Dealer Right-Sizing Saved the Day

With auto sales rising, falling and now rising again, we’ve had quite a ride and learned a lot along the way.

Despite some lean sales years, many dealerships saw improved profits.

How could that be possible? What did dealers do to increase net profit when sales dropped so dramatically beginning in 2008?

Also, what did dealers learn from the actions they took? And a bit of soul-searching: Are we still as focused on our operations and the bottom line now that business is improving?

Possibly the No.1 action dealers took was right-sizing operations. It has been tough and often gut-wrenching. But it has improved operational efficiency and aligned costs with revenues.

Another item we might consider in the 4-year annual sales results is our average month’s personnel count for each year. Why? Because many successful dealerships are producing more gross income and creating more net profit with fewer people than four years ago.

This is an example of improving efficiency: less personnel but higher productivity from those on board. Much of this is because dealerships retained their top performers.

During late 2008 and especially in 2009, the importance of cash took on an entirely new meaning. Cash became king.

Faced with the realization that we would be unable to go to the open market and obtain working capital loans and such, we learned which items represented cash and quickly were forced to take the steps necessary to ensure liquidity.

One of the more important facts we learned was that it probably isn’t necessary to have excess inventory, or at least not as much as dealers once thought they needed.

This is coupled with the fact that if we had lower inventories (and lower floorplan costs) and turned stock quickly, not only did we not need the same amount of inventory, but our grosses often improved and aging inventory became less of a problem.

The third thing right-sizing dealers did, and the one that required the most work, was to adjust total fixed overhead.

Each and every expense was classified as essential or not, and, after eliminating the non-essentials, those that remained were put under the microscope.

To reduce outside expenses, most dealers created preferred-vendor lists and concentrated their purchases under that. In order to be classified as preferred, vendors were contacted and given the opportunity to review their pricing to the dealership in return for being designated exclusive provider. 

Internally, rules regarding overtime were enacted and monitored, employee benefits were reviewed and adjustments made where practical.  Rules were put into place regarding policy expenses. Staffers were measured on their contribution to the total expense. 

Loaner-car expenses, where applicable, were examined, and policies put into effect to make more efficient use of this customer service. 

Another thing I often hear dealers cite when discussing these past four years is the increased focus on management and employee accountability. With today’s lower personnel levels, each person has a responsibility to produce. Management has to ensure they are helping their staff members do this. This is a complicated and involved process, but management has to be held accountable for hiring and training decisions. Management also must control employee turnover.

We are far from being out of the woods. But life is getting better for dealers as the auto industry slowly recovers. Dealers must make sure that as conditions improve, they don’t let their guards down and lose the business disciplines gained in the tough years since 2008.

(Tony Noland is a veteran dealership consultant. He is at [email protected])