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Dealer Insights - Jan-Feb 2015 - 3 Steps to a Better Dealership This Year

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Now is the time when many people make New Year’s resolutions — say, to lose weight, exercise more or stop smoking. From a business perspective, the start of a new year is also a good time to resolve to improve your dealership.

Laying the groundwork will entail doing some methodical business and financial planning. Here are three steps toward ensuring a more successful and profitable 2015.

1. Set goals

Begin by looking at your dealership’s performance in 2014 and then use these figures to set new goals for the coming year. Also consider the current state of the economy, both nationally and locally, and of the automotive industry in general. Break out goals for different aspects of your dealership, such as:

Vehicle sales. Dealershipwide monthly sales goals should be set for new and used vehicles — and also possibly for different vehicle models — as well as for individual sales reps.

Customer satisfaction scores. Be sure to communicate these goals to front-line employees who are directly responsible for achieving high customer satisfaction.

Revenue and profits. Make sure everyone is on the same page with regard to which is more important. If boosting profits will be a priority this year, your sales reps and managers shouldn’t be overly focused on “moving metal” by offering big discounts and incentives.

Parts and service. Margins on parts and service tend to remain fairly constant. But, remember, you can boost revenue and profits on parts by performing more service business. Keep an eye on your labor hours per repair order — raising this even slightly will have a positive impact on your bottom line.

F&I. Set a goal of selling a specific F&I product to a certain percentage of all vehicle buyers. For example, try to sell extended service contracts to at least 50% of customers. And remember the 300% rule: Present 100% of your F&I products to 100% of your customers, 100% of the time.

2. Make forecasts

Now that you’ve set goals, you can make forecasts for 2015. Forecasts should project sales, revenue and profits for each month, again broken out by new and used vehicles and, if possible, different models.

It’s important that your forecasts be attainable, based on past performance and current and projected market conditions. For instance, if your average margin on new vehicle sales last year was 5%, and you expect market conditions to remain about the same, it’s probably unrealistic to project 10% margins this year.

Also make sure you’ll receive enough vehicles from your manufacturers to meet your sales forecasts. If not, start making plans for how you can improve vehicle allocation or perform some dealer trades.

3. Create budgets

Budgeting is the final piece of the planning puzzle. With your goals set and forecasts in hand, you can now create budgets to guide spending in the different areas of your dealership.

Each department should have its own budget. Pay especially close attention to your advertising and marketing budget, as this is a major discretionary expense for most dealerships. Put methods in place to track the results of your marketing and advertising efforts so you can make sure you’re spending money on things that work.

And don’t forget to budget for capital expenditures that might be required during the upcoming year. These could include new computers or a new network, a new dealership management software system, upgrades or renovations to your building, or new equipment in your service department.

If traditional budgeting has let you down in the past, consider creating a “rolling” budget to add flexibility throughout the year. (See the sidebar “Stay agile with rolling forecasting and budgeting.”)

Resolve now to plan

If you haven’t done so already, make a resolution now to sit down with your financial advisor and management team to set goals, make forecasts and create budgets for 2015. This is one of the best ways to set the table for a profitable and successful new year.

Sidebar: Stay agile with rolling forecasting and budgeting

The one thing that’s constant about forecasts and budgets is that they’ll eventually change. But the traditional annual forecasting and budgeting process doesn’t allow dealerships to make adjustments throughout the year for the inevitable variances that will take place.

A better approach now being used by some dealerships is a process referred to as “rolling” forecasting and budgeting. Instead of creating static annual forecasts and budgets based on inflexible assumptions, this approach builds flexibility into the process by allowing forecasts and budgets to be regularly updated based on what’s actually happening in your dealership and marketplace.

Rolling forecasting and budgeting doesn’t completely replace traditional methods, but it makes them more adaptable and accurate. You’ll create annual forecasts and budgets but, at the end of each quarter, update those forecasts and budgets for the next three months based on the current financial and operational picture. This process may improve your decision making and help you be more agile in managing your dealership for maximum results.


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