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Dealer Insights - September October 2014 - Growing Sales in Small and Declining Markets

Sep 18, 2014

While automobile sales have rebounded nicely in many areas of the country since the depths of the recession, there are still some regions where the market of car buyers is shrinking or small. For dealerships located in these markets, success often comes down to the ability to diversify.

Diversification isn’t a new concept in business, but it’s one that many dealerships haven’t thought much about. After all, you’re in the business of selling cars — and you’ve already got plenty on your plate. But in the right circumstances, diversifying into other businesses that complement car and truck sales can boost your dealership’s revenue.

Creative diversification ideas

Here are a few creative ways that some dealerships have diversified in order to increase sales, revenue and profits. It might be worthwhile to consider whether these strategies might enable your dealership to overcome the sales limitations presented by a small or declining market.

Get tired of dropping sales. A dealership in the rural South had seen its sales volume fall as the population of its market area slowly declined. When the owner saw that a local tire dealership franchise was up for sale, he decided to buy it and diversify into the tire sales and service business.

He opened a separate building right next to his car dealership that included all of the national tire franchise’s branding and signage, just adding his dealership’s name to the store’s name to tie the car and tire dealerships together. The move has provided a significant boost to the owner’s overall revenue and gross profit.

Sell and finance. A Midwest dealership decided to offer buy-here, pay-here financing to his customers. This represented a significant shift in his business model, as it resulted in most of his store’s profit being generated through financing, rather than through margins on vehicle sales. So far, the move has resulted in higher net profits for the dealership.

Get pumped up. A dealership located in the Northeast decided to install self-serve gasoline pumps and start selling retail gas to customers. The business even instituted a rewards program that lets its car-buying customers receive a 10-cents-per-gallon discount on gas for three years after they buy. 

The gasoline sales aren’t highly profitable, but this move has resulted in other benefits for the dealership. For example, it has increased dealership foot traffic tremendously, as well as improved the loyalty of customers who buy cars.

Learning from grocery stores

Dealership owners also could learn a few things about diversification by taking a walk into the nearest grocery or convenience store. There’s a reason why these stores place items like candy, chewing gum and magazines right next to the cash register — they’re inexpensive and it’s easy for customers to grab when they’re paying for other purchases.

What are some additional products and accessories your dealership can offer your customers? They can run the gamut from inexpensive impulse items like air fresheners to more expensive profit-boosters like custom floor mats, seat covers and wheel covers.

Of course, your parts and service department is one of your best diversification tools. The key to maximizing the sales and profits of parts and service is to proactively manage this valuable dealership asset. For many dealerships, the parts and service department is little more than an afterthought.

Instead, you should be actively marketing parts and service — including promoting the department to non-car-buying customers. Stress in your marketing and advertising that you can service any vehicle brand, not just the brand of vehicles that you sell.

Finally, you might consider diversifying by acquiring another dealership franchise. Doing so requires careful thought and planning, as not all brands necessarily complement each other well. You want to choose a franchise and brand that will offer the right type of vehicles, in the right price range, to your target customers, while also avoiding the potential for mismatched sales and marketing messages.

Acquiring another dealership offers the added advantage of eliminating a competitor. This can be especially important in small and rural market areas, where just a small handful of dealerships may be competing in a shrinking market. Of course, that’s not to say that a new dealership won’t open up in its place.

Meeting the challenge

Growing sales in small or declining markets is certainly challenging. By implementing some creative diversification ideas like these, you can meet this challenge and grow your dealership’s revenue and profits.

Sidebar:Growing market share

Besides diversification, another way to expand in a small or declining market is to grow your market share — or, in other words, take business away from your competitors.

  1. Find out what’s selling — and sell more of these vehicles. Software programs like vAuto give you real-time market data to help manage your new and used vehicle inventory smarter.
  2. Increase your advertising budget. Just as important, make sure your advertising dollars are being spent effectively. Measure your marketing and advertising to maximize ROI on every dollar you spend.
  3. Lower your prices. Competing on price can boost sales and market share, but be careful not to jeopardize your margins.

Dealer Insights - September/October 2014

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