Cutting costs and expense management can be a painful, but necessary part of business. In today’s economic climate, with times being tough 90% of the dealers are cutting costs and this process is painful for everyone. So where as an operator do you start and how and an employee do you react?
The discussion surfaced earlier today, and a dealer responded, you always start with the non-personnel expenses. I’d add that fixed costs represent the most risk, and that risk is amplified in a soft market when volume is down. Controllable expenses tend to be inventory and marketing, look to cut there first:
- When cutting inventory remember you are dealing with a depreciating asset and your first loss is your best loss; sick to your inventory turn policy and move the old stuff off the lot. Also, you generally need less inventory than you think. Some of the most successful used car dealers in the country run with a 30-day turn.
-Marketing costs should be judged on a track able Cost Per Deal. If you cant track it QUESTION IT! There are enough marketing options that are completely track able; there is no reason to not to use them up first before you gamble on other options. Then, grab your reports and figure out how much an avg. cost per sale is with each marketing mechanism. Every marketing channel or mechanism will have diminishing returns at a certain point; this will vary for every store but maximize each one and trim the fat off your marketing budget.
After going through all fixed and variable NON-personnel costs, if need be some dealers are still forced to make personnel cuts. A dealer in our NADA class today mentioned how he approached this tough decision. He brought all three sales managers in and leveled with them. They had already seen the other cost cuts and knew his efforts to protect them were sincere. He gave them the option of him cutting someone, or of them staying as a team and each shaving a little off their pay to achieve the same savings. The team chose to stay together.
Cutting personnel is one of the ugliest jobs any business owner has to do and unfortunately, it is something that most, at least one time in their career, have to do. I applaud how this one dealer handled it, and Id like to get some thought from other dealers on the topic and also from employees. How can a dealer help make that ugly situation better for both sides? We would like your opinion in the open discussion about it here.