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Category Archive: Consulting

Steve Emery

6 Steps to Control Dealership Expenses

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While most of your managers are driven by sales and gross, volume doesn’t necessarily equal more profits. If anything, pushing more volume through a bloated expense structure typically yields less net profit. And, if your manufacturer is too optimistic and producing excess cars with high volume goals, you face even more problems. Expanded production challenges your gross and leads to increases in the “Big 3” expenses: sales compensation, advertising, and floor plan.

Get a better handle on dealership expenses to make the most of your sales opportunities with an expense review. It’s a fast way to see how you are spending your money and to find the areas where you can cut back.

The Expense Review Process

  1. Get organized. Pull a list of every vendor and get all of your contracts in one place. Categorize your expenses and assign responsible managers. Make “spending management” a top priority for your office manager/controller/CFO.
  2. Vendor review. Sit down with your management team and determine which vendors provide overlapping services and can be reduced or eliminated. Identify vendors that provide services with minimal or no added value for your business and eliminate them as well.
  3. Vendor list. Designate a “preferred provider” in each of your expense categories. These firms may not offer the lowest cost, but they should all offer best-in-category services or products for your dealership. Once the management team has agreed to the preferred vendors, publish the list for staff use.
  4. Purchasing policies and approvals. Limit changes to the Preferred Vendor List and commitment authority (contracts, purchase orders, invoices) to as small a group as possible.
  5. Usage reviews. Usage and process reviews will often reduce your costs more than the negotiating of new pricing. To get started, review all transactions from the last six to 12 months and identify expense categories tied to sales, such as units, services, and parts. Pulling this information can be time-consuming, but if you’re already using LiveAudit it should go pretty quickly. If not, you’ll need to set aside time to get your financials in order. In most cases, dealerships use a vendor item/service when selling something (e.g., credit card processing), so ask yourself, “What are the processes behind each usage?” Evaluate each process: Are you wasting items or needlessly using services?
  6. Sourcing. Organize your contract bids on a calendar according to how far out you need to get competing bids. Nothing is more effective than a good old fashioned RFQ, or Request for Quote, to identify the highs and lows of the marketplace and your target pricing.

Find opportunities and make the most of them.

Try giving every manager a goal to cut monthly expenses by a dollar or percentage amount. Consider giving a bonus to whomever can cut the most. And at your managers’ meetings, have each manager bring an idea to cut expense for a particular item or department.

Learn more about Steve Emery and how he and his NCM colleagues can help your dealership through 20 Groups and in-dealership consulting. Also, check out LiveAudit for seamless, intuitive expense tracking power!

Permanent link to this article: http://blog.ncm20.com/2017/05/6-steps-to-control-dealership-expenses/

Lindsey Quinn

NCM Case Study: How Darin Wade Saved Power Ford

Power Ford

When Darin Wade purchased a Ford dealership in Albuquerque, New Mexico, in 2012, there was no question that he was facing a challenge. “Nobody ever says,” he jokes, “‘Hey, our dealership is doing so well that we just want to give you a piece of it!’”

New employees, new challenges

So it wasn’t a big surprise when Wade realized that his new staff had no idea just how poorly they were performing. A big part of it, he clarifies, was the preexisting culture.

“I’m one of those dealers who believes in sharing all of the numbers with my team,” he explains, “because I have found that if you don’t share the numbers, they typically make it up. And they usually don’t make up the numbers in your favor.”

“Sure enough,” Wade adds, “most of the employees that were over here … the numbers weren’t shared with them. So, they had a pretty good idea that they weren’t doing very well, but they didn’t know.”

Quick solutions for a high-performing culture

“There was some lack of training,” Wade says. “So, when my NCM moderator called and thought that our store might need help … well, he knows me, and he was dead-on correct!” Wade made arrangements for Lee Michaelson, one of NCM Associates’ consultants, to evaluate the store and develop an improvement plan.

