It's time for our mid-year check-up. Specifically, let's take a look at the "Big Three" of automotive retailing: personnel, advertising and floor plan. Personnel:
We want to check personnel productivity. Does our productive staff comprise at least 50% of our total employee count?
Those classified as productive personnel include our new and used vehicle sales personnel, F&I producers, technicians, mechanical and body, service advisors, body shop estimators and parts counter sales personnel.
Unfortunately, everyone else is regulated to the role of being a support person. During "good times" we tend to add personnel out of convenience, rather than necessity. That can result in an out-of-line ratio, and ultimately, low gross per employee.
Next we want to check our gross per employee. This number varies by franchise category, but a minimum acceptable monthly gross per employee is $6,350. The NCM Benchmark, excluding high-line franchises, is more than $7,200 per employee per month. The formula is simply total departmental gross divided by total employee count.
Now take a look at personnel expense. The Benchmark, excluding high-line, for total personnel expense as a percentage of the total dealership gross is 32.7%. The expense for our average client is 34.4%. If our expense percentage exceeds 35% of our total gross, is it as a result of low gross, excess personnel, the improper ratio of support to productive personnel or what?
Advertising: This area is definitely difficult to compare since there are so many methods of accounting for manufacturers' dealer ad fee credits. Are the credits applied to the expense or placed into the other additions to income account? How is the advertising expense allocated to the individual departments?
Having posed these questions, for your information, our average client reportedly spends 8.1% of their total dealership gross on total advertising. Our Benchmark clients are spending 7.7% of their total dealership gross for advertising.
Floor plan: In the June issue, we discussed our potential exposure if interest rates increased. Well, as we all know, the rate did increase.
In light of increased interest rates, it's important that an inventory plan will not let the floor plan expense exceed 1% of our total departmental gross.
Our goal is a 45-day supply on the ground and a 15-day supply in transit. This is best accomplished when we examine each individual car and truck line. Our ultimate goal is a 45-day supply of each model line on the ground and a 15-day supply in transit.
Why are personnel, advertising and floor plan so important?
Because these three expenses consume approximately 45% of our total dealership gross.
If our goal is to net 30% of our total dealership gross, we only have 25% remaining to budget to our variable policy and delivery plus our semi-fixed and fixed expense categories.
If we find ourselves short what do we do next?
Let's first take a look at our gross to see if we are maximizing our potential. If we are capitalizing on our gross opportunities, then we need to seriously examine our expenditures. This can be accomplished during our monthly expense meetings or during a payables signing session in which each payable check being issued is discussed. Is this a necessary expense? Is there another vendor who could provide a comparable service or product at a lesser price? Remember, only through the individual inspection and discussion of each expense account, can you control it.
One last item to examine is your accounts receivable position. Are all of your accounts receivable current? Are your management pay plans impacted by receivables that exceed 60 days of age? Past due accounts are an expense both in terms of the lost use of capital and the clerical time and effort involved in collecting them.
This year, thus far, continues our nine- year trend of good business. But it's prudent at this point to stop, catch your breath, and examine the areas discussed here. The result of that examination could very well be an increased net profit.
Good selling. Tony Noland is director of international operations for NCM Associates. He has 30 years of automotive retail experience.