How To Protect Profits

With dealer profitability a hot topic of late, one thing that has always impressed me about our business is a good dealer's ability to find a way to succeed even during the most difficult times.

Fuel prices are increasing, the Fed has just raised interest rates for the fifteenth time and employee health-care costs are at an all-time high. But somehow good dealers have always recognized similar challenges and reacted positively.

Often, when speaking with people outside our industry about the auto business, they are surprised to hear me describe it as a series of businesses under one umbrella that includes the dealer franchise system, which itself is a series of businesses under one umbrella.

In the past three years, new-vehicle sales have been near the 17-million unit mark. Beyond that are tremendous finance and insurance, parts, service and body-shop potentials for dealers for years to come.

In addition, a dealer has the opportunity to sell any type of used vehicle he or she desires. That represents potentially more F&I and aftermarket income.

My point: We don't necessarily “live or die” based on the success our new-vehicle franchise is having in the retail marketplace. What is necessary, though, is ensuring that our organizations are poised to address any situation which may come about.

As I've said many times, it is essential to take a look at current levels of business and get overheads to the point of maximizing profits on today's gross.

In other words, we have to right size our organizations in terms of staffing and fixed overhead as well.

A good friend has a domestic dealership. For years, it has been one of the top-volume stores representing its franchise. Due to some economic issues in his marketplace and a reduction in new-vehicle retail sales, he made several tough decisions affecting staffing levels and expense requirements.

He first looked at each individual expense and identified it either as essential or nonessential. Expenses identified as essential were examined in detail to identify methods of reducing them.

Personnel count was the next area addressed. He began by realistically determining the number of personnel (by department) required to obtain the gross profit required to derive the desired net profit. He then made the tough decision to reduce his personnel count to the necessary level.

He now closely monitors individual employee productivity and watches to ensure his directives are being followed (i.e., no overtime).

He will tell you that, while those were some of the toughest decisions he has ever made, they are also the best.

I received word from him last month. Not only is personnel productivity at the highest dollar level of his career, his net has returned to former levels. Neither would have happened had he not taken the necessary steps.

If dealership profitability is an issue with you, follow the guide of the successful dealer described above.

Identify your essential expenses. Remember, I say essential. Then, determine the required personnel level to achieve the desired results.

Establish minimum performance standards in all areas and then monitor them. As business improves, you will again have the opportunity to add needed staff.

These actions are your responsibility as a dealer principal, not anyone else's. As tough and painful as they may be today, tomorrow you will be glad you took this opportunity to get your business in order.

Good selling!

Tony Noland is president and CEO of NCM Associates, Inc. Reach him at [email protected].