Dealer Insights - January/February 2012 - Let Your Manufacturer's Operating Report Inspire You

You likely prepare and send an operating report to your manufacturer every month. How you use the report beyond sending it to the factory can have a big impact on your dealership’s profitability. Here are some ideas for using your monthly operating report as a tool to stay on track as the year progresses.

Keeping an eye on revenue 

Every manufacturer’s report is different, but yours likely contains, in some format, a summary of that month’s operating revenue. These figures can quickly tell you which departments are the moneymakers and which lag behind expectations.

Let’s say that the January 2012 operating report for Joe Shiny’s North Side Auto shows that it brought in the following in gross revenues: $2 million in new car sales, $750,000 in used car sales, $140,000 in parts sales, $61,000 in service income and $56,000 in body shop income.

Joe also can see how income from his store’s various departments compares with the prior month, January 2011, his projected budget, benchmarks and so on. Let’s assume that Joe had projected $2.25 million in new car sales for January. With sales coming in at only $2 million, Joe is concerned that first quarter sales are off to a slow start and, thus, chooses to move up by several weeks a new car sales promotion he had planned to run in March.

Another example involves gross revenue vs. turnover. Take Dealer A, who buys a vehicle for $20,000, holds it for 90 days and finally sells it, making a $3,000 gross profit. Many dealers would be pleased with this outcome. But let’s also consider Dealer B, who spends the same $20,000, sells the vehicle in 30 days but only achieves a 10% profit margin, or $2,000 gross profit. The difference is that Dealer B does three times the sales in the same 90 days, doubling his total gross income compared to Dealer A!

There are many other ways to use your operating report to analyze front-end operations.

Figuring out the reasons why 

The reasons behind the numbers also are important to consider. When you analyze the back end of your operations, for example, you’ll look at income and expenses in the service, parts and body shop departments.

Let’s say that you have a gross profit of $33,000 in the service department. This alarms your manufacturer, because it’s less than 55% of your monthly service sales and shows that your gross profit percentage has slipped from the target of 65%. But it shouldn’t be a major concern if the reason for the shortfall is that the department was busier than usual refurbishing used cars for sale in January — and profits for that venture won’t start showing up until February.

Considering other benchmarks 

Monthly operating reports are also a way for you to measure your dealership’s performance against more complex benchmarks. Consider, for instance, the concept of “service absorption.” This is defined as the sum of total parts, service and body shop gross profits divided by the sum of total fixed expenses plus dealer salary plus parts, service and body shop sales expense. (If your report doesn’t have this category, you could calculate it from the other data provided.)

Let’s say that your store’s benchmark range for service absorption is 85% to 100%, but your January operating report shows your store coming in at 83.8% for the month. This figure is only slightly below the bottom of your benchmark range. Nonetheless, you might want to take steps to lower expenses or bump up revenue for the next month to be sure your store is in the benchmark range.

Achieving a service absorption of 85% or higher will give you a competitive advantage over your competition, because the new and used departments only need to cover 15% or less of your dealership’s total fixed expenses. Thus, you can afford to take less gross profit on an individual sale.

All in all 

By studying your manufacturer’s operating reports, you can arrive at countless insights, from your days’ supply of vehicles to the gross profit per technician, to determine an adequate employee count in the back end. All of this knowledge can be golden, because it helps you recognize strengths, pinpoint weaknesses and set goals for the rest of the year. Don’t let it go unnoticed.

Dealer Insights – January/February 2012 

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