Many dealers tell me that 1999 was their best year since they have been in business, and most of those same dealers feel that 2000 will also be a very good year.
Most economic indicators and industry forecasters also support the thought that this year, while not being equal to 1999, will be good. Increasing interest rates and fuel prices are two indications that change may be on the horizon.
So what does this mean to you, the franchised new vehicle dealer, if conditions change? If you have taken the necessary steps to ensure that your expenses are in line with your gross profit generation, then you are most likely in a good position. If, on the other hand, your expenses as a percentage of gross profit have increased, then you have some work to do.
One of the most critical actions you can take now, while times are good, is to take a close look at each individual expense and determine first, the necessity of the expense, and second, actions that can be taken to reduce the expense.
One of the most effective methods of reducing common vendor expenses is to prepare a letter to all of your vendors explaining you are soliciting bids for their particular product or service.
Enclose a self-addressed return envelope with the notation on the exterior "bid solicitation." Many dealers who try this are surprised to find the savings available simply for the asking.
On a larger scale are other areas that may require your attention. First, let's look at new vehicle inventory.
I realize that inventory, especially trucks, is a touchy subject, but don't let that become an excuse for bad practices. Work toward having a 45 dollar days supply on the ground and a 15 days supply in transit.
Monitor your used car and used truck inventories. Do not allow these inventories to exceed a 45 dollar day supply for both car and truck individually. Look at your parts and accessories inventory and ensure that it does not exceed 60 days. By adopting these policies and sticking to them, you will afford yourself some degree of protection.
The next area to take a look at is your personnel expense. I'm aware that qualified employees are in short supply and one of the methods required to attract and retain qualified employees is a good work environment and a fair wage.
During a manager's group meeting, one of the members asked a question about what has traditionally been an acceptable percentage for variable expenses versus where they need to be today in view of the difficulty in finding good employees.
We all agreed that some actions must be taken to protect our human assets, including a structure that will allow them to maximize their earnings potential in return for their productivity. The key word here though is productivity.
Take a look at your productive employee mix as a percentage of the total work force. A good rule of thumb is to never let your support mix exceed 50% of the total dealership employees. I am not aware of a singe benchmark client of NCM whose ratio of productive-to-support employees is less than 50%. Once you have achieved this minimum ratio, establish a process to monitor the individual gross profit productivity of all members of the productive staff. If your productive staff produces, your percentages will fall into line.
The final reminder is your advertising expense. What can you do to control or reduce your advertising expense? One area you might consider taking a look at is your own database. I can cite many cases where dealerships have implemented a database management program and by working that program, not only reduced their advertising expenses, but increased sales and gross profits.
I'm certainly not predicting that the sky is falling, but simply reminding you that while times are good, it might serve future profits well to take a look at the items mentioned above.
