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Joe Basil

NCM Case Study: Five Successful Dealerships Regain Lost Net Profit

Portrait of call center worker accompanied by her team. Smiling customer support operator at work.

I’m going to make it crystal clear. Your net profit is sitting right in front of you, and it walks right past you (and out the door) every day! Let’s get it back.

During my years in business, I’ve observed that 80% of the dynamics that impact a business or industry originate outside its four walls; however, 80% of the forces that impact the dealership’s profitability originate inside them. It’s my opinion that your increased profitability walks in and out of your dealership every day and right in front of your eyes.

Five case studies: regain lost profits with simple changes

Your opportunities for increased net profit are in every step of your customer transaction management process. The gap or disconnect is that some dealers and managers can’t see it, even though it’s right in front of them. Here are some specific examples from some of my NCM 20 Group and consulting clients who have discovered big profits from small changes.

1. The BDC conversation turnaround

A used vehicle manager observed his business development center (BDC) customer-contact phone calls. The business development representatives (BDRs) were making their 100 calls per day; however, the tone of the calls was flat and lacked sincerity. The calls could have been made by a computer; they were so impersonal.

Once he brought it to the attention of the business development manager (BDM) and they did some training, his appointment show ratio began to climb. Just imagine how many deals the dealership had already lost before this simple change!

2. Lead with the winner

During a pre-owned digital merchandising review, our NCM 20 Group noticed a photo of a clean 2013 Silverado crew cab pickup truck with 9,000 miles on it. It was a great vehicle, but at over $36,000, it was priced exceptionally high for the market.

Three or four photos later—buried in the vehicle description—the dealership showed that the Silverado was a handicap/wheelchair accessible vehicle! Not only that, but a little research revealed to us that a new one would cost between $67,000 – $69,000. The vehicle was priced under market for an accessible truck, but it couldn’t find buyers because of the poor photo choices and lack of relevant keywords in its description.

Take a look at your digital merchandising. How many of your vehicles are overlooked because of simple mistakes?

3. Walk around for more profits

During a training session with service managers, I asked how many of them do walkarounds on customer vehicles in the service lane? All nine raised their hands. Then, I asked how many do walkarounds on 100% of customer cars, 100% of the time? Only three out of nine said yes!

Insist that each and every vehicle get a walk-around. Every time your team skips one, you’ve missed flat rate hours and parts sales that are just waiting for you in the service lane.

4. The difficult customer hand-off

In a general sales manager meeting, we were discussing the customer handling process in the BDC and the sales desk’s involvement. One sales manager discovered that when the BDR got stuck with a customer, they just chalked it up as a difficult customer and moved on to the next one, missing out on opportunities to set the appointment.

The sales manager changed the system straightaway. Now, when a BDR gets a difficult customer, he or she turns them over to a sales manager. Their show rate and close rate increased immediately.

Think about your BDC and sales deck system: How many deals have you lost over the last six months because your BDC and sales desk weren’t well connected?

5. The sales hot spot

A used car manager began paying close attention to his vehicle details page (VDP) activity and the sale of the related cars. Every day, he shared the top five VDP activity vehicles with his salesforce, requiring each salesperson to select one of the top performing VDP vehicles. They were required to make sure it was clean, ready to demo, and parked in a “hot spot” on the used car lot.

The UV team quickly upped their closing ratio on these cars by 25%. It makes me wonder just how many used vehicle customers we “unsold” because we didn’t have the car ready for the customer to demo.

Awareness improves profits

I think these five mini case studies demonstrate how small changes in your dealership can quickly result in improved profits. Take a good long look at your customer transaction management process and discover your own plentiful opportunities to make the most of the customer traffic flow you already have!

Discover how Joe Basil and his NCM colleagues can help your dealership through 20 Groups and in-dealership consulting.

