BENCHMARK YOUR EXPENSE CONTROLS

Thanks to automakers' incentives programs, new vehicle sales continue at a rapid pace as we hit the mid-year point. We're on pace for a 17.5 million-unit sales year.

Question? In your dealership operation, what is your year-to-date sales and profit trend? Is it consistent or better than your forecast? Is your pace consistent with the industry?

The NCM Client database 2002 shows an increase in sales dollars, gross and net profit. Sales dollars are an often-misunderstood measurement in our industry. Wall Street and others place too much emphasis on this alone.

Those of us on the front line realize a change in our volume of certain products (product sales mix) can impact this number greatly and this number alone is not an accurate measurement of our bottom-line performance.

Net profit is often misunderstood. The 2001 fourth quarter exhausted most dealership new vehicle inventories, and necessitated a higher demand for product during the first quarter of 2002.

Add to this that many manufacturers have had an early build-out or balance-out and you potentially multiply the year-to-date expense distortion. This one item may have a greater impact on our year-to-year profit comparisons than many realize and if we aren't careful, we might overlook this.

Obviously most manufacturers offer dealers interest credits as purchase incentives. Since most dealers have opened the gates in their quest for new inventory, the assembly plants are running strong, inventory is arriving and the interest credits are accumulating.

How these credits are applied can affect net profits. If these credits are the equivalent of your interest cost for 90 days, do you apply one-third of the credit monthly, or do you take all of the credits as you receive them? This can make a substantial difference in a month's net profit. The overall impact of these credits on departmental profitability can also disguise other out-of-line conditions if you don't monitor them individually.

One last item: if your individual expense percentage is high, check your gross before assuming the expense is out of line. If the gross is low, it obviously raises the expense percentage.

Remind your dealership team that expense control is a priority in your organization.

Good selling!

Tony Noland ([email protected]) is the president and CEO of NCM Associates, Inc. He has over 30 years of automotive retail experience.

The following measurements are from our April year-to-date benchmark client database. This information lets you measure your dealership's performance versus theirs. The selected categories address our three greatest expenses and concerns: interest, advertising and personnel.

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.