Recent events may require revising performance plans
As we enter the summer selling season, it's time to check our current performance in relation to the business plan we have established for 2011.
Personal experience has shown that every finalized plan is first predicated on the numbers of new and used vehicles we would sell and the accompanying gross. Closely following that is fixed-operation performance.
Once we established this gross plan, we applied our expense budgets based either on a percentage basis or experience to determine our net.
In recent times, the economy and natural disasters in Japan have affected our plans. I needn't remind you of the many trials we have faced and will most likely continue to face throughout the balance of this year.
So, where are we compared to our plan? Are our vehicle sales volumes, year to date, consistent with our plan? What about our grosses for per vehicle retailed, including our net F&I per vehicle retail? Is the year to date gross generated by our parts, service and body shops consistent with our plan?
Congratulations if you are on track or exceeding your plan. If we are behind, which is the case with many dealers I've spoken with, now certainly is not the time to abandon your plans and say, “We'll just try to survive this year and make next year better.”
One suggestion: Since conditions now are so different from what many or most of us anticipated, I suggest you assemble your team and construct a revised business plan for the next seven months.
Follow the same procedure as you used in late November, but with the first-hand knowledge of today's business conditions.
We now have a fairly accurate idea of our new-vehicle inventory availability and our grosses for per new-vehicle retailed.
We also know about our ability to generate used vehicle sales and gross profit, regardless of the industry-wide shortage of vehicles. Armed with our revised sales and gross numbers plus the gross from fixed operations, we are able to take an in-depth look at our expense plan.
My suggested first step: Based on the performance information you have, calculate your actual units sold to your average month's units required to break-even. As a reminder, the formula is as follows:
There are several reasons this break-even number is so important, including the fact that it helps us determine the areas where we can make changes to accomplish profitability.
If our monthly break-even requirement exceeds our ability to generate this volume, we must either lower our total fixed overhead, raise our gross per unit retail or establish some combination of the two.
Each individual expense should have a budget number as a percentage of your total gross. Any variance from the budgeted percentage can not only quickly identify areas of needed focus, but often assist in pointing to items which need to be addressed. An example might be an increase in floorplan expense. You may be receiving less manufacturer credits due to a constrained availability which impact the expense. So does failure to turn the inventory in a timely manner.
The revised plan process will require a couple of days of your management team's time, but the results will allow you to attack the market with a renewed vigor and, most likely, an enhanced bottom line.
Veteran dealership consultant Tony Noland is at email@example.com
|1Total Fixed Overhead $ =||$2,865,893||100.00%|
|- Fixed Absorption/ Coverage =||$1,888,337||65.89%|
|Unabsorbed Overhead =||$ 977,556||34.11%|
|Unabsorbed Overhead $ =||$ 997,556||34.11%|
|÷ Gross per ratail unit (N&U)||$ 2,489|
|Units to Break Even YTD||$ 2,489|
|YTD Units ÷ # Months YTD||$ 2,489|
|Monthly Units Required to Break Even||65.46|
1 Total fixed overhead = total dealership expense less variable expenses
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