Expense or Investment?

A significant number of dealers these days are becoming more and more aggressive in selling used vehicles. Some have even lost their new car franchises and now rely solely on used vehicle sales, along with parts and service sales to pay the overhead and hopefully provide them with a significant return on investment (ROI). I’m confident you will agree that it is critically important for all dealers to earn the highest possible ROI on every single investment they make.
Now, in order to increase sales in any department you have to start doing things differently and/or do different things. If not, then you simply continue to do what you’ve always done, as stated so clearly by Zig Ziglar: “You have the perfect processes in place to get you exactly what you got last year.” I’m talking about training here in order to positively affect change. Some of you will take the approach of saving your way into profitability by vowing not to increase your expenses, but you remain willing to make investments every day of your business life. Let’s consider some examples.

NADA research shows that the average used car cost (investment) is about $13,300 and the vehicles sells for around $15,000 resulting in a gross profit of $1,700, which is about 13% ROI. Assuming you can turn that original inventory investment of $13,300 every 30 days (great job) that would be 12 turns per year at $1,700 gross PRU for a total gross profit of $20,400 resulting in a ROI of 153 percent! My guess is none of you would hesitate to invest $13,300 in inventory knowing that you will realize a 153 percent ROI over the next 12 months. As a matter of fact, many of you wouldn’t hesitate to make multiple investments: 50, 75 or even 100 of those $13,300 cars to earn that kind of an ROI. Makes perfect sense to me!

Research also shows that a service advisor servicing 12 customers per day (four warranty and eight customer pay) and averaging 1.5 hours per repair order (HPRO) at NADA benchmarks will produce about $1,637 in gross profit per day, $36,016 in gross profit per month and a total of $432,194 in gross profit per year. If you diverted just one of those $13,300 used car inventory investments into a $13,300 training investment in your service advisor and that training produced an extra 0.5 HPRO (33 percent improvement), you would realize a gross profit increase of about $12,000 per month or $144,000 over the next 12 months resulting in a ROI of 1082 percent! (If your stockbroker can do that for you, please send me his name and number.)

Let’s finish the math here by adding the additional gross profit of $144,000 to the $432,194, and you have a total annual gross profit of $576,194 produced by one employee—the service advisor. Now I ask you, how many employees do you have producing over $576,000 a year in gross profit? Maybe your F&I producers. How many salespeople are producing that kind of gross for you? This is the equivalent of selling 28 used cars a month at $1,700 PRU. How many salespeople are selling an average of 28 cars a month to match the performance of a 2.0-HPRO service advisor? How’s that $13,300 training investment working out for you now? Is it an expense or an investment? Maybe you should ask your broker to answer that one for you.

Consider the following:

1. Who gets the most incoming sales calls per day—salesperson or service advisor?

2. Who meets and greets the most sales opportunities per day—salesperson or service advisor?

3. Who has the greatest impact on owner retention—salesperson or service advisor?

4. Who has the greatest impact on brand loyalty—salesperson or service advisor?

5. Who needs telephone and sales training—salesperson or service advisor?

The answer to questions one through four is the service advisor. The answer to question number five is both the salesperson and the service advisor. The simple fact is anyone in your dealership who comes in contact with your customers as well as your potential customers must be professionally trained on how to effectively communicate (sell) to them all.

I’m sure far too many of you dealers, general managers and service directors will continue to try and save your way into profitability versus being proactive and committing to re-allocating some of your inventory investment into your training investment. For those dealers, general managers and service directors who get it, you can look forward to record service and parts profits in 2010. It’s your choice to make.

Vol. 7, Issue 6