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Jeff Lampton

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We Learn Our Bad Habits in the Good Times

benchmark_review

Since the great recession, new vehicle annual sales had a steady increase, climbing from 10.4 million units in 2009 to 17.4 million units to finish 2015. The seasonally adjusted annual rate (SAAR) peaked at 18.2 million units in September 2015, plateauing at that number for the fourth quarter of 2015. Since then, the industry has experienced a steady decline in the SAAR for September 2016 finishing at 16.9 million units.

Good times, relaxed practices

Year-over-year new vehicle sales increases have allowed us to let down our guard. Dealers have been afforded the opportunity to relax their attention concerning their expense structure, and have done so. But relaxed standards come with a steep cost: they become our bad habits.

Sales-to-expense formula

Now is the time to refocus, review and “remember, remember” 2008: People are a dealer’s biggest expense on the income statement, but they are also your biggest asset! Utilize your people as a resource to identify opportunities to reduce expenses.

Keep this simple formula in mind:

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Here’s an example. The average NCM member (all brands) is at 3% net to sales. If a dealer has an increase of a $100, it requires a sale of $3,333 to compensate for it.  Conversely, saving $100 in an expense is the same as making a $3,333 sale.

Form2

Create a culture of expense awareness

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Click to enlarge. Small changes in expenses have a surprisingly large effect on your budget. Always be mindful of how much more you need to sell to offset increased costs.

Understanding this equation is important.  Sharing it to educate your people is more important.  This is a number that is surprising and eye opening for most employees; it will have an impact on them.

Everyone can affect expense change. Employees who are not in income producing positions may feel they can’t change the bottom line, but they can. Those who are in sales positions can identify efficiencies as well and still keep their focus on selling. Solicit and encourage all employees to share their observations, ideas and suggestions. Recognize and reward for ideas that reduce an expense or gain a process efficiency that the dealership implements.

If it has been awhile since you had a meeting with your managers to review current vendors and bills, now is the time! (Check out what can happen when you let expenses go unmonitored.) Sit down and walk through each and every bill. A detailed list of expenses and vendors provided by your accounts payable person can be used as a source document for the meeting. Providing your managers this information for their review in advance of the meeting will help facilitate the discussion. In lieu of this, simply take the stack of payables checks to be signed to the meeting, Sign the checks during the meeting after one of your managers approves the payable. (If you need a tool to help you better manage expenses, I recommend that you take a look at LiveAudit®.)

If you’re an NCM 20 Group member, take a look at the library of ideas you and your peers have presented at other meetings. This is a great resource, and one section of the library is devoted to and collects expense saving ideas. Log into the Members’ Portal to access your library.

Here are the key takeaways. People are all dealers’ biggest asset, use them! We learn our bad habits in the good times. Don’t forget 2008! The little things do matter! Now is the time!

How do you control your dealership’s expenses? Share below. Learn more about Jeff Lampton and how his NCM colleagues can help your dealership through 20 Groups and in-dealership consulting

 

About the author

Jeff Lampton

Jeff Lampton

Jeff Lampton has been an Executive Conference Moderator for NCM Associates, Inc., since 1993. Jeff moderates 20 Groups in the automotive, truck sales and truck leasing business and has had the pleasure of serving four terms on the NCM Board of Directors. Jeff began his automotive career in 1981. After graduating from Westminster College in Fulton, Missouri, with a degree in Accounting, he joined a large Kansas City-based mega dealer. With his background as a controller, he brings a combination of analytic skills and operational experiences to the meeting room. He enjoys facilitating and directing 20 Group discussions that not only identify important measurements and benchmarks of performance, but also what is behind them. Believing the numbers only tell half the story, Jeff feels that the discussions of how to change the numbers are the most important.

Permanent link to this article: http://blog.ncm20.com/2016/10/we-learn-our-bad-habits-in-the-good-times/

4 comments

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  1. Mike Good

    Great article… just one note.
    People are NOT your greatest asset…

    THE RIGHT PEOPLE ARE YOUR GREATEST ASSET!

    See you in Cabo

  2. Gary

    So, if I’m reading this correctly, we take our total O/H expenses divided by 0.3, then this would be the sales we need to achieve to get a 3% Net Profit?

    1. Jeff Lampton
      Jeff Lampton

      Gary, you have the formula confused. if your are at 3% net to sales, you take any dollar of expense, divide by .3 and that will give the dollars in sales to offset the expense. At 3%, it takes $3,333 in sales to make up for an additional $100 in expense (100 divide by .3 = 3333). If you were at 2% net to sales then it takes $5,000 in sales to cover the additional $100 of expense.(100 divide by .2 = 5000). Based upon what your net to sales percent is the value of a $100 is going to be different.

  3. Joe

    What is the calculation for expense to gross?

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