Michaelson and Wade began working together to address the dealership’s most pressing concerns. (They continue to work together to this day.) And, because the consultant came to the dealership each month, the approach had minimal impact on the overall operation. “This whole concept of bringing a trainer to your store is great because our number one challenge anytime we take people out of our store is that not only do we struggle with production going down, but we also struggle with the expense of getting them somewhere. Especially in Albuquerque, New Mexico: I mean, it’s a plane flight for quite a bit of distance wherever you want to go!”

Get the most from every expert visit

Success takes more than having the consultant onsite, Wade explains. Like any improvement process, consulting requires commitment. Here are Darin Wade’s must-do steps to bring an expert onsite.

  1. Make it mandatory for your team. “You just can’t have any interruptions,” Wade explains. “We know when Lee is coming in, and it breaks down to four hours tops, maybe three. You have to have an environment that’s a locked door deal, and you have to have the rest of your staff able to cover the positions. And it will be three hours very well spent.”
  2. Be there. “The general manager or dealer principal needs to be in the meeting 100% of the time because it shows his people that he’s serious about it.”
  3. Take advantage of goal setting. “NCM’s format is great on goal setting and commitment time,” Wade comments. “Every department head will be asked to do a commitment plan, and write it down. The sheets will be turned into not only the dealer and GM but also to the consultant. And I think the best use of the time is that every 60 days that you do the consulting, we also start with the commitment and did we get there or not? I think if you do that, you’ll grow your store.”

A powerful combination

While Wade was already a long-term NCM 20 Group member, adding consulting to the mix was exactly the right combination to bring Power Ford back to benchmark. “The format for the NCM deal,” he says, “is phenomenal.”

“I think NCM does a good job of recruiting people that have done things before,” he adds. “I mean, Lee Michaelson has run a dealership before. And, when a vendor comes in and speaks the same language and can actually walk the walk, not just talk the talk, people in the retail industry can see into that very quickly.

“When you have a 3rd party who’s validated like that … and saying the same things that you say … it adds another layer of credibility to how you run your business.” And your employees pay attention.

At Power Ford, consulting got the staff quickly up to speed and transformed how management and employees communicated: “Suddenly you’re having business conversations instead of guessing, even at lower levels, whether a department head or even just a manager. It helps them connect the dots between what their daily routines do and how they affect the financial statement and the numbers.”

Laying the foundation for success

About a year after taking ownership, Wade reported to Albuquerque Business First that sales were up 300 percent over the previous year, with car sales up more than 50 percent and trucks up 6 percent.

Four years later, Power Ford continues to be a top-seller in the area. While his new leadership clearly was the driving force behind the dealership’s transformation, Wade is quick to praise his partnership with NCM consultant, Lee Michaelson. “It was our moderator being the catalyst for change. Sometimes the general manager and dealer principal can say it, and everybody understands that. But when it comes from a different source, sometimes that’s the extra thing that’s needed that can help your team realize that they need to … they actually need to do the action in order to get the results.”

See how NCM 20 Groups and in-dealership consulting can help your dealership improve, just like Power Ford.

Permanent link to this article: http://blog.ncm20.com/2017/04/ncm-case-study-how-darin-wade-saved-power-ford/

Garry House

Compensation Philosophy

A Consultant’s Approach to Developing Sound Compensation Strategies for Dealership Managers and Sales People

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There are today, and there probably always will be, as many different compensation plans as there are dealerships. That is the nature of our business: to be individualistic; to have a unique dealership culture reflected in the way we treat our customers and our employees. And management and sales pay plans are certainly a part of that unique culture.

To be effective, any dealership compensation plan must primarily focus on those areas for which the management or sales employee is accountable. The plan should provide motivation for the employee to continually achieve higher levels of individual or departmental productivity and profitability. And the plan must be fair to both the employee and the dealership under varying levels of operating performance.

Even the best-designed compensation plans sometimes result in an excessive departmen­tal compensation expense or in the manager or salesperson being paid too little…or both. However, when this happens, it is normally not the fault of the compensation plan itself; it is because the dealer principal fails to step up to the fact that current business conditions do not justify the current head count of managers and/or salespeople.