Permanent link to this article: http://blog.ncm20.com/2017/06/ncm-case-study-five-successful-dealerships-regain-lost-net-profit/

Mark Shackelford

The 10-Minute Fix for Lost Customer-Pay Hours

NCM-CD-761

There’s no question that customer repair hours and R.O.’s are on the decline. I have the pleasure of working with more than 250 dealers, and I’m alarmed at how many service departments are going backward in customer-pay service hours and gross.

If we saw a massive downturn like this in new vehicle sales, every dealership would be clamoring for a solution. I think the increase of warranty and internal hours have lulled us into a false sense of security. But even though those hours are up, hemorrhaging customer-pay is a losing long-term strategy.

We have the tools to get more customer-pay hours, so let’s use them.

I’m continually amazed at the effectiveness of the automotive industry’s sales processes; yet we rarely, if ever, apply the same approaches in our service department. We need to change that because the best way to solve the customer repair hour problem is through improved service sales.

To do this, though, we need to overcome culture. When service team members encounter issues with a sale, most of us just let the sale go … we commonly send service business home without any attempt to save the deal. And then we rely on a coupon or other incentive to get customers back into the shop.

Bring more sales to service.

We would never allow a new vehicle buyer to just walk way! So, why do we let service work go? After all, what do you think happened? Did the client wait for the discount coupon? Or, do you think they called up one of your competitors and had the work done elsewhere?

Let’s get back to the basics and begin holding training meetings with the number one sales people in our stores: our service advisors. They talk to more customers in a day than some sales people do in a month, and they generate more gross profit in a month than most sales people do in two or three months! A sales model makes perfect sense, yet we spend too little time motivating and training the most productive sales person in our dealership.

Here are two easy meeting agendas you can use to start bringing a sales approach to your fixed operations staff. I also recommend training to support this culture change; the NCM Institute has a great one-day training course that teaches your service advisors how to sell.

10-Minute Service and Parts Meeting
Meet with techs and advisors every day for 10 minutes at 7:15 a.m. Here are some discussion points:

  • Customer Satisfaction Index (CSI) numbers: 1-month and 3-month
  • Fixed Right First Time (FRFT) stats
  • Number of hours written by each advisor and tech against their goal(s)
  • Pace for the month
  • Review work schedule for the day
  • Problems (i.e. problem child issues)
  • Housekeeping
  • Multi-Point Inspection (M.P.I.) walk around

Bring back service sales.

What happened to the time in our industry when a customer could simply call our store for service work on their vehicle and be told to bring it in today with no appointment?

Think about it, how do you feel when you are told it’s an hour wait to get a table at your favorite restaurant? If you’re like me—and like most people—you probably just go somewhere else for dinner because of the wait! The same thing happens in our service department.

It’s time to realign our fixed ops approach to be more sales focused. Let’s take control of our service lanes and have a very profitable year!

See how Mark Shackelford and his NCM colleagues can help your dealership improve performance with 20 Groups, in-dealership consulting, and customized training optionsAnd don’t forget about NCMi training for service managers and service advisors!

Permanent link to this article: http://blog.ncm20.com/2017/06/the-10-minute-fix-for-lost-customer-pay-hours/

Emily Johnson

From the Customer: 4 Car-Buying Lessons

Couple in car

My husband and I have purchased so many cars recently that we should probably start a club for people who love to car shop. (Facebook group, anyone?) In this blog, I will summarize our past shopping experiences and explain the four internet marketing and sales techniques that got us to buy.

In the last two years, we have traded in and purchased four different cars. Throughout all the vehicle juggling, we’ve done our fair share of online research, pricing, test driving, dealership visiting, and negotiating. From a large conglomerate “no haggle” dealership, to the small store with fully commissioned sales staff who will aggressively sell you any vehicle on the lot, we have seen it all. As someone who works closely with the automotive industry, I can imagine these four lessons might prove helpful in YOUR dealership.

1. “No haggle” and “ease of access” reign supreme.

Our first and second car trades were almost identical because we used the same dealership and salesperson. We wanted to trade in our gas-guzzling “college cars” for svelte hybrid or electric vehicles.

