To combat competitive pressures on front-end gross profits, car dealers should evaluate where they can reduce expenses and restructure their operations.

Several software tools are available to help managers perform this analysis. Such tools should allow dealers to do the following:

  • See all dealerships side by side or take one dealership and compare the current month with previous months.
  • Compare similar franchises to one another.
  • Compile data from more than one dealership management system. This is important if a multi-dealership group has stores operating on more than one DMS.
  • Set and review targets and goals.
  • Capture specific departments’ cash-management items.
  • Send alerts via email so dealers can manage by exception.

Here are areas to focus on cost-cutting:


The cost of financing has risen in recent years. This trend is expected to continue. At the same time, the rising cost of vehicles and days’ supply of new vehicle inventory, combined with increasing pressure by manufacturers for dealers to offer new and upgraded facilities, contribute to rising financing costs.

Dealers should do the following to offset increasing costs of financing:

  • Understand if an annual audit or reviewed financial statement could reduce one’s rates.
  • Review or establish an inventory days’ supply target.
  • Improve the dealership’s sales and contract-funding process.
  • Implement a strong cash-management program.


The median advertising cost per retail unit sold for all dealerships is approximately $360.

To help manage and reduce expenses in this area, dealers should establish monthly goals and monitor actual expenditures.

The goal should be to create cost-effective advertising programs using both traditional and digital forms.

Computer equipment and software

Review all monthly invoices to make sure you are paying for contracted services at contracted prices and not paying for equipment no longer used, such as an out-of-service printer. A dealership paying for unused software applications should not renew those contracts.

To better manage contract terms and costs, limit the signing of contracts for hardware and software to a small number of authorized personnel.


Gain a better understanding of deductibles, including the risks – from cost and frequency perspectives – of submitting claims on property and casualty insurance.

Review the payback period, which is computed by dividing the increase in deductible by the premium reduction. If the payback period is fewer than three years, consider taking a higher deductible for reduced premiums.

Understand the current state of the market and market cycles and look for opportunities to negotiate a reduction in premiums. Obtain quotes from more than one insurance provider, including current providers.

Buying Power

These are some ways to capitalize on buying power:

  • Review vendor contracts and eliminate low-performing vendors.
  • Use current high-performing vendors for additional services.
  • Use master vendor contracts.
  • Improve purchase order systems, including putting mechanisms in place to minimize spot purchasing decisions.
  • Implement compliance processes to make sure approved vendors are being used and that the dealership is being charged the contracted rates.

These are some additional ways dealerships can look to reduce expenses:

Use full capabilities of service loaner management software to look for savings opportunities related to service loaner use.

Review use of outside services to determine if moving these functions in-house might save money.

Look for savings opportunities related to utilities. Example: installing high-efficiency lighting.

Rein in miscellaneous expenses, such as lot damage and extravagant employee recognition dinners.

Take advantage of a well-managed accounting office to help reduce write-offs and improve cash flow.

Dealers should include managers in establishing a plan, by department, to reduce costs. Setting intermediary goals can help assess progress, which can be monitored month by month or quarter by quarter, depending on what seems most appropriate.

Aligning managers’ compensation to expense-reduction goals can go a long way toward helping the dealership achieve those goals.

To capture expense reduction on a long-term basis, management should implement standardized processes and controls and assign specific staff members to “own” expense categories.

Every change counts. Even seemingly small changes can add up to big savings.

Jodi Kippe and Steve Wojcicki are with the accounting firm Crowe Horwath. They can be reached at and