Good Turn Deserves Another

I was invited to Brazil this summer to speak at a meeting hosted by Fenabrave, the Brazilian auto dealer association. It is always a treat and an education to be with dealers, no matter where they are from.

The market leader in Brazil is Fiat, and I took advantage of my time there to see some of the products, many of which will soon be sold here because of the new Fiat-Chrysler partnership.

If I've learned nothing else in my travels, it's that there are few differences in this business. We may speak a different language, but when translated, the message is more similar than one might expect.

The BRIC bloc of countries has been in the news due to their robust economic growth. BRIC is an acronym for the economies of Brazil, Russia, India and China.

In Brazil, June was a record auto sales month (up 17.2% over June 2008) and for the first 6-month period of the year, sales are up 3%, quite a contrast from that of the U.S.

The primary stimulus for this growth has come through tax breaks coupled with an easing of the credit market. (No I won't digress and suggest that the U.S. might take a look at what's happening outside our borders.) The president of Brazil has announced an extension on the tax benefit on vehicle sales through the end of this year.

The day before my presentation, I had lunch with a successful multiple-franchise dealer during which we discussed key performance metrics. Being the guest, I was asked to first answer or identify what I felt to be key metrics.

My answers were fairly prompt and concise: personnel productivity, dealership net profit as a percentage of gross, asset management, a balanced departmental contribution to gross and net and margins.

My answers certainly come as no surprise to those of you who have read my articles in Ward's Dealer Business over the years.

When I asked him to identify his key metrics, he mostly agreed with my thoughts and then added inventory turn. Being from the U.S. and associating turn with parts and used vehicles, I was surprised to hear him clarify his turn statement to include new-vehicle inventory turn.

During training sessions or meetings, I have often commented about the need for dealers to monitor their new-vehicle inventory turn rate and have even quoted a goal of six annual turns.

Anxious to compare goals, I was totally unprepared for his quick answer: 21 days, and he didn't hesitate.

“In this country, we have experienced periods of high inflation and high interest rates, so it's very important that we manage our inventories,” he said. Wow!

For your information, the inflation rate in Brazil through May is 5.2% and the Brazilian Central Bank just reduced the benchmark rate to 9.25% in an attempt to counter a slowing economy.

Within a couple of days of my return, I was with a very large and highly successful multiple-franchise U.S. dealer.

As we discussed his inventory situation, he noted his organization's strong commitment to inventory management in terms of days' supply by model plus turn.

He predicted he'd be at a disadvantage as we get further into the summer selling season, due to being too conservative in estimating summer-market demand. Still, he believed in his commitment to turn.

We reflected on the historical evidence that often the worst inventory managers are in the best position during incentives, but then we all know the rest of this story don't we? If we all turned our inventories more quickly, our gross profits would be greater, our floor plan and inventory maintenance costs would be less, there would be fewer rebates and subvented rate programs.

As we end the summer selling season and we again begin ordering new vehicles for inventory, you might remember the Brazilian dealer's new-car turn goal.

Granted, 21 days is probably too aggressive, but is it better to realistically shoot for a 45 days and end up at 60 to 75, or not worry about it and hope there is an incentive program from the manufacturer?

Good selling!

Tony Noland is a veteran auto dealership consultant. He can be reached at [email protected].