My December, 2001 column addressed “Life After 0% Financing.” Oh well, so much for my prediction that such incentives would likely be ending sooner than later.
July and August 2002 saw an industry sales rate of approximately 18.7 million and then came October's rate of less than 16 million.
Straight 2001-to-2002 comparisons are invalid due to the introduction of 0% in September of 2001. So, what is the real number? I and many others believe 0% has lost its effectiveness. So what's next?
How much “sweeter” can the industry make the incentive pot? Sure there's 72 month financing with subvented rates, but will that help restore the higher sales rate? Having dinner with a senior executive for a domestic auto maker, I asked his opinion on incentives and just how much more there was out there.
His quick reply, “In an industry with more than 30% excess capacity, incentives may have to increase.” So, looking forward into 2003, what is the predicted sales rate? The numbers I'm getting are in the 16.5 million to 17 million range. If that's the case, then we only need to look at September 2002 results in your dealership to predict 2003.
The Federal Reserve recently lowered interest rates to their lowest level in 41 years. I'm not an economist, nor am I trying to predict doom and gloom, but an underlying message is here.
With prime at 4.25% many dealers will see their floor plan cost drop below 4%. That's better than great as long as our inventories continue to turn and the interest credits accumulate. But what if your sales rates decline, inventories start piling up, and your credits go away?
We can bury our heads in the sand and wait for the next great incentive or a more robust economy. Or we can explore other options that are not directly related to new-car sales.
We can take advantage of the many other areas of opportunity in our business. The new-vehicle market is one where our control is limited. But do we face the same limitations in the other profit centers associated with the new-vehicle franchise, such as service and used-vehicle sales?
The answer, as any multi-faceted dealer knows, is that we have more control and less limitations in those other profit centers of the dealership.
When we maximize those operations, we see marked improvement in other areas. It's amazing what happens to new-vehicle sales and service department work orders when used-vehicle operations are in line and hitting on all cylinders.
The same is true for service. How many satisfied customers of a well-run dealership service department turn into showroom buyers? When you drive customer-pay traffic, it often results in an increase in new and used vehicle sales. Well-run dealership operations cross-feed each other. Conversely, a badly run department can affect how well another part of the dealership does. Employees of each respective department should understand that big picture. And certainly the dealer should.
It's up to you to start the ball rolling. When the momentum increases, good things start to happen.
Don't take your eye off the ball during these somewhat uncertain times, and please don't fall into the trap described in the following quote from Elbert Hubbard, “Lots of folks confuse bad management with destiny.”
Fact is, you control your destiny when you make sure all departments in your dealership are well managed.
Best wishes for a happy holiday season and a new year filled with peace, love, happiness, and prosperity.
And good selling!
Tony Noland ([email protected]) is the president and CEO of NCM Associates, Inc.