Show Me Your Pay Plan

Show Me Your Pay Plan

Pay influences behavior. We see this statement validated every day in the car business. Want more units sold? Hand out a unit spiff. Want higher customer labor per RO? Pay your advisors a bonus on hours per RO or give the technicians an opportunity to use a “pull board.”

Do these incentives help address the current business realities we face? Yes, but only partially. They stimulate the generation of gross, but there comes an inflection point where higher and higher grosses will, over the long term, influence and possibly shift consumer choice. The reality of our business is we have in most cases too many dealers chasing the same customers, while selling the same product or slightly differentiated products in close proximity to one another. In addition, we must now contend with the Internet, leaving us no real geographical boundaries to protect us as we move forward in an attempt to gain market share.

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Managing Your Interest Costs

Managing Your Interest Costs

For many years, dealers have had the luxury of operating in a low interest environment. Optimization of cash flow was left to those dealers who were either under-capitalized (and had no option), or well-versed and disciplined in asset and cash management techniques, thus taking advantage of optimizing their cash flow and relentlessly reducing their borrowings.

But, as interest rates rise, the cost of not aggressively managing your assets increases. There are a number of asset management strategies that dealers need to consider in order to free up cash flow and use this new found cash flow to offset their higher interest burden.

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Treat Each Day Like it is the Last Day of the Month

Treat Each Day Like it is the Last Day of the Month

Whether you want to admit it or not, there is way too much “fat” surrounding the way you finalize transactions at the retail level. Blame it on complacency or tradition, i.e.,  “this is the way we have always done it,” but in the end it really hurts dealership performance in the areas of cash flow, asset management, management information and ultimately dealership profitability (the quicker you accelerate cash flow, the quicker you pay off floor plan and reduce this expense).

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Preparing for Customer Retention

Preparing for Customer Retention

Before buying a new computer application for your dealership, it is important to make sure it will have a great chance of success. Not only must your key people buy into the acquisition, but the application must quickly perform so all involved dealership personnel can breathe a sigh of relief and enjoy the fruits of making the correct choice.

There are a number of essentials that must be in play for successful application execution. The in-dealership processes have to align themselves with the way the application works (or vice versa) and the data being used must be current, accurate and validated. The more sound data the application has to work with, the greater the opportunity to leverage this data and produce superb result and benefits.

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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.

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Understanding the Misunderstood Work in Process (WIP)

Understanding the Misunderstood Work in Process (WIP)

My thoughts on work in process are quite simple. The way we account for this asset is unwieldy, clumsy and awkward, but we handle it this way because it is the way we have always done it. When it comes to managing WIP, there is a much easier and simplified accounting process that I want to share with you, but first there is a need to completely understand how this asset is created and, in turn, how the current system works.

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Looking Behind the Numbers

Looking Behind the Numbers

Numbers are the performance barometer—we use them to measure, monitor and compete. They define our performance and, in many instances, our prosperity. Numbers can be used as the carrot or the stick—the tool that management uses as the lever to change and hopefully improve.

Thus, numbers influence management behavior and decision making. These actions are forged by what is normally a logical interpretation of the numerical information that is available. However, there are instances where certain metrics are not tracked, but instead ignored or not even acknowledged and yet, some of this data is incredibly important because of its significant impact on the bottom line.

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Used Vehicle Reconditioning

Used Vehicle Reconditioning

Used Vehicle Reconditioning – Reducing the Conflict

I am a fan of simple solutions to age old problems. One of the reasons I love what I do is because I am constantly exposed to resourceful dealers who share elegant solutions to vexing issues rather than reverting to the old hat adage of  “because this is the way we have always done it.“ I don’t know whether I picked this up at our most recent General Manager’s Bootcamp or General Sales Manager Bootcamp, but it makes all the sense in the world.

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What is the Right Size for Growth?

What is the Right Size for Growth?

Unfortunately it is not a surprise that there is currently great pressure on dealership profitability. The economy is soft and consumer spending is down in many segments of the economy, including automotive retail. Many dealerships are down over last year in terms of gross generated, and expenses have not decreased sufficiently to cushion this impact.

I remember clearly a few years ago the chief executives of the publicly-traded auto dealer groups making a point of stressing to the Wall Street investment bankers that during economic downturns dealerships do far better than many other industries. The reason for this phenomenon is the dealership’s relatively low amount of fixed costs, as well as a high degree of variable costs that can be quickly adjusted should a downturn occur. The variable costs alluded to here, personnel costs, are the dealership’s largest expense component.

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