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Improve Profitability Without Making a Sale

*This article previously appeared in the Reynolds and Reynolds FUEL monthly newsletter*

By Robert "Skip" Scott

Working with dealerships across the U.S., one thing is abundantly clear: every dealership wants to make more money, no matter what the economy is like. Unfortunately, most dealerships don’t have a plan in place; or worse, they have one but it’s not obtainable. “If we increase sales by 20%, PVR by 15%, and repair orders by…” – you get the picture. Quite often, they are far off their goals and forecasts by the end of the first quarter. Then, they give up trying to reach them.

It’s time to think differently. Consider all the individual transactions that make up your month – every retail car deal, accessory, and aftermarket product. Think about every bank contract, parts ticket, service repair order, wholesale car deal, and dealer trade. Even the smallest volume dealerships have thousands, if not tens of thousands, of unique transactions by the end of the month.

Improved profitability is more easily obtained by increasing tracking and accountability among team members. By using technology available to dealers today, you can identify and correct inhibitors to profitability. Below are six areas that can lead to increased profitability without directly selling or servicing any additional vehicles.

1. Benchmark your current performance.

Know your strengths and weaknesses. Identify how you’re doing versus other dealers like you. Identify and quantify what areas in your store can realistically be improved, and what you will gain. For example: “My store’s service absorption rate is at 65%. The dealers of my brand that are performing the best are at 85%. By obtaining 85%, I’d have another $57,000 in gross profit.” 

Pick any two or three items you can easily fix and fix them (or have your management team justify why they can’t be fixed). Then move on to other areas of opportunity. Do this two or three times a year, with two or three key areas each time.

2. Track expenses relentlessly.

So many dealerships literally spend themselves out of business. Have a system in place that allows you to quickly see your expenses each month as they are being posted. Make sure you can see what the month over month trends are and investigate immediately when expenses seem to be getting out of control. Department managers need to pay attention to important expenses that affect vehicle, parts, and sales profitability. If tracking expenses isn’t easy, find a solution that will handle it for you.

3. Accountability and communication are key.

Who is in charge of your dealership’s collection department? Unfunded contracts, unpaid warranty claims, unpaid incentives, slow paying wholesale deals, and trade title issues can all put a grind on your finances and profitability. Who keeps your money flowing? Is it easy for you to track their performance? Get a system that allows you to create a dealership-wide “bulletin board” of who is keeping money owed to the dealership, including what is known about an issue and what is being done to correct it. This can increase profitability by cutting down the time it takes to get paid.

4. Know your wholesale business.

Most dealers simply look at one number – wholesale profit or wholesale loss – for the month. We need to look deeper at the “why” behind the number. Do you have a manager(s) or salesperson(s) that needs help with the appraisal process because it’s their cars you constantly lose money on? Do you have wholesale outlets that perform better than others, and therefore should get a shot at more vehicles? Are there particular brands/types of cars you are consistently having to wholesale and take a loss? Having a tool to track your wholesale performance on a monthly, quarterly, and annual basis can be an easy way to improve overall profitability.

5. Track your salesperson goals every day.

Every dealer claims to do this. The reality is, tracking it and doing something about it don’t always happen together. There are far too many five and ten year veteran salespeople selling the same amount of vehicles as the person hired three months ago. Your managers need to see salesperson performance month over month, year over year. They need to set, communicate, and track goals (and even automatically email performance to staff on a daily basis). Managers need to identify salespeople who haven’t closed a deal in the last couple of days, so they can train them to get back on track. Having a single system that does this for you can hold sales staff accountable and can ensure you don’t miss obtaining realistic goals.

6. Track your service advisor goals every day.

Similar to the sales department, you need to track your service department more closely. Can service managers easily identify coaching opportunities? Do you know op code utilization per advisor? Do you know the most profitable op codes being utilized? Do you track each advisor’s repair orders monthly to track gross profit percentage per RO?

We all track work in progress, but do you know which advisors are responsible for having the greatest percentage of aged open ROs? Do you know on a daily basis the status of these ROs and what’s being done to get them closed? Having a tool that tracks key performance areas of the service department can improve profitability without servicing any additional vehicles.

Conclusion

Keeping track of your dealership’s performance and managing your business has immense payoff. If you’re in need of a solution that can help, contact your Reynolds and Reynolds account manager.

If you need custom consulting to help fix issues or walk you through key tactics, contact Reynolds Consulting Services at 888.204.6092 or email consulting@reyrey.com.

About the Author

Skip has been a part of the Reynolds Consulting Services team since 2013. He consults on CRM for sales and service, used vehicle profitability, and ReverseRisk®, a comprehensive dealership reporting tool. With over 35 years of industry experience working as a general manager, sales manager, finance manager, and sales and leasing consultant, Skip is well equipped to help dealerships manage their stores.

Morgan Hardy

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