Businesses that contract with experienced professionals to evaluate and help plan how they should pay their people usually have happier employees and lower personnel costs. The Retail Operations division of NCM Associates, Inc. is one of the few automotive consulting firms which specializes in compensation planning and implementation. The following is a description of the methods we use to assist client-dealers in developing sound, results-oriented compensation programs for management and sales personnel.

Preliminary

The consultant must first gain an understanding of the dealer’s cur­rent compensation methods. Copies of compensation plans, together with the employees’ earnings history must be provided to the consultant. Additionally, the consultant needs to know how the various compensation categories relate to the dealership gross profit and expense structure. This information is gained from an analysis of past and current finan­cial statements and, if available, from future planning documents. The underlying focus of this preliminary phase is to clarify the dealer’s objectives. (Why is a change in compensation strategy desired?)

Definition of Consulting Engagement

The consultant prepares and submits a detailed “letter of engagement,” which establishes the parameters of the consulting project. This document includes, but is not necessarily limited to, (1) a statement of the project objec­tive(s); (2) a description of both the consultant’s and client’s responsibilities to the project; and (3) an estimate (by project item) of the engagement time, the associated consulting fees and expenses, and the completion date. One of the key statements in this letter is that both the consultant and the dealer agree to individually attempt to maximize the efficiencies of the consulting engagement so that the project is com­pleted on time, at or below estimated budget, without sacrificing the quality of the end product.

Determining and Forecasting Key Results Areas (KRA’s)

The consultant and dealer must identify and quantify each element for which the management or sales employee is totally accountable, and also those for which he/she is only partially accountable. The consultant then prepares a computerized planning model, depicting various performance scenarios involving the KRA’s. Using a “What If?” approach, the consultant assists the dealer in finalizing a Planned Performance Level (PPL). Where feasible, the respective manager or salesperson should participate in the develop­ment and finalization of his own PPL.

The final step in this phase is for the consultant and client-dealer to agree on individual and overall compensation philosophies and budgets. (What should this position cost? As a percent of gross? Per retail unit? In annual dollars? And what does this specific person expect, need, or deserve? Based on past performance? Based on past and current earning levels? Based on the competitive local labor market?)

Plan Development and Testing

Based on the decisions made in the previous phase (and building from the existing computer planning model), the consultant designs a compen­sation plan that attempts to match the dealer’s objectives at the Planned Perform­ance Level. This plan is then tested at numerous variances from the PPL. If necessary, the consultant modifies the plan so that it closely matches the client’s objectives over all possible performance scenarios. The consultant then provides the preliminary plan and test documents to the dealer for review. Frequently, further minor modification is required, accompanied by retesting and review. In some cases, the dealer may even negotiate this preliminary plan with the involved employee. The final planning and test documents are provided to the dealer to use for communication, implementation, and the permanent record file.

Plan Documentation

Depending on the client’s wishes, the consultant will, as an option, prepare a “long-form” compensation document for signatures of the employee and a senior manager. This document explains the compensation plan and the accountability philosophy in detail. Even if the dealer elects not to have the consultant perform this phase, it is strongly recommended that similar plan documentation be prepared in-house, executed, and filed for future reference.

Automated Plan Calculation and Presentation

The consultant will convert the computerized planning model into a “Plan Calculation and Presentation” tool using a pre-formatted Excel worksheet. With minimal operator input, this worksheet will (1) automatically calculate and present (for compensation communication purposes) current and prior performance and earnings by line item for a three month period; (2) project annualized earnings, assuming current month performance represents the monthly average; and (3) project annualized earnings pace, based on actual year-to-date earnings.

