Dealer Insights - July-August 2015 - Dealership report cards: Is your store making the grade?
When you were still in school, you likely brought home a report card, maybe as often as three or four times a year. The report cards let you and your parents know how you were faring overall and excelling — or not excelling — in different areas of the curriculum.
As a dealership owner or manager, you can still benefit from a regularly distributed "report card" — that is, a record of your business's performance in key areas. The following suggested metrics can help you assess your dealership's health.
Determine your return on assets
Key insight into your dealership can be gained by examining your return on assets (ROA). In the 1920s, chemical manufacturer DuPont broke down ROA into two components: operating efficiency and asset utilization. Although traditionally used in a manufacturing context, the DuPont analysis also is meaningful to auto retailers.
First, operating efficiency is measured with the profit margin ratio, which equals net income divided by sales. To improve profits — and, therefore, ROA — dealers can either increase sales or decrease costs.
Another way to try to improve ROA is to generate more sales for each dollar invested in assets. Asset utilization is measured in terms of the total asset turnover ratio, which equals sales divided by total assets. For example, a total asset turnover of 1.3 means that, for each dollar invested in assets, the dealer generates $1.30 of sales (assuming it takes less than $1.30 of additional expenses to increase the sales).
In general, there is a tradeoff between operating efficiency and asset utilization. To illustrate, luxury dealers might earn a higher profit margin per vehicle, but they generally turn inventory more slowly than economy car dealers.
DuPont analysis provides a methodical approach to improving ROA. Dealers who think in these terms are better able to brainstorm specific action plans. Cost cutting isn't the only way to make more money. Other options include selling more cars, carrying less parts and vehicle inventory, adding service hours, or divesting underused equipment and facilities.
Address customer service
No dealership report card would be complete without addressing the customer service index (CSI). Successful dealers value their customers. High service ratings equate with goodwill and repeat business.
Industry analysts evaluate customer satisfaction. For example, J.D. Power and Associates computes CSI by surveying five measures during the first three years of vehicle ownership: service quality, service initiation, service advisor, service facility and vehicle pick-up. Scores are reported on a 1,000-point scale (the higher the score, the better).
Manufacturers pay close attention to CSI — and will let you know if you receive an unfavorable survey. Find out where your dealership stands. If you're not an industry leader, train your staff on ways to cater to customer needs. Make customer satisfaction a top priority.
Monitor employee productivity
If employees are an asset, what's your return on investment? You spend a lot of money on each employee — salaries, benefits, training and demos — and everyone should contribute to the bottom line.
For example, each salesperson should have a minimum monthly sales goal, and every technician should achieve a certain number of chargeable hours. Even the F&I manager should have, say, an extended warranty sales goal each week. And all of these goals should be monitored.
Communicate your expectations and help rookies learn the ropes. Those who fail to carry their weight after sufficient training and performance feedback may not be worth their expense. No one wants to hand out pink slips, but it's an unavoidable part of running a successful business.
Circulate the report cards quarterly
Distribute quarterly report cards to your management team. These reports can serve as the springboard for continuous-improvement discussions.
Each department should set and monitor specific goals aimed at improving ROA, customer satisfaction and productivity. Your action plan should include short- and long-term expectations.
One of the main advantages of using metrics to measure your dealership's performance is the objectivity factor. Using well-constructed measurements can reveal more about the realities of your business than personal opinions and conjectures.
Automotive Dealer Insights - July/August 2015