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Lift Your Profitability to New Heights with Smart Management

Mar 16, 2016

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Money in, money out. Even when cars and trucks seem to be leaving your store in droves, expenses continue to climb and climb – and it may be hard to stay as far above the breakeven point as you desire.

But don’t be discouraged. There are a number of things your dealership can do to boost profitability. And they start with smart management.

Winning over service customers

If yours is like most dealerships, much of your overall profit is derived from servicing the vehicles you sell, not from the vehicle sales themselves. So consider offering customers some kind of service discount, or even a free first oil change, to introduce them to your service department. Hopefully, they’ll return for future work. Also, consider expanding or rearranging your service hours to accommodate customers with nine-to-five jobs.

Strategizing your F&I efforts

Finance and insurance (F&I) is a potential source of added profit for dealerships that sell vehicle financing, extended warranties, service contracts, gap insurance coverage and related products. Approach F&I sales strategically by identifying both the highest margin F&I products and the ones that will provide the most benefit for your customers. Then set goals and pursue them vigorously.

Joining a dealership “20 Group”

Dealership “20 Groups” consist of similar but noncompeting dealerships that share best practices and strategies among themselves to help improve dealership management and boost profitability. You also can view standard financial ratios (including gross and net profit margins) among dealerships similar to yours so you can benchmark your numbers against them.

Revisiting sales compensation

When they walk in your door, many buyers today are more informed about vehicles than ever before. They often already know which vehicle and features they want and how much they’re willing to pay. In this scenario, a fully commissioned salesperson might not be needed. You might be able to reduce your sales compensation for some positions, which will increase your bottom-line profitability.

Reviewing your DMS program

In the past, only a few dealership management software (DMS) providers captured the automotive market. But with the advancements in software development, a significant number of new players have entered the playing field, allowing for greater competition and reduced pricing. A less expensive DMS provider may be able to meet your needs and save your dealership significant dollars, so it could pay to shop around.

You also might be able to trim back on some of the “bells and whistles” that your dealership really doesn’t need. Negotiating a better package might then become even more feasible.

Improving inventory management

The faster your inventory turns, the higher your profits will generally be – and the better your cash flow. But there’s both an art and a science to finding the right balance of vehicle inventory for your dealership. Carry too many vehicles and you’ll pay excess carrying costs that cut into your profit; carry too little and you might be unable to meet customer demand.

Carefully track inventory turnover and decide what to do with vehicles still on your lot after a certain length of time: Lease them, wholesale them or keep discounting them until they eventually sell.

Building lifetime customer relationships

View each sale not just as a one-time transaction, but as the beginning of a lifetime relationship with the customer. Most buyers will eventually shop for another vehicle, and the second (and third, and fourth) sale to a customer is usually easier and more profitable than the first one.

A lesson to be learned

The lesson here is that you should be thinking about profitability – and what you can do to improve it – in all areas of your operation at all times of the year. If you wait for year end to review financial performance, your profit picture will likely not make the grade.

Dealer Insights - March/April 2016

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Dawn Rosoff

Dawn Rosoff has extensive knowledge of accounting and technical reporting standards who works with professional service companies, manufacturers, distributors and automotive dealerships on accounting, management and tax-related issues.

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