Let's Do Some Benchmarking

One of the greatest benefits of attending the annual National Automobile Dealers Assn. convention is the opportunity to speak with dealers.

I hear specific actions they're taking to improve performance. It reminds me how great this business is, even though it has its challenges.

Last year wasn't without challenges, but most dealers have addressed these by adapting to changing market conditions by putting a greater emphasis on used-vehicle and fixed-operations opportunities, new-product offerings, increased grosses and greater expense controls.

The noted results contained in this column are from the NCM Associates' database and reflect the average performance of our all-dealer all-franchise clients.

The average client's gross was impacted to a great degree by the model mix of new vehicles sold. SUV market declines affected volume and gross.

A concerning and continuing trend is the expense increase compared with the increase in total dealership gross.

Without exception, from an expense standpoint, all franchise categories (ultra high-line, high-line, import and domestic) saw increases in total interest costs. This is the one item that “tipped the scales” toward expenses; increasing at a faster rate than gross.

There were positive results in 2006. Even though our average NCM client experienced a slight decline in new vehicle volume (-2.3%), the average gross per new vehicle retailed increased by 2.6%. That is a 0.4% gain in total new vehicle gross for the year. Unfortunately, it didn't cover additional floor planning costs.

Used-vehicle volume was up 0.7% and a gross per-vehicle-retailed increase of 3.7% resulted in a total used vehicle gross increase of 3.6% over 2005.

Net finance and insurance per retail vehicle continues to increase with an improvement of 4.1% per retail vehicle over 2005. One F&I dealer effort, beginning to pay dividends in both the new- and used-vehicle department, is aftermarket.

Fixed operations again proved its value in 2006 with our average client increasing their fixed coverage from 67.2% in 2005 to 67.9% in 2006.

This was made possible by an average increase in customer-pay gross of 7.5%, an increase of 5% in body shop gross and a 3.9% increase in parts department gross.

All this occurred while decreasing total departmental expenses by 0.3%. Great job. Specific improvement areas include the average dealer's effective labor rate and customer-pay repair-order count.

For expenses, we saw the results in the next chart. The variable operation expenses noted are stated as a percentage of total new- and used-vehicle departmental gross including net F&I:

The following expenses are stated as a percentage of total dealership gross:

Dealers make the changes necessary not only to survive but to prosper. For instance, dealers lately are approaching their inventory needs more realistically.

By controlling this and not letting interest cost exceed the budget, the gross increases at a greater rate than the expense increase. Good selling! n

Tony Noland is the president and CEO of NCM Associates Inc. He is at [email protected].