A number of months ago in our first issue of Retention University, I made brief mention of the following statistic…
In 2004, the average new car department contributed 30 percent of the operating profit; and used cars contributed only 13 percent. Service and Parts brought in the remaining 57 percent! To really put things into perspective, this 57 percent of the profit was from the two departments with the lowest percentage of overall sales.
Breakdown of total dealership sales in 2004:
Why is it that the department that has the most potential to affect customer behavior thereby increasing the dealership bottom line is given the fewest dollars and resources? THIS HAS TO CHANGE!
The 2005 numbers are out and it’s only looking better for the backend of the dealership. According to the NADA, in 2005 the percentage of overall profits by department were broken down as follows: New cars: 14.5% (vs 30% in 2004); Used cars: 27% (vs 13% in 2004) ; and Service & Parts: 58.5% (vs 57% in 2004).
Now, I’m not a math major, but something is VERY wrong with this picture. Why aren’t more people in the industry talking about this? Has this statistic ever been brought up in your company meetings? How much longer does the most profitable department in the dealership have to keep operating on a shoestring budget before the owners finally wake up and do something about it?
According to the NADA’s 2005 numbers the average dealerships spent $360,225 in new car advertising last year. Roughly 10% of the money was invested in the backend of their business. How much longer are we going to allow 90% of the marketing/adverting dollars to go to the least profitable department in the dealership?
Isn’t it also fascinating that a customer that comes back to your store for vehicle service is 17 times more likely to buy his next vehicle from your dealership? How in the world are you expected to get customers back (Retention) on only 10% of the budget? It’s time to ask for a raise.
Strategies to get an advertising/marketing RAISE:
Be sure to keep a copy of the above plan in your top desk drawer. Next year when your 15% plan is in full swing and all eyes are on your service department’s ROI, you will need to copy and paste a “20%” into your 2007-08 plan. This years plan is only the beginning of a shift in priorities. Service and Parts Departments must not rest until the 90-10 budget split becomes more equitable. Service and Parts Departments of this world deserve no less!
Until Next month, THINK RETENTION!
Vol 3, Issue 8
Experts say new IRS rules are sparking a downward trend in refund amounts, threatening the loss of an annual catalyst for used-car sales.