Low Hanging Fruit

Low Hanging Fruit

In reviewing NCM’s extensive dealer database and examining comparative numbers, I have found that for many dealers there are two areas of great upside potential. Both have extremely high margins and they will most likely, when appropriately addressed, derive a disproportionate amount of income for the additional effort involved.

Item #1: Finance and insurance income

Here is a page straight from the public companies that highlights F&I income per retail unit. Using their first quarter published results for finance and insurance per vehicle, we see the following for these listed companies:

Group1    $1,060 per unit
Lithia Motors    $1,060
AutoNation    $1,034
United Auto Group    $909
Sonic Automotive    $904
Asbury Automotive    $890
*Source: Stephens, Inc.

Please appreciate that all of the public companies have come under a lot of scrutiny on their F&I practices and have since taken steps to create protocols that attempt to limit their malpractice exposure, as well as improve the customer transaction experience. They all endorse and follow stringent and well-defined customer transaction processes, menus, standardized pricing of their products and rates, full and complete disclosures, regular compliance reviews and other practices. Notwithstanding the extra steps they embrace – or maybe because of all of these steps – they consistently produce strong numbers that are higher than the average dealership profile.

According to our NCM database, the F&I income per retail unit for our benchmark dealers is running more than $100 below the lowest of the public companies shown in the above table.
Let’s see how this shakes out for a dealer retailing, say, 100 units a month and who increases his F&I income by $200 per unit. Using 17 percent as F&I compensation, this increase will lead to an additional $200K per annum.

So, is there room for improvement for many in the area of F&I performance and is it worthwhile to spend some time honing your processes, procedures and training in order to get to the next level? Certainly – and for two reasons. The first is the incremental gross that is gained and the second is the fact that compensation paid to produce this incremental gross is a lot lower than in other compensation areas so, in turn, more flows to the bottom line. You give away less than you earn. Maybe it is time to turn the page and start learning from the public caps when it comes to the F&I process.

Item #2: Service department gross

Here is the position as it stands. At present, the number of units in operation is at an all- time high, yet this is in the face of static or even declining dealership count. In addition, many dealerships have not expanded their service departments at the same pace as the expansion of their units in operation.

There is a lot of business out there to be had by the dealerships as a natural byproduct of the above confluences. In many instances the service traffic is not growing as it should and we are losing traction on a highly profitable business segment. One way to realize the extent of this profitability is to calculate what one additional technician will produce in added gross per annum. (Or, what the loss of one technician actually costs the dealership!)

Assume the following: An effective retail labor rate of $80 per hour with a 70 percent gross margin; a ratio of parts to labor of 0.80 with a parts margin of 40 percent; producing only 40 hours per week for 49 weeks. Taking all of the above into account, the dealership will produce additional gross of close to $160,000 per annum! Your numbers may differ, but when you slot in your variables the gross generated will be significant and maybe even higher based on a change in the above assumptions.

So, the key is to have enough work to be able to hire that one additional technician. You have the units in operation and now you must upgrade your processes to convert sales customers to service customers, while at the same time keeping a tight lid on customers defecting from the dealership. We have forever chased business away to the independent and it is now time to win back that business.

Make it a commitment to ensure that your service and marketing staffs are capable of regaining service market share. If this means a refresher course and/or training on how to capture business, so be it – train them. There are many excellent service seminars and service bootcamps available that will prove very beneficial to building up your service business, so you can meet your goal of needing to hire that additional technician or technicians. The low hanging fruit is there, but the first step is a commitment to the idea that with some dedicated work and planning, the rewards will be significant.

This article by Jeff Sacks originally appeared in Dealer Magazine.

Jeff Sacks, president of Jeff Sacks & Associates, is an auto industry speaker, consultant and trainer and is actively involved with dealership and OEM consulting and training.
His website is www.jeffsacksauto.com and his phone number is 800-867-2160.