Implementation

This phase involves assisting the dealer, as necessary and/or as requested, in communicating and validating departmental objectives and individual com­pensation plans. The consultant also has the responsibility to “load the lips” of the dealer, prior to “selling” the plan to the involved employee. Each dealer has his own attitude about the consultant’s role in implementation. Some like to keep the consultant “invisible” during the entire engagement period; these dealers are prepared to take full responsibility for the authorship of any new compensation plans, and thereby accept full credit (or criticism) if the change is well-accepted (or cursed). Other dealers prefer to feature the consultant as the catalyst of any change, making him very visible from the beginning of the engagement; this allows the dealer to always take, or negotiate, a fall-back position. (“The consultant did it. It’s not my fault, but I’ll fix it!”) And some dealers elect to make the consultant visible only on a selective basis, par­ticularly in critical situations.

NCM Retail Operations believes that, where feasible, compensation planning engagements should be conducted on an off-site basis, strictly by phone, FAX, Fed­eral Express and U.S. Postal Service. On-site consultations relating to compensation planning are normally expensive and inefficient. On-site consultations are justified only when third-party credibility is necessary to make a smoother transition from one com­pensation plan to another.

Follow-up and Fine-Tuning

“The best laid plans of mice and men…”

No, life doesn’t always (or maybe ever) work out the way we expect it to. The same is true with the best-designed compensation plans, once they are exposed to the dynamics of the real world retail automotive business. If the basic parameters are sound to begin with, they will remain sound. But the details of the plan may need to altered to accommodate unforeseen, and uncontrollable, circumstances.

The consultant acknowledges an ongoing responsibility to ensure that each compensation plan he recommends fulfills the needs of the employee, as perceived by the dealer, and provides operational and financial results compatible with the defined client-dealer objectives.

To get in touch with an NCM Retail Operations consultant about this topic, or to learn more about NCM’s consulting services for auto dealers, call 877.497.2363 or email consulting@ncm20.com.

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Permanent link to this article: http://blog.ncm20.com/2014/02/compensation-philosophy/

Rebecca Chernek

To Women With a Passion for F&I

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The glass ceiling for women’s acceptance in the finance industry was shattered over a decade ago.

According to the 2012 Catalyst Census of Women Executive Officers and Top Earners, which counts the number of women in upper management in Fortune 500 companies, women comprise over 18% of all executive officers in the finance industry, and 19% of board directors in the finance and insurance industries in Fortune 500 companies.

BUT . . . that glass ceiling is only slightly cracked for F&I women in the automotive industry.

Why is this true? It’s no secret that the auto industry worldwide has been male-dominated since the birth of the four-wheeled, horseless carriage. Ownership of auto makers is passed down to the sons and to their sons in Japan, Germany, France, Sweden and in Canada; this practice has been followed for generations even in the United States.

Some 95% of the country’s 20,000 auto dealers who belong to the National Automobile Dealers Association are male.

While a very small percentage of women have the financial means to become the owner of a GM, Ford, Chrysler, Saab or Toyota franchise, an increasing number are rising in the ranks to positions of valued leadership and respect in these manufacturers’ offices.

This includes the position of F&I manager at a local franchise dealership.

Why should this perk up your interest?

Because if you have the inborn drive to set goals, to meet and beat challenges along the way, and to be a leader as well as a team player, you can be one of the women to shatter the glass ceiling in what still remains a prominently male domain.

Challenges will be part of your F&I experience in a car dealership, but the field is wide open and you could become a role model for many more women in finance to follow in your footsteps.

It is part of car “culture”—still in practice, spread like dandelions in your front yard, and written about by every journalist on the subject—to repetitively say that many women start out in car sales and with their awesome success are asked by the dealer to step into the position of finance manager, but few stay.

The reasons given are always the same: no training for the position; no ongoing training; little cooperation from the predominantly male sales personnel; long inflexible hours; continued disrespect and a lack of dealer willingness to change the culture to be more inclusive of women outside office workers, or to change former methods to reach out to women buyers in the community. When lumped together, they discouraged open dialogue and widened the unspoken impression that female finance officers are inadequate.

Here’s some advice given by two widely-dissimilar women. Former First Lady Eleanor Roosevelt, who is still famous for her role as women’s advocate, said, “No one can make you feel inferior without your consent.” Dolly Parton, who is one of the most successful female recording artists of all time and an astute businesswoman, said, “If you want the rainbow, you’ve got to put up with the rain.”

