There are two kinds of dealers in our industry today: those who are losing money and those who are making money. Those who are losing money are now trying to survive, while those who are making money are enjoying success and thriving. Which description best fits your situation? If you are thriving and making money in all departments, then congratulations to you on a job well done. However, don’t set cruise control just yet because we all know our industry will continue to evolve and change so you must continuously seek ways to become an even better dealer or manager. If, on the other hand, you are trying to survive your current losses then you must ask yourself, “What am I going to do about it?”
The answer to this question seems to elude far too many dealers. Why do I say this, you ask? It’s because the most common response to, “What are you going to do about it?” is, “I’m going to cut expenses everywhere I can and save my way to a profit.”
Let me present you with this question: Did you start losing money because your expenses went totally out of control, or did you start losing money because your gross profits are on a downward spiral? For most of you, the latter is the case because new unit sales are down, therefore new vehicle gross profit is also down dramatically. If new unit sales are down, of course F&I gross profits are also down. When new unit sales go down by 30 percent or more, there is a direct negative effect on service and parts revenue because of fewer PDIs and declining warranty repairs.
So, is it possible to save enough through expense cuts to offset the lost revenue from new unit sales? Probably not! If that is true in your case, then I ask again, “What are you going to do about it?” There is a limit as to cutting expenses. If you cut enough of your expenses, you can experience the feeling of going out of business. If that is not your plan, then let’s look at some ways to generate more revenue. It all starts in the service drive.
If your sales on the front end are slow, your salespeople must have some idle time on their hands. Why not make them your greeters in the service drive every morning for your first two hours, say from 7:00 to 9:00? There is very little training required and the good news is your cost is ZERO. Don’t your salespeople already know how to meet and greet customers? Surely they also know how to properly qualify them as to their wants and needs? Could they offer to get the customer a cup of coffee, tea or hot chocolate while they are waiting on or with their service advisor? It is a good policy to offer free coffee, tea and hot chocolate. Most of your salespeople even have business cards they can pass out to your customers in the event they are in the market for another vehicle or know someone who is. Do you offer a shuttle service? If so, would it make sense for your salespeople to be the drivers? If you’re thinking your salespeople would never go for that, then I simply ask, “Who’s running the store, you or your employees?”
Does it make sense to you that if you start doing things differently and started doing different things that you just might get different results? If you sold an extra vehicle per month per salesperson, would it be worth it? Well, last year the average dealer in America averaged about $1,450 PNVR and about $1,700 PUVR. So, let’s say you have 10 salespeople who sell a total of 10 extra vehicles per month at an average of $1,500 PRU which equates to about $15,000 in additional gross per month or about $180,000 per year. If your salespeople cannot sell an additional vehicle per month from the work they do in the service drive, then they are most likely in the wrong line of work. Possibly there is an opportunity for them to join your competitor down the street and assist in ruining their store.
Speaking of the service drive, what about those service advisors who are currently getting face to face with about 15-to-20 customer pay and warranty customers a day? About 60 percent of those customers do not have the added protection of an extended service contract. Based on 21 working days in a month, that equates to about 189-to-253 extended service contract sales opportunities per service advisor per month. Let’s assume you have three service advisors, you now have about 600 or so sales opportunities for extended service contracts. Now, with a closing ratio of only 10 percent, you would sell 60 contracts with maybe $500 gross profit on each totaling about $30,000 per month or $360,000 in additional gross profit per year.
Now, let’s add the sales staffs additional gross profit potential of $180,000 annually with that of the service advisors’ additional gross profit potential of $360,000 and you end up with about $540,000 in gross profit you never had before, and with the exception of sales commissions, it cost you absolutely nothing. Can you cut $540,000 a year in expenses to save your way to profit? Which sounds easier to you, cut expenses or raise gross? Hey, if I’m dead wrong by 50 percent, you still picked up an additional $270,000. Let’s reverse the trend and THRIVE!
Vol 5, Issue 7