Each purchase was as smooth, stress-free, and “no haggle” as the dealership’s advertising touted. We found our cars online, test drove the exact cars we would take home, sat down to do the paperwork, and left with smiles on our faces. The paperwork period was a tad lengthy but was tolerable overall.

While my husband enjoys haggling and negotiating (i.e. the “typical car buying process”), I prefer this easy, stress-free approach. And I’m not alone, only 17 out of 4,002 customers surveyed prefer the typical method of buying a car. That’s only 0.5%!

Given that most shoppers seem to be like me, you should evaluate how your dealership handles customers’ online experiences. Consider letting customers shop, negotiate, and sign their paperwork online, and use the online experience to lessen the pressures of the process and keep it low-key. Give your customers the power to choose, pay for, and drive away their new car on THEIR terms. To further ease the buying process, some dealerships have employed tech-savvy tactics such as a virtual document signature capture desk or test driving cars from a massive vending machine! While I don’t think it’s essential to go THAT far, a few simple digital changes could drive more business to your dealership.

Learn from our encounters …

Six months after we purchased the hybrid and electric cars, we decided the full-electric wasn’t the right vehicle for us (range anxiety, anyone?). Instead, we wanted a cheap car that we could run into the ground, a true workhorse. Like before, we used our trusty smartphones and began looking online in our area for a used vehicle that was inexpensive but would last for many years to come. After trolling many car lots trying to find the cars we had bookmarked online (or looking for cars that weren’t online), we found an SUV and a sedan at a small dealership in a “dodgy” part of town. Once we rolled onto the lot, a salesperson appeared at our window—in the rain—asking if we needed help. My husband and I looked at each other, and we braced ourselves as we got out of the car.

Not only was this buying process longer than the first two, but the dealership strung us along for DAYS before we finally crawled out with an SUV at a decent price. While this was not ideal, there are a few things the dealership got right: They had a significant and well-advertised online presence, and all vehicles were merchandised online with their best prices prominently displayed.

2. Being online matters.

My husband and I use online resources in every one of our car buying endeavors and have become car-searching powerhouses. Unsurprisingly, we’re not alone in this. On average, customers spend 14.75 hours shopping online for just one car (so for four cars, we shopped a total of 59 online hours?!), and 59% of an average customer’s car-buying research is done online as opposed to in-store, word of mouth, or in print. Shoppers tend to use smartphones when searching but also utilize desktops, laptops, and tablets, depending on where they are (home, work, out driving around). In fact, 46% of average customers use multiple devices to search online during their car buying process.

What does this mean for your dealership? Own a strong online presence. Post your best prices online to entice customers to come in and not be disappointed when they do. Utilize SEO (search engine optimization) to improve a buyer’s chance of finding YOUR dealership over another. Show your inventory online, on your site AND third-party sites. Ensure your dealership address and hours of operation are prominently displayed on your homepage, and in a Google search. Your customers are shopping online: Help them find what you want them to find.

Enter the shiny blue truck …

A year after the SUV buying experience, we (my husband) decided we needed (he wanted) a truck. So, we went truck shopping! (Note my sarcasm …) I’m pretty sure we visited every dealership in a 50-mile radius of our home over the course of three weeks.

Like before, we started by using digital devices to find the perfect truck. During our search we scoured the web, our budget rose and fell, and we test drove every truck we could. Finally, we agreed that our favorite truck model was WAY outside of our budget, so we found another option that was just the truck for us.

Our research into this chosen truck model eventually landed us at a dealership in a neighboring suburb. We arrived at the lot, saw the truck, (which had only been there for two days and was balloon-clad on the rotating pedestal out front, with a radiant light surrounding its shiny, blue physique) and asked for a test drive.

