“A significant number of dealers these days are becoming more and more aggressive in selling used vehicles to make up for reduced profits on the sale of new vehicles. Internet price comparisons pose a significant challenge to earning 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.” — Don Reed, CEO, DealerPRO Training
New, Used or Service: Who’s The King of ROI?
In order to increase ROI 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.
Used Car Opportunities
NADA research shows that the average used car cost (investment) is about $13,300 and sells for around $15,000, resulting in a gross profit of $1,700, which is a ROI of 13 percent ($1,700 divided by $13,300 = 13 percent).
Assume you can turn that inventory investment of $13,300 every 30 days (great job), which 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 a used car 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!
You Can Do Better
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 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.
Let’s assume 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 .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 1,082 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 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.
Expense or Investment?
How many sales people 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?
Let’s continue on with this logic and consider the following:
- Who gets the most incoming sales calls per day — salesperson or service advisor?
- Who meets and greets the most sales opportunities per day — salesperson or service advisor?
- Who has the greatest impact on owner retention — salesperson or service advisor?
- Who has the greatest impact on brand loyalty — salesperson or service advisor?
- Who needs telephone and sales training — salesperson or service advisor?
The answer to questions 1, 2, 3 and 4 is the service advisor. The answer to question number 5 is both the salesperson and the service advisor.
Here’s Your Answer
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 commit 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 net profits. It’s your choice to make.