HOW TO PROFIT IN A SALES DOWNTURN

I'm not suggesting that you write the franchise a termination letter, but rather take as much control as possible of your individual destiny.

During this year's NADA Convention in Las Vegas, I visited with many dealers whose optimism fell below last year's convention.

This year, there seemed to be a common theme to most of the conversations I had with dealers.

The most commonly repeated comments I heard were: “I have to get my expenses in line.” “I have to get my new vehicle day's supply in line.” “I have to get in the used-vehicle business.” “Fortunately, we have increased our fixed operation gross in the past few years.”

I don't need to remind you that business conditions during the fourth quarter were less than impressive. So, what's in store for us during 2001? Many have asked. I don't proclaim to be an economist, but as most of you know, I do study our industry and the trends.

The NADA economic forecast for 2001 is that the first quarter will be sluggish, but the rest of the year should be strong, ending with new-car sales of 16.3 million units. That would be the industry's third best year, behind 2000 and 1999.

Falling interest rates, expected tax cuts, low unemployment and consumer economic stability are positive factors to support NADA Chief Economist Paul Taylor's forecast.

If his forecast is accurate, we, as dealer operators, have some work to do in a short period of time. We have to position our operations for maximum profitability at that industry volume level. Personally, I feel that this forecast may be a bit overly optimistic.

Having said that, I would recommend that you position your operations to be highly profitable at an annual new-vehicle sales rate of 15.5 million units. How do we do that? By remembering the dealer comments in the beginning of this article — by getting your expenses in line, getting your new vehicle day's supply in line, getting serious about the used-vehicle business and increasing your fixed operation gross.

We all know the department we have the least control over is new vehicles and we have the most control in used vehicles. To see an example of my previous statement you have to go no further back than the recent announcement by DaimlerChrysler of their cuts to the floorplan assistance program and the customer fuel allowance. I'm not suggesting that you write the franchise a termination letter, but rather take as much control as possible of your individual destiny.

One word of caution about the used-vehicle business this year: In my opinion, rebates and incentives will be with us for a while. When creating your ideal used-vehicle model mix, remember that an incentivized new vehicle might have a lower monthly payment than a one- or two-year-old comparable model due to subvented rates.

Strive for a maximum new-vehicle day's supply of 60 days. If you work to keep a 45-day supply by individual model on the ground and a 15-day supply in transit, you can save yourself a lot of pain. When sales and market conditions warrant an inventory increase, step up if you need to, but not before.

I firmly believe that many dealers honestly believe that their situation is actually different from the balance of the industry. Well, these are the dealers I will call when I need to purchase a sold unit or make a dealer trade.

Getting your expenses in line doesn't happen overnight, but it can happen in short order if you take a few steps.

Dedicate one morning for an expense management meeting with all departmental managers. Review each individual expense and first, determine if it is essential and secondly determine a method for reducing it. A dealer recently gave a perfect example of expense reduction. He had his telephone company representative visit his dealership to identify each line that he was paying for. He found desks in front of jacks not being used, etc. The dealer was able to reduce his monthly telephone expense by $500 with that one simple step. There are similar items that you and your team will identify.

If, the NADA economists are correct, and I sincerely hope they are, the sluggishness we experienced during the fourth quarter of 2000 and are currently experiencing in the first quarter of 2001 will soon end and we should experience improved sales conditions. I challenge each of you to remember this past six months and let it serve as a wakeup call to not ever allow yourself to be put into that position again.

Good selling!

Tony Noland is director of international operations for NCM Associates. He has 30 years of automotive retail experience.

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.