So far, this year has presented more than its share of issues for auto dealers. Fuel prices are affecting what products we sell and in many cases, those products offer less gross profit than SUV sales of recent times.

Interest rates continue to increase. Costs increase.

These situations reinforce the need for us to control costs, maximize employee productivity and maintain strong used-vehicle and fixed operations to maximize returns on investment.

Last month, I noted the need to manage expenses and right-size your organization from a personnel standpoint. As we all know, it all starts with gross-profit production. Running a close second is our ability to manage expenses.

The following, for your reference, are certain measurements from the NCM database that will allow you to compare your 2006 year-to-date performance with that of our clients. Unless noted otherwise, all percentages are stated as a percentage of total dealership gross.

The first area, expense-to-gross ratio, is a key indicator of potential concerns in other areas. Thus far in 2006, we have seen the following benchmark changes in total dealership gross and total dealership expenses compared to the same period in 2005:

Category Domestic Import Highline You
Total Operating Gross + 4.5 % + 12.0% + 20.4% %
Total Expense + 3.4% + 9.1% + 22.9% %

One measurement I often mention is employee productivity. The formula is: your total dealership gross divided by the total number of employees. This needs to be further divided by individual department; total departmental gross divided by the actual departmental employee count. This count needs to be accurate.

The following, collectively and by department, are 2006 year-to-date benchmark employee-productivity numbers:

Category Domestic Import Highline You
Total Dealership $ 8001 $ 9544 $12215 $
Combined New/Used Dept. $11830 $12562 $19866 $
Mechanical Service Dept. $ 4949 $ 6053 $ 7172 $
Body Shop $ 4752 $ 5559 $ 6053 $
Parts Dept. $12939 $12992 $22231 $

Having looked at productivity, let's now look at our compensation percentages on the next chart. In a perfect world, our compensation as a percentage of our gross would remain constant. We know it's just not that way.

Supervision compensation should be tied directly to individual departmental net profit. But other types of compensation are more difficult to control. With the annual increases we all are experiencing (i.e., health insurance and other benefit-related costs) total employment expenses are ballooning. That's another reason we must concentrate on building efficiency into our organizations.

Category — As % Total Dlrshp Gross Domestic Import Highline You
Total Staff Expse w/benefits 36.6% 34.0% 28.9% %
Staff as % Total Expenses 43.0% 42.4% 39.3% %
Benefit % Total Staff Expnse 27.1% 26.3% 27.7% %
Compensation Supervisory 11.3% 11.5% 8.3% %
Compensation Clerical 3.2% 2.9% 2.6% %
Compensation - Other 11.8% 10.2% 9.3% %
Total Support Salary/Wage/Bonus 26.7% 25.0% 20.9% %
Total Sales Comp. as % Total Variable Gross 23.4% 23.1% 22.8% %
Total Advertising/Promotion 7.0% 7.0% 4.8% %
Total Dealership Interest 2.8% 1.7% 1.7% %

Remember, a benchmark is a reference, not a goal or guide. It all starts with gross-profit production. Any reduction in gross or, should I say failure to increase gross, will inflate the percentages and result in a decreased net profit.

Preventing a decreased net or (put more positively) generating an increased net is a challenge we must accept each day in this business.

Good selling!

Tony Noland is the president and CEO of NCM Associates, Inc. He can be reached at tnoland@ncm20.com.