If you watch or read the news, it’s pretty easy to get in a bad head space around the direction of our economy. Between gas prices, chip shortages and supply chain issues it can all become overwhelming to process — before even developing a plan to protect the profitability of your company.
In my 25-plus years in this business, this isn’t the first time I’ve seen these kinds of issues. Most people tend to have a short memory around what it’s like to operate a business in this type of climate. The first question you must ask yourself is, “Are you a market-driven store or a management-driven store?”
I have found going with the flow of the market is a recipe for disaster. Managing processes and the activity of your people is the tried-and-true way to not let these economics affect your business. We’ve experienced an industry anomaly over the last couple of years with record front-end grosses, resulting in record net profits year over year. This in turn has caused us to be a little lazy with our processes.
No matter what the market does, managing your finance process will ensure you maximize the profitability of your store. There are a few key things to measure and focus on.
1. 100% T.O. to the Business Office at the Point of Sale
If you look at the metrics, it’s crazy the impact this has on the business office profitability. I have tracked the metrics for years on this and what I have found is the average per vehicle retail (PVR) for a deal that got T.O.’d at the point of sale is around 65% higher versus those that didn’t — no matter how that customer pays for the car.
2. Focus on Product-to-Reserve Ratio
This a metric that most don’t even know about. What this means is what percent of the F&I profit comes from product sales versus reserve. If your reserve income exceeds more than 30% of your total income, then your likelihood for chargebacks increases dramatically. If the customer is happy with the interest rate, then you have a higher chance of them listening to product offerings. If they aren’t happy, they may not tell you but they won’t buy product and if they do, you will lose it when they refi and get an interest rate they are happy with.
3. 100% of the Products 100% of the Time
We all have heard this for years, but I will bang this drum until they put me out to pasture — it’s the only way to maximize product sales! Our responsibility to our customer is to make sure they’re fully protected when they leave the dealership. If you think about it and put the money aside, we only offer products that cover the things we have angry customers complain about when they come into service: repair not covered, keys cost $400-600, insurance didn’t pay my loan off, dings on the doors, etc. When you let them know that you only offer the products that protect your customers from the very thing that turns their once-happy car-buying experience into an attitude of “I will never go back to that place,” they are more likely to take advantage of them.
A word track I have used for years to explain this is, “Today represents 1% of your ownership experience but the next five, six or seven years represents the other 99%! We focus on the 99% because we not only want you to come back and buy again but we want you to tell all your friends and family about us as well.”
If you just focus on these three things, you will increase your profitability in your dealership. As Peter Drucker said, “You can’t manage what you can’t measure.” Measure these things, and I guarantee they will help recession-proof your profitability.
