This is the most obvious, yet is often executed poorly. It should be smart, not random. Telling your managers to cut 10% in their departments is usually a knee-jerk reaction. Why not 8%? Why not 15%? Random cuts often add expenses through poor customer handling, incomplete work and a demoralized staff that becomes less productive.
- Holding the line
When the factory limits gross potential, your sales management must coach the sales team to build maximum value in the customer's mind. This is “back to basics.” There is no excuse for sales people who neither know their products nor how to present and demonstrate them, sell themselves and sell the dealership. It's management's responsibility to get them there. It is also critical to work every single deal for every ethical dollar, meaning loyalty-building dollars.
A great way to reduce expenses is to build your body of loyal customers. It's cheaper to keep them than entice new people to your lot. With the advent of value pricing, managers accustomed to a lot of arm-wrestling and feints with customers must take a few pages out of the negotiation-free playbook. They've also got to get out from behind their desks and engage customers directly.
Holding the line also means crafting an efficient and effective marketing strategy. Present strong, consistent messages. Those bring qualified buyers to your lot in a more open state of mind, giving your people a better shot at protecting the existing gross closer to MSRP. A schedule of events that stimulate public interest throughout the year will make you more money than you can save by unwise budget slashing.
- Finance and Insurance
You can offer products and services of genuine value at fair prices (from maintenance packages to sub-prime lending) and still add nicely to your profit picture. This depends on having the right people who are well trained, coached daily, supported by the sales staff with 100% handovers and who get their due recognition.
Some larger dealerships see the benefit of having staffers separate from the F&I office handle aftermarket and customizing business. With the right person, good products and 100% handovers, this can add critical mass to total retail gross.
- Inventory management
In franchises where inventory credits are available, inventory management should be treated as a profit center. You need the best and the brightest in this chair, especially with the vehicle-mix shift going on due largely to higher gas prices. It's a tougher market to read and order for. The sharpest mind you can find for this position should consult regularly with the sales force and work the profit opportunity to maximum advantage.
- Used vehicles
The used-vehicle department is more important than ever and more difficult to read, too. Is a well-run used vehicle department as valuable as a second-tier new-car franchise? You bet! So why is it rarely treated as such? Systematically manage this inventory. Software is available to help do this and track sales trends and turns. Have a separate showroom for used vehicles. Brand your used-vehicle operation.
- Fixed Operations
Reject factory guidelines of 70% or even 80% absorption. If you're not taking on a goal of 100%, you're not in the game. When you reach 100%, raise the bar again. With the right people, advanced production techniques and marketing, it can be done.
- Factory money
Auto makers' programs (i.e. General Motors Corp.'s Standards for Excellence) are here to stay. Focus on achieving their goals. This is an additional profit center. Someone who really gets it should be put in charge. Though these programs pay out quarterly, from a psychological point of view think about them as amortized monthly.
Manufacturers offer this money because of the same dynamic forces that drive down front-end grosses. The same holds true for the various rebates, lease programs, salesperson incentives, etc. It's all one system. Make sure the right people bird-dog every program and work them to the max.
Show confidence in your vision and your people. Make it clear that there are no jobs in the car business, only careers, and that each is defined by how it contributes to the success of the store.
Emit positive energy every day. Thank people for their efforts. Do management by walking around to stay in touch. Seek the truth without becoming defensive. Harvest the best ideas and act on them with entrepreneurial intensity. Help your key people raise their skills through close coaching.
Conduct weekly meetings individually and collectively with department heads. Provide appropriate learning opportunities to show your commitment to their long-term growth.
Push them out of the store for personal time so they stay fresh. Find reasons to celebrate and lift people through public recognition, quiet appreciation and, yes, spiffs, bonuses and contests.
If you do have to reduce or replace some staff, recognize that such actions can shake up the survivors. They'll need attention and information to stay steady.
To get the best from people, show flexible strength. Give direction, avoid over-control. Be inspirational without being unrealistic.
Remember, all nine points are preconditions to the others. Master them and you will win, even as the game gets tougher.
Bob Kamm heads Kamm Consulting, specializing in leadership development. You can reach him at 1-805-235-1718 or through www.bobkamm.com.