When business is good, it’s easy to relax a bit. I don’t condemn this tendency, as long as one’s house is in order.
The job description of every dealership principal and general manager should include a periodic review of processes to make sure they’re in running order.
But we are not always aware of what specific items we need to inspect. We hire competent managers, pay them a fair wage and then often assume they are taking care of all the small items within their departments. But are they really?
Check specific items yourself to ensure people are following your policies and procedures. Have your accounting firm annually look at your processes and report back on their findings.
The following are a few dealership processes I deem important, but I often find are not always being adhered to. This is by no means an all-inclusive list.
Month-end new- and used-vehicle physical inventories. I’m confident almost every dealership does this, but what is your process and who does the inventory? Years ago, I was taught inventory should be taken each month using a blank legal pad and pen. Sounds archaic, right? Wrong.
List each vehicle in inventory and give it to the comptroller who then compares this list to the inventory schedule. If there are any unaccounted-for vehicles, they are listed and returned to the responsible person. Taking this approach instead of using a mere check list is the best method I’ve found for determining that each listed car or truck is physically in inventory.
Vehicle receivables schedule. Does your dealership take notes or hold checks when a customer might require more time before submitting the full required cash down? I’m not passing judgment on this practice, but I’ve recently heard dealers report of issues arising when their finance sources have audited their files.
Vehicle inventory schedules. While performing an operating review with a dealership’s used-vehicle managers, I ran into a situation that bears mentioning. We discovered a discrepancy while looking at the current used-inventory level and comparing the value of the average vehicle versus the average cost of sale based on the most recent three-month trend.
I took the financial statement and divided the inventory value by the number of vehicles listed in inventory.
When the managers argued that the number was inaccurate, we took the inventory schedule and found several vehicles listed with nominal dollar amounts. Each amount created a vehicle count that threw off the average value.
In the scheme of things, this is not a huge issue, but the office’s failure to clean the schedules monthly, as best practices dictate, caused inaccuracies in the information the managers use daily.
Open repair-order reports. This is a recurring issue at many dealerships. Dealers need these reports to be provided weekly at minimum. We are aware of the potential issues created by failing to close the ROs properly and promptly.
Service-adviser reports. I’m confident you review variable-sales staff performance, but do you monitor the performance of your service advisers and body shop estimators? This is a standard dealership-management-system report and allows you to monitor and compare performance broken down by adviser, category (i.e. customer pay, warranty and internal ROs), labor and parts sales per RO, hours per RO and the effective labor rate.
This is important information as we try to expand our customer-pay business in fixed operations.
Parts-management report. This report can be overwhelming until you understand the importance of the information it contains, including the level of aging inventory or parts that go unsold in the most recent nine-month period. Identifying stagnant inventory and acting before it becomes obsolete helps prevent future losses.
Tony Noland of Tony Noland & Associates is a veteran dealership consultant. He can be reached at tonynolandandassociates.com.