It is no secret that the pandemic forced dealerships to pivot. Conventional operating procedures, strategies, inventory management, staffing, and numerous other standard practices had to change to combat reduced inventory, staffing shortages, and increased online competition. It is only recently that we are seeing a shift back to our former standards. After almost three years, some staff have no familiarity with dealership operations pre-pandemic, and those that do, have grown accustomed to the current way of doing things.
As we approach the end of 2023, it is imperative that we begin to evaluate and address some of the things that will help set our dealerships up for success in the coming year. Especially in light of declining dealership profitability across the country. Withum has developed a short checklist that dealerships can review and begin to implement now to ensure that they start 2024 on the right foot.
Restructure Your Compensation Plans
New Year. Fresh start. The new year is a perfect time to roll out a new compensation plan for your staff, and the end of the year is the ideal time to establish which parts of your current plans are working and which parts you should scrap. Change can be difficult, so turn uncertainty into excitement by running a sales incentives contest among your employees along with potential deals to offer current and prospective customers. Remember that, with anything, communication is key. An explanation for the change and its overall impact can go a long way to quelling any rancor among the staff. Plenty of pay plans have already been reworked over the last year. The professionals at your dealership are no different. Waiting too long to change this could end up costing you big dollars.
Submit for a Warranty Parts and Labor Increase
As operational expenses continue to rise, service directors should be increasing their retail door rate annually and tweaking their labor grids at the same time. The dollar value of each year’s increase should be calculated based on the year-over-year increases in technician’s pay rates, other personnel costs, operating expenses and overhead on a cost-per-labor hour basis. Concurrently, management should be submitting for warranty labor rate increases on an annual basis. If you have not submitted for a warranty labor rate increase in over a year , the odds are your rate is much lower than it should be. Additionally, management should also analyze its warranty parts rate to ensure that it is maximizing gross profit. We have a number of dealerships (various franchises) that have submitted for warranty parts increases multiple times and now have approved warranty parts markups over 100%, with some over 120%. Dealers should analyze their parts price matrices and adjust pricing to build more profit into the most frequent mechanical repairs. With Withum’s help, we can analyze your parts and labor sales data and determine how much gross profit your dealership is missing out on. The cost of the analysis is typically recouped in just days for large dealers, 2 to 4 weeks for medium dealers, and 1 to 2 months for small dealers, and by the end of next year, you will have added tens of thousands of dollars to your bottom line.
Hold Accountable for Vehicle Turns on Inventory
Over the past three years, it seemed that any vehicle could sell for decent gross. That is certainly not the case today. We also have floor plan rates north of 7.5%, which means that those vehicles aren’t selling right away are costing us right away. Rough math tells us that your average-priced vehicle costs around $220 per month in floor plan expense right now. Going back to pre-pandemic wholesale policies are a must. If you can’t sell a car in 60 cars, wholesale it and get a car that you can sell.
Re-establish Your Marketing Strategy Both Internally and Externally
Auto manufacturers market their products, showcasing their unique selling points and brand position. Capitalize on this within your own dealership by creating an environment that effectively communicates that brand messaging to customers. This includes all customer touchpoints from the layout of your store, website functionality, the way you market and remarket to potential customers, as well as training staff to use brand messaging when interacting with customers. Customers are researching certain automobiles for very distinct reasons, and one of them is because of your brand positioning, so make sure that this is felt within your dealership.
In addition to taking inventory within the four walls of your own dealership, it is also imperative that you take an inventory of your online presence. Ensure that your website is clean, informative, and easy to navigate, and make certain that too many website widgets do not get in the way of a customer researching your products and their experience on your site.
Lastly, review your current marketing mix. What resonated with customers pre-pandemic may not resonate now. Missed messages are wasted ROI. Obtain data from your marketing vendors and website team to determine which traditional media outlets and lead generation sites are generating qualified leads and eliminate the rest.
There are countless moving parts within the dealership, and we only have so much time to address each of them. That is why taking inventory of the current climate, charting future goals, and creating action plans is the only way to ensure sustainable, measurable progress. Changing and evolving sets us up for success and the ability to face challenges when they arise. Start the new year off right, even before it starts.
Contact Us
For more information on this topic, contact Withum’s Dealership Services Team.
