Squeezed Profits Require Greater Efficiencies

I’m on the board of a non-automotive company. The quarterly meetings are a learning experience. I often hear of processes from their industry that could apply to ours.

The CEO opened the last meeting by saying, “In today’s business climate, with margins being so unforgiving, you have to operate your business differently.” 

To do that requires “a philosophy of leadership, teamwork and problem-solving resulting in continuous improvement throughout the organization by focusing on the needs of the customer, empowering the employees and optimizing existing activities.”

The competitive landscape each of us battle in each day and the compressed margins that go with it, make it more difficult to earn the return we’ve grown accustom to.  If we are unable to improve our margins, we must optimize our processes.

That doesn’t mean continuing to do things as usual and expecting a different result.

It means we must install processes which allow us to maximize our efficiency, which the dictionary describes as “a measurable concept, quantitatively determined by the ratio of output to input.”

There are many ways for us to create efficiency.

Lead providers and the return dealers get from purchased leads are oft-discussed topics in meetings today. This is an area dealers should consistently monitor.

Another area dealers can gain efficiency is the cost of new-vehicle floor planning.  By resisting the urge to have more inventory than might be reasonable and focusing on a fast inventory turn, you will reduce your floor-plan expenses. 

And, advertising and pre-delivery credits are more plentiful if we rapidly turn inventory.

Holding an expense management meeting monthly is a most effective method of encouraging efficiency. There are a couple of methods I’ve found work best.

One is a check-signing “party” where all payables are divided by department. Prior to the dealer signing the expense check, the affected departmental manager must sign the invoice. This brings front-mind awareness to each dollar spent.

Another process is to provide each manager a copy of your payables schedule in advance of the meeting. Departmental expenses and methods of reducing, controlling or eliminating them are then discussed as a group. This is educational and encourages input and ideas.

No discussion about creating efficiency is complete without reminding you about employee productivity.  It begins with your ratio of productive employees to support staff.  My goal is to have a minimum of 55% classified as productive. My definition of that includes variable sales personnel, finance and insurance producers, service advisers, estimators, auto technicians (including quick-lube workers), body shop technicians, detailers, parts retail and wholesale sales personnel. 

Monitor and publish monthly gross per employee in total and by individual department. This probably is the No.1 method of determining and monitoring your total dealership staffing level. 

If my total gross per employee is lower than that of my dealer peers, manufacturer composite or 20 Group, it signals I have only one of two choices.  I must increase the dealership’s total gross income with my staff or I must reduce my staff. 

What is the right number?  At minimum, the gross per total dealership employee, excluding the dealer operator, should be $7,500 per month in a domestic or import dealership. In a high-line dealership, the minimum is $10,000 per employee per month.

We must operate differently today. To do that will require full support from you and your entire team. I know you will like the results.

Good selling! 

Tony Noland of Tony Noland & Associates is a veteran dealership consultant. He can be reached at tonynolandandassociates.com