Half the year is now behind us. Obviously, no one can say this year to date has passed without its challenges. Most dealers I speak with indicate the year thus far has been just okay.

It's a good time to look at your year-to-date performance, identify areas that might be out of line, and make corrections. One area I urge you to look at closely is used-vehicle aging and inventory position. July and August typically are strong sales months. They afford opportunities to bring inventories into line. With the anticipated higher-than-normal incentives being offered to correct the out-of-line new vehicle days supply, sales should be brisk.

Gross profit production is key, but running a close second is your ability to manage your expenses. Following, for your reference, are certain measurements from the NCM database, which will allow you to compare your 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 we want to examine is the expense-to-gross ratio. This is a key indicator of potential concerns in other areas. Thus far in 2004, we have seen the following benchmark changes in total dealership gross profit and total dealership expenses:

Category Domestic Import Highline Us
Total Operating Gross + 5.7% + 3.1% + 13.5% %
Total Expense + 3.8% + 4.9% + 12.6% %

One measurement I often mention is employee productivity. The formula is total dealership gross divided by the total number of employees. This needs to be further divided by individual department. The key here is an accurate employee count. Following, collectively and by department, are the 2004 year-to-date benchmark employee productivity numbers:

Category Domestic Import Highline Us
Total Dealership $7,401 $8,417 $11,941 $
Combined New & Used Vehicle Dept. $11,106 $10,707 $18,514 $
Mechanical Service Dept. $4,562 $5,599 $6,785 $
Body Shop $4,539 $4,818 $4,990 $
Parts Department $12,371 $11,902 $21,363 $

Let's now look at our compensation percentages. 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 gross, but other compensation is more difficult to control. With the added increases we all are experiencing relative to insurance, our total employment expenses are ballooning. That's another reason to concentrate on building efficiency into operations.

Category Domestic Import Highline Us
Total Employment Expense W/Benefits 36.9% 34.7% 28.6% %
Employment As Percent Total Expenses 45.3% 41.6% 40.9% %
Benefit % Total Employment Expense 27.5% 26.5% 27.2% %
Compensation Supervisory Personnel 11.1% 11.3% 8.7% %
Compensation Clerical 3.2% 3.2% 2.5% %
Compensation — Other Salary & Wage 12.0% 10.7% 9.1% %
Total Support Salary & Wage W/Bonus 26.7% 25.50% 20.8% %
Total Sales Comp. As % Total Variable Gross 22.6% 23.1% 22.8% %
Total Dealership Advertising/Promotion 7.4% 7.6% 5.0% %
Total Dealership Interest -0.5% 0.0% -0.7% %

I've provided a lot of information. I hope you will find it beneficial. Remember, a benchmark is a reference, not a 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. The prevention of a decreased net, or put in a more positive vein, generating an increased net, is a challenge we all must accept each day.

Good selling!

Tony Noland is the president and CEO of NCM Associates Inc. He's at tnoland@ncm20.com.