Benchmark Your Profitability

The numbers I'm sharing here reflect first quarter results from the NCM database. They are average dealer performance changes compared with the same first quarter period in 2006. They are divided into three franchise categories. The last column is for you to benchmark your dealership performance.

The most telling and important number, when addressing total dealership profitability, is the relationship between expenses and gross. If, for example, the cost of obtaining gross is accelerating at a greater pace than the gross we can produce, we have to call a time out and take a look at or identify the cause.

Let's look at what NCM calls the Big 3 Expenses: employment, advertising and interest expense.

The employment expense number excludes sales personnel and technician compensation, but includes their associated employee benefits. While most of the interest number is floor-plan related, this account includes all dealership-related interest expenses where applicable.

From an advertising standpoint, many of you are reducing your traditional newspaper, radio and television advertising in favor of the Internet. For those who have a good process in place, the e-commerce departments have become a solid contributor to gross with less expense.

The interest expense is largely a by-product of how much inventory we choose to carry and how quickly we are turning our new vehicle inventories. At the end of the quarter, the average dealer's days supply level of new vehicles was as follows: 45 days for highline, 64 for import and 83 for domestic.

The remaining two items relate to semi-fixed and fixed expense. The change in those two areas:

When we take a look at our variable and fixed-operations comparisons, we see mixed results in variable while there is improvement in all areas for the three dealership classifications in fixed.

I realize that looking at only three months of a period is not a sure indicator of how we will finish the year.

But looking at performance measures for this period offers two opportunities. One, we can make any corrections where they are needed now. Two, we can accentuate the positive, e.g., attack the market, where and when we have the opportunity to perform at a higher level.

Most of us, over the past two or three years, have spent considerable time and energy right-sizing our operations. Now dealers can take full advantage of what the market will allow or, what they can create, being the good business people dealers are.

Good selling.

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