In other words, take a position as F&I manager at a car dealership with your eyes wide open and fixed on your ultimate goal: to not only meet the culture challenges, but rise above them so fast and with such dignity that you become an influential member of the dealer’s inner circle. One that has numbers to prove your value and leadership skills that have every member of the sales team eager to become your best friend.

Study; ask for training; provide it for all the sales staff and have weekly meetings with them to share successes and failures; learn not only the names of the office staff, but exactly what they do and how and why. That’s what leadership in the finance office requires. More than words. More than overblown reactions to a culture that is waiting for you to show them how to embrace change. It requires a concerted plan and actions that drive your ultimate success. Oh, and see that the dealership’s bottom line soars and those males in sales see their paychecks grow like a snowball rolling downhill.

Then the statistics will change and the article topics will reflect it.

THINK BIG. Start small.

Rebecca Chernek is the principal of Chernek Consulting, an F&I training and consulting agency in Atlanta. Her ”Closing Tools Mastering Menu Sales Workshop” will be offered in Chattanooga,Tennessee July 15-17, 2013 at Woople Headquarters. Contact Becky Chernek for details at 404-276-4026.

Permanent link to this article: http://blog.ncm20.com/2013/05/to-women-with-a-passion-for-fi/

Jeremy Anwyl

Is Your Auto Dealership’s Sales Process Customer-Approved?

Today, we’re introducing a new Guest Expert to the Up To Speed blog. Jeremy Anwyl, Vice Chairman of Edmunds.com will be contributing a series of articles on consumer-centric and cost-efficient marketing strategies for automotive dealerships.

customer-approvedEvery few months or so we have groups of dealers visit the Edmunds office in Santa Monica. The idea is to get “street level” market feedback and stay current on any issues dealers might be wrestling with.Along these lines, we also get together with consumers regularly to develop insights and understanding on their views on the vehicle buying process.

Some time ago we had a group of dealers in and decided to try to bridge the two exercises; basically, to get dealers thinking like consumers.To make this work, we asked to dealers to participate in the following exercise:“Imagine you have been asked to deliver the keynote at a fictional prestigious automotive conference. (Think TED for autos.)

Your selection was based on how you have reshaped the retail sales process, removed customer pain points and achieved a remarkable level of business success. In your speech, you share your secrets.”We split the dealers into two groups and give each 40 minutes to outline their speech. I found the result interesting.

Here’s the combined work from the two groups: First, the dealers identified the pain points; the things that consumers valued, but also found frustrating.

Pain point #1.  It just takes too long. The dealer nailed this one; it is a recurring theme from consumers as well. The interesting thing in talking with customers is that it is not the entire process that takes too long.  Some aspects of buying a new vehicle consumers actually enjoy. Things like checking out options or touring/viewing vehicles in inventory. Some dealers are trying out an extended delivery at the consumer’s home that consumers really like, as well. The parts of the process that take too long and the customers don’t enjoy, are getting in and out of F & I, and the back and forth of negotiations.To address these areas, the dealers talked about how they launched digital contracts, where most of the consumer and deal information could be entered online. They also proposed integrating the tools that consumers use across the Internet so the same information doesn’t have to be entered over and over again. The dealers didn’t focus on this, but it would also seem to emphasize that customers set appointments before coming into the store so the personnel can be ready and waiting.

Pain point #2.  The customer worries about paying too much. (Ripped off, using the dealers’ words.) The dealers proposed transparent pricing as the solution.

“Transparency” is a catch all term these days. Sometimes it means access to info on what other consumers paid for the same vehicle. In this context, the dealers were referring to pricing info that is freely available, with no or limited negotiation.

This worried the dealers a bit as they made the leap that if/when this kind of transparency arrives it is going to drive down margins. There is a tension they expressed as “new world pricing with old world expenses.” The dealers correctly see being more efficient as being essential to survival in the future. But also feel they are being pulled in the opposite direction by manufacturer demands for facility upgrades, etc.

