10 Actions of Benchmark Dealers

Throughout the first four months of 2013, benchmark dealers have demonstrated an ability to be proactive and anticipate what’s coming next. They plan for growth and operate their dealerships with a strong focus on processes, people and profit. From our experience, these three P’s are the cornerstones to running a benchmark dealership.

Below are the 10 actions benchmark dealers have already taken in 2013 to achieve their dealership’s business strategy.

Processes

1. Anticipate what’s coming next and plan for growth

Benchmark dealers empower their management team and continuously encourage them to improve the dealership’s overall performance.

Department managers should be revisiting their budgets on a regular basis to compare the actual performance of the department against budget. They should seek to understand the root causes of any variances and create a plan to either improve or maintain the department’s performance.

Financial controllers should revisit their cash flow budget and compare actual cash flows against budget. They should incorporate any new expenditure planned for the next 6 – 18 months and understand and communicate the impacts of these decisions.

2. Focus on gross profit and return on investment

Benchmark dealers ensure that departmental managers know the gross profit required to maintain profitability for their department. This is especially the case given that gross return on investment (ROI) is a key to departmental profitability and efficiency. Given that departments function as profit centres, departmental managers should focus their actions on improving this bottom line rather than gross profit alone.

3. Sell more aftermarket and F&I

Data from the ProfitFocus database for January – March 2013 indicate that the average dealer across all states and market segments achieved $258 of aftermarket gross profit per new vehicle retailed. The top 30% of new vehicle operators achieved an extra $55 of aftermarket gross profit per new vehicle retailed above this amount. With the average dealer retailing a total of just over 80 new units (for all brands) per month over the period January – March 2013, this equates to an extra $4,400 in gross profit from aftermarket alone. Given the tight margins on new vehicle sales, this additional gross profit is invaluable.

Over the same period, F&I contributed an extra 21% on top of total gross profit across all traditional departments (new, used, parts and service) for the average dealer. This same figure for the most profitable 30% of dealerships was 25% of a larger total gross profit pool. With the average dealer earning total gross profit (excluding F&I income) of just over $600,000 for the average month between January – March 2013, these few extra percentage points of contribution from the F&I department can amount to tens of thousands of dollars.

To achieve these higher results, it is important that basics, such as an introduction to the F&I department and aftermarket sold as part of the financing (preferably on a dollars per week basis), are adhered to for each and every customer.

4. Achieve best practice internet lead responses

Deloitte dealership reviews over the past quarter have indicated that best practice follow up on internet leads is within an hour and that follow up should be continued until the prospect purchases a vehicle. Simply auto-replying to the lead isn’t enough, particularly as internet leads tend to be well qualified and customers have visited your website for a specific reason.

5. Successful inventory managers

Benchmark dealers don’t leave their dealership to the mercy of the stock controller. Instead, they frequently monitor both new and used inventory by incorporating it into the monthly management meeting. This is particularly important given recent trading conditions and industry sales volumes.

6. Integrate CRM activities throughout the dealership

Dealers are well aware of the benefits of CRM activities and many have already implemented CRM systems and processes. The challenge becomes harnessing and utilising the potential of these systems and processes, especially to improve the conversion rate from lead to sale.

Recent Deloitte dealership reviews have identified that multiple CRM packages can confuse staff and may often cause information overload. In the presence of the growth of CRM data, it is important to simplify your CRM reporting and focus on those customers that are most profitable to the dealership. Often the most profitable customer segment is existing customers and (hopefully) they will already have a positive association with the dealership.

People

7. Adequate role descriptions that drive performance management across all staff levels

It is not surprising to note that dealerships without a dedicated HR staff member often do not have adequate and up-to-date job descriptions. In dealerships where job descriptions do exist, one will find that they commonly refer to commercial targets (sales, gross, productivity etc.) and often ignore behavioural and cultural targets. It is these behavioural and cultural targets, such as team work, professionalism and commitment, which are essential for sustainable dealership culture and employee engagement. Whilst they are more difficult to measure and manage, they are essential to achieving commercial targets and must be incorporated.

Without clearly communicated direction and expectations, it is difficult to expect staff to perform in line with the overarching strategy and goals of the dealership. Talented staff will blossom under this environment.

8. Instigate performance appraisals now rather than waiting for the next performance appraisal period

Benchmark dealers seek to identify the root cause of variances in performance (both favourable and unfavourable) as soon as possible. This is so they can manage performance accordingly.

Best practice dealerships ensure that the performance appraisal process (if this happens at all) is aligned with both the performance management system as well as the job description. Appraising a team member on a performance expectation that was not communicated or managed is similar to a test without a preceding lesson, and can lead to claims of discrimination or unfair dismissal.

9. Ensure that remuneration packages are revisited on a regular basis

Benchmark dealers understand that each team member reacts differently to different motivation techniques and that these must be reviewed on a regular basis to ensure that they are aligned to the overall strategy and goals of both the department and the dealership as a whole.

Profit

10. Continuously monitor the financial and non-financial metrics of a dealership

Benchmark dealers are heavily involved in their dealerships and are extremely aware of the current performance as well as opportunities and threats of the dealership. To this end, they continuously monitor both financial and non-financial metrics and use benchmarking as a tool to improve performance and profitability.

Five key financial industry benchmarks that best practice dealerships measure and monitor their performance against are:

1. Total gross profit per employee – best practice dealers are achieving above $14,000 per employee for this metric
2. Stock turns per annum – 2013 benchmarks are as follows: new vehicles = 6-7 times per year, used vehicles = 5-6 times per year, parts department = 6-8 times per year
3. Gross return on investment (ROI) – 2013 benchmarks are as follows: new vehicles = 60%, used vehicles = 85%, parts department = 250% 
4. Finance penetration – despite the manufacturers using zero percent finance campaigns on a more intermittent basis in the March 2013 quarter, the best practice dealers continue to achieve finance penetration of 34% for both new and used vehicles 
5. Net profit as a percentage of sales (or return on sales) – the most profitable 30% of dealers across all market segments (volume, prestige and luxury) continue to strive for 4.0%

Conclusion

With 2013 off to a fast start (new vehicle sales up 5.6% as at the end of April 2013), the best practice dealers are those that have formulated and implemented strategies and business plans suited to these trading conditions. Processes, people and profit are all vital in achieving your strategy and ensuring that your dealership anticipates what is coming next rather than simply reacting to what the market dictates.

We hope the above 10 actions will assist you in achieving your 2013/14 strategy.

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