3. Test drives are not the end all, be all.

When my husband and I bought our hybrid/electric vehicles, we only test drove the cars we would purchase. This is typical, 52% of average customers only test drive one vehicle when they’re car shopping. From my research, I confirmed that “car shoppers are influenced about what to buy and who to buy from. The time to influence and convert them is online, where car buyers spend the majority of their shopping time making decisions.” This couldn’t have been truer during our truck shopping experience. We test drove many vehicles during our SUV and truck searches, but ultimately we made up our minds based on the deals and information we found online. We didn’t care who we talked to at the dealership; we just wanted to get the deal done.

My takeaway? If your sales team currently throws all its effort into making the sale during the test drive or after, perhaps utilize that selling talent on your company’s Facebook page or website instead.

4. In-store does not mean offline.

Even after my husband and I made it onto a lot in any of the above scenarios, we were still on our smartphones searching for the next best deal. When looking for the SUV and the truck, we drove through many lots, many dealerships, scouting for that one car, that diamond in the rough. We armed ourselves with statistics and features, the prices and current sales, anything we could before we spoke to a salesperson. 63% of shoppers report using their mobile device at the dealership.

To keep those customers on your lot and urge them to engage with your sales team, you need complete online transparency. What do you want shoppers to buy? The balloons and rotating pedestals are a nice touch, but invest in online advertising, social media sponsored posts, website banner ads, and third-party website top spots; THAT is where customers are looking, not in the skies above your dealership.

For more tips on internet management, check out the NCM Institute’s two courses Mastering Digital Marketing and Internet/BDC Operations Management.

Permanent link to this article: http://blog.ncm20.com/2017/05/from-the-customer-4-car-buying-lessons/

Adam Robinson

Will Graduating Millennials Want to Work for Your Dealership?

Diverse International Students Celebrating Graduation Concept

In just a few short weeks, countless new college graduates will be entering the workforce, actively seeking job opportunities in a variety of industries and positions. In fact, during the 2016-17 school year, colleges and universities are projected to award nearly 4 million degrees.

This surge in the candidate pool will be made up largely of millennials, who come with their own set of expectations and needs from an employer. This means they will be vetting potential companies just as much as they are being vetted. Will your dealership look attractive to them?

Unlike their predecessors, millennials are interested in working with companies they feel a connection to, that will give them a sense of purpose. They also want to know there will be room for advancement within the company throughout their career and place value on flexibility and a steady income.

Here are some key elements your dealership can focus on to help ensure it stands out to top-tier prospective employees:

Employer Branding

Now a requirement for grabbing the attention of today’s top talent, employer branding reflects a company’s reputation as an employer and how great a place it is to work. Because millennials are looking past the paycheck for enterprises they feel align with their values, it is important your dealership has a good reputation with both your customers and employees.

You can give potential employees an understanding of your company’s message through your website’s career page, which should contain details of your business beyond the typical description. Let prospective candidates know how your dealership is involved in the community, what initiatives are on the horizon, and highlight special perks of the job. Take it a step further and be active on your social media platforms, spreading your dealership’s message to your audience and encouraging them to do the same. Fostering a healthy work environment will also make your employees more likely to share the positives of working for you on their own, lending further credibility to prospective candidates.

Pay Plans

Millennials today are not fans of the traditional commission-based payment models dealerships have employed for decades, instead wanting a consistent, guaranteed income. The pay plan must be worth their while financially to appeal to millennials. Rather than an “all or nothing” approach to sales, dealerships are encouraged to consider offering a starting salary with bonuses along the way. Employees will be able to enjoy peace of mind, which results in an increased chance of your dealership retaining them for a longer period. What’s more, the customer experience improves because the salesperson focuses less on making the sale and more on genuinely meeting client needs.

Dealerships that have recognized the changing landscape, and reacted accordingly, have seen positive results for both their employees and customers. The elimination of the pressure to make a sale has allowed for a more relaxed approach to interacting with the client. Sensing the shift in salesmanship, customer loyalty and trust in the dealership tends to improve as a result.

Career Fairs

We highly recommend that dealerships attend, and even host, career fairs to become top of mind for upcoming graduates. By making students aware of their options before graduation, potential candidates can begin looking at your dealership and taking the necessary steps to be ready for employment consideration as soon as they earn their degree. Through hosting and attending these fairs, your management team will have the valuable opportunity to meet potential candidates in person right away, allowing for informational interviews that can save time and money on a formal vetting process when these candidates are ready to apply.

