There are two kinds of dealers out there … 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? — Don Reed, CEO, DealerPRO Training
If You Are Thriving
Stay on your toes. If you are making money in all departments, then congratulations on a job well done. But, don’t set your cruise control just yet because we all know our industry will continue to evolve and change, so you must continuously seek better ways to become an even better dealer or manager.
You Can’t Survive by Cutting Expenses
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 most dealers give to this question is wrong. Why do I say this? It’s because the most common response is this: “I’m going to cut expenses everywhere I can and save my way to a profit.”
So I ask, “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?”
How to Avoid the Downward Spiral
For most dealers in this pickle it’s because new unit sales are down and therefore new vehicle gross profit is also down dramatically. If new unit sales are down, then finance and insurance gross profits are also down. When new unit sales go down by 30 percent or more, then of course there is a direct negative effect in 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. There is a limit as to how much you can cut expenses. Think about it. 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 some more revenue. It all starts in the service drive.
New Ways to Sell
If your sales on the front end are slow then your salespeople must have some idle time on their hands so 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 costs are zero.
Don’t your salespeople already know how to meet and greet your 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? (If you don’t offer free coffee, tea and hot chocolate — buy some now.)
I bet 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 in their family or know someone who is. Another thought just popped into my head. Do you offer a shuttle service? If so, would it make sense for your salespeople to be the drivers? If you’re thinking “my salespeople would never go for that” then I simply ask, “Who’s running the store, you or your employees?”
Get Different, Better Results
Would it make sense to you that if you started doing things differently and started doing different things that you just might get different results? If you sold one extra vehicle per month per salesperson would it be worth it? Well let’s do the math.
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 10 extra vehicles per month at an average of $1,500 PRU; that equates to about $15,000 in additional gross per month or about $180,000 per year — hello!
If your salespeople cannot sell one vehicle per month 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 running their store.
How to Increase Profits Without Adding Expense
Speaking of the service drive, what about those service advisors who are currently getting face to face with about 15 to 20 customers pay and warranty customers a day. About 60 percent of those customers (nine to 12) 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 salespersons’ 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? 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!