Page 51 - GIADA-Jan-2018-Final

FINANCE

3 Must-Dos To Combat Dealer Margin

Declines

By Dale Pollak, Founder of vAuto

How many dealers figured they’d make up way to improved profits are probably to say that up to a third of dealers’ new
for ever-smaller margins in new and used kidding themselves in the current market. and used vehicle inventories is effectively
vehicles by selling more cars in 2017? If the strategy worked, shouldn’t we see dead capital. These are over-age vehicles
decidedly different numbers from NADA? that haven’t sold, and they’re preventing
If you asked the question in a room full dealers from reinvesting the capital in
of dealers, I suspect most, if not all, hands To me, the data amounts to a call to more profit-productive units. Of course,
would be in the air. action. Dealers need a better way forward there are a multitude of reasons behind
that doesn’t rely simply on selling more such inventory inefficiencies but they
“You make up your gross in volume” is the cars to make more money. Similarly, I all point to the same underlying need
age-old rule of thumb in the car business. don’t think cutting expenses will provide for more investment-minded inventory
dealers sufficient relief from the combined decisions. In both new and used vehicles,
But what if the thumb is broken, and the pressures of margin compression and a dealers need to do a better job of assessing
rule doesn’t fit anymore? softer sales environment. each vehicle’s retail prospects before they
own it, and then working more diligently
That’s the situation in today’s retail I believe the best way forward rests with to retail every unit more quickly before
automotive market. increased operational efficiencies. Dealers its ROI, and front-end gross, effectively
simply have to find a way to sell and disappear.
Through June of this year, the National service customers with greater efficiency
Automobile Dealers Association (NADA) and lower costs. TECHNOLOGY: Dealers have invested
reports that dealers are seeing declines in sizable sums in technologies that should
two important places—on the gross and The good news here is that most dealers help their sales associates and service
net profits they realize when they retail have three areas of long-standing technicians work more productively
new and used vehicles, and in the overall inefficiency that, if addressed, can and profitably. Yet, sales associates still
number of vehicles they actually retail. help them achieve the higher levels of average about 10 retail sales per month,
operational efficiency, productivity and and technicians about 40 hours per
GROSS/NET PROFITS: NADA reports profitability they need to thrive in the week—averages that haven’t changed in
that gross profit as a percentage of new years ahead: nearly 40 years. The statistics suggests
vehicle selling prices dropped below 6 to me that solutions providers can and
percent, to 5.9 percent, in the first half of HUMAN CAPITAL: Dealers continue to should do a better job of helping dealers
2017 compared to the same period in 2016. suffer from an average annual turn-over of achieve greater utilization of their tools,
In used vehicles, the gross as a percentage 67 percent in sales, and 40 percent across which would help dealers realize the
of the sales price dropped to 12 percent. their operations. These figures suggest a promise of increased efficiency and
high level of dissatisfaction. You can only profitability the technology and tools are
Meanwhile, the net profit per new vehicle wonder how many deals are lost or bad intended to produce.
retailed fell 74 percent to -$396, and the decisions made, on any given day, because
net profit for each used vehicle retailed fell the hearts and minds of dealership These three areas of opportunity don’t
nearly 50 percent to $112. employees aren’t in the game. Dealers represent an end-all, be-all list. But they
who have tackled this inefficiency have do offer starting points for dealers to
RETAIL SALES: In the first half of 2017, formalized their hiring processes around push back against margin compression
dealers averaged 449 new vehicle retail key personality traits and cultural fits, and and a softer market, and gain back some
sales, up just two vehicles from the same moved away from the traditional practices of the profitability that seems to dissipate
period a year ago. In used vehicles, dealers of commission-based pay and uncertain with each passing year. n
saw a slight drop, as they averaged 358 work hours.
retail sales, down from 362 a year ago.
INVENTORY: I see signs of inventory
These dealership data points suggest that inefficiency every day. If I had to
dealers who believe they can retail their summarize the problem, I think it’s fair

GIADA Independent Auto Dealer JANUARY 2018 | 49