Career fairs save you time because rather than waiting until after graduation to begin the tedious job search, spending countless hours on cover letters and filling out applications, the right candidates can go directly to your dealership first, providing you with a larger pool for consideration in a shorter amount of time.

Internship Programs

Implementing internship programs at your dealership has a number of benefits, including the ability to test drive the talent, increased productivity, and an increased employee retention rate. Not only will your dealership be front and center for a new graduate, but you will also have the time to train and mold a potential employee long before he or she is ready for full-time employment, giving both the employee and your dealership a head start. This approach saves money and time in bringing a new hire up to speed and helps ingrain a prospective employee into your team and culture ahead of time, allowing them to hit the ground running once officially employed.

Internship programs can be tailored to your company requirements, ensuring you train students for positions your dealership may need most, using the strategies and tactics that translate into results for your demographic and marketplace.

By placing emphasis on what millennials are looking for from potential employers, your dealership can become a prime target for the fresh wave of college graduates polishing their resumes this summer, giving you the opportunity to not only attract the right talent for your team but also to retain them for years to come.

Thanks to NCM Associates’ partner, Hireology, for sharing their guidance on attracting and managing millennial employees. Learn more about Hireology and join NCM’s experts for more actionable advice on hiring the best people for your team in our Hiring Top Talent and Success-Driven Pay Plans classes.

Permanent link to this article: http://blog.ncm20.com/2017/05/will-graduating-millennials-want-to-work-for-your-dealership/

NCM Associates

#AskNCM: Three Simple Solutions to Employee Retention

Employee retention is an ongoing challenge, particularly in the automotive industry, and we receive lots of questions about this hot topic. Given that 80% of dealership employees churn within 18 months, retention is clearly something we need to address.

NCM expert Robin Cunningham explains the three elements to improve employee retention in this new #AskNCM video. And, while pay plans play a role in keeping good people, it’s not quite as important as you may think.

Have another question for Robin or the other #AskNCM experts? Leave a comment below!

Permanent link to this article: http://blog.ncm20.com/2017/05/askncm-three-simple-solutions-to-employee-retention/

Steve Emery

6 Steps to Control Dealership Expenses

NCM-CD-413 (3)

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/

NCM Associates

By the Numbers: NCM Data Processing

NCM Associates is known for its industry-leading composites and Benchmark data. But those numbers don’t just crunch themselves! Our Data Processing team works tirelessly to ensure that NCM’s clients get the best possible analytics to make their business decisions. It’s also one of the key reasons our clients trust us—we don’t outsource their data; everything is managed in-house.

Whether entering operational data—sometimes even keying numbers by hand—or verifying benchmark results, this nine-member team makes sure it all happens accurately and on-time. Get to know this unsung NCM hero with the infographic below.

dpinfo

Permanent link to this article: http://blog.ncm20.com/2017/05/by-the-numbers-ncm-data-processing/

NCM Associates

#AskNCM: How many tickets should a service advisor have each day?

Service advisor Robert wrote to #AskNCM about daily workload, asking: “How many customers per day is too many for a service advisor?”

Depends on your business structure, explains NCM expert Steve Hall, and how you’re staffed. Variations across dealerships mean there is no cut-and-dried answer to the question. However, he explains, NCM does have a recommended customer interaction-to-service advisor ratio.

Get Steve’s recommendations:

Have another question for Steve or the other #AskNCM experts? Leave a comment below! For more service advisor training, check out our NCMi courses.

Permanent link to this article: http://blog.ncm20.com/2017/04/askncm-how-many-tickets-should-a-service-advisor-have-each-day/

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/

Doug Austin

Profit Drain – How many dollars are slipping away from your operation?

auto mechanic with clipboard at car workshop

If you keep up on recent automotive news, you have probably