Last month, I noted that dealers at the NADA Convention sounded a common refrain of “I have to get my expenses in line.”

I also noted that doing that doesn't happen overnight, but it can happen in short order if you take a few right steps.

Dedicate one morning for an expense management meeting with all departmental managers. Review each individual expense. First, determine if it is essential. Second, determine a way to reduce it if it's out of line.

For example, dealers commonly note that their sales compensation or policy expense is high, but how many of them know why? One way to find out is to look at the individual components of the total expense. This is best accomplished by establishing sub-accounts. In the case of sales compensation, you would need to examine each of the following areas that make up the total of the expense account:

Commission expense $
Sales personnel salaries $
Guarantees $
Spiffs $
Total Salesperson Compensation $

In the case of policy expense, your sub-accounts might provide information such as:

Goodwill $
Loaner vehicles $
Warranty adjustments $
Total Policy Expense $

A reminder: when determining out-of-line conditions, it is often a high percentage that will first gain attention, but is it the expense dollar amount creating the condition, or is it a low gross? Answer that question first.

Assigning a budget to each expense helps control expenses on a dealership's average monthly total gross. For example, if your average dealership gross is $250,000 and the benchmark or your manufacturer's guide for policy expense is .7%, your policy expense monthly budget is $1,750. This practice is best assigned to semi-fixed expenses.

Following, for your reference, is a listing of expense percentage results for the all-Client NCM average for the year 2000. Compare your expense percentages as a percentage of total dealership gross to these averages and then multiply your total dealership gross by the average expense percentage to determine your budget and to determine if there might be an opportunity for improvement.

By following the suggested processes, you'll soon see your performance improve. Where and when performance is measured, performance improves.

Good selling.

Expense Category: Average Dealer My Dealership Expense Budget Actual Expense
Company Vehicle Expense 0.60% % $ $
Office Supplies 0.70% % $ $
Other Supplies/Tools 1.00% % $ $
Fixed Operations Advertising/Promotion 1.10% % $ $
Contributions 0.10% % $ $
Policy Expense 0.80% % $ $
Outside Services 2.40% % $ $
Laundry & Uniform 0.07% % $ $
Travel & Entertainment 0.30% % $ $
Legal & Audit Expense 0.50% % $ $
Telephone 0.90% % $ $
Training 1.00% % $ $
Bad Debts 0.03% % $ $
Data Processing 1.60% % $ $
Miscellaneous 0.60% % $ $

Tony Noland Tony Noland is director of international operations for NCM Associates. He has 30 years of automotive retail experience.

For information to obtain a complete analysis of your financial operation in comparison with Best Practices benchmarks, fax a written request to (913) 649-7429.