The risk that margin pressure will increase is real, but there is also a chance we might be surprised in how this plays out. So far, transparency has been about a single price; specifically, a new vehicle price. But we all know that a deal involves many elements. The new vehicle price is just one.

Testing a theory, I asked our analysts to run some data. They ranked a set of new vehicle transactions, in order, based on the new vehicle gross. This ranked list was divided into four groups.

My suspicion was that for deals with a lower new vehicle margin, dealers work harder to make up for the “loss” by pushing for higher margins in other areas.   (Think of the old four square.) Charging a bit more for the loan, or offering a bit less for the trade. This might not work in all cases, but across a broad enough number of deals a pattern should emerge.

The group with the highest new vehicle margin was a bit of a surprise in that the interest rate paid was also higher and the appraised value lower than the other groups. Apparently there is a group of consumers—even today—that makes a mess of buying a vehicle. They pay way over the norms in all areas. (They averaged paying over $2,000 more overall!) Let’s forget this group for a moment.

There is also a small subset of the deal with the lowest margins. These buyers are very savvy shoppers who are willing to put enormous time into getting the absolutely lowest price, often have no trade and don’t use dealer financing.  Let’s ignore this group as well.

Looking at the remaining transactions—roughly 60% of the market— there is a pattern where the new vehicle gross and the margin on other deal elements are inversely correlated.

Seems to me that this accounts for much of the frustration that consumers associate with vehicle purchases. The greater the focus on the new vehicle price, the greater the level frustration with the overall negotiation.

The dealers see a future with more transparent pricing around all the elements of a deal. What is preventing dealers moving in this direction today is the fear that offering this level of transparency will just make it easier for consumers to take the new vehicle price and shop another dealership; a dealership where it is simple enough for a salesperson to offer a lower price and work to make it up on the trade, etc.

The irony is that consumer behavior is the impediment to consumers getting the simplicity and straightforwardness they crave. The dealers didn’t have a solution for this, but it is clearly a puzzle we need to figure out.

The final pain point: Confidence in making a purchase.  I put this pain point in my own words as the dealers were focused on the customer feedback that is scattered around the Internet. I rephrased this because what we see consumers looking for when they look at customer feedback is the assurance that the vehicle and/or dealership will perform as promised. One way to ease this concern is to look at the experience of other customers.

As the dealers pointed out, currently this feedback is a bit of a mess; some is useful, much is not. There also is no single source—either for the consumers to rely upon or the dealers to stay on top of.

As I think about this area, it is clear that if we focus on the pain point for the consumer, there are ways to deliver confidence that don’t involve customer reviews. Referrals, for example, are a source of business for dealerships where the store has great credibility. (A customer is hardly going to refer a store to a friend if they had a bad experience.)

I am not sure that customer feedback on the Internet is going to prove to be the best way for customers to feel confident about a decision. The source data is just so unreliable. But in identifying this pain point, the dealers again tied closely to what we have been hearing from consumers.

In fact, that is what struck me the most about this exercise with the dealers.  They get it. What consumers are looking for in the sales process is not a mystery. (We are hearing the same things from consumers as well.) What may be a mystery is figuring out how to remove these pain points in a way that supports a profitable business.

I have some thoughts on this that I will start to explore in the next article.

Jeremy_Anwyl

Jeremy Anwyl began his auto industry career in 1979 working with auto dealers who were looking for more consumer-centric and cost efficient ways of marketing. In 1991 he began working with manufacturers—again on projects that focused on retailing and marketing efficiency. Anwyl joined Edmunds in late 1999 where his years of experience working with dealers and the manufacturers on retail opportunities have been a key part of Edmunds’ success. To reach Jeremy, tweet @JeremyAnwyl, call 310.309.6393 or email janwyl@edmunds.com.

Permanent link to this article: http://blog.ncm20.com/2013/04/is-your-auto-dealerships-sales-process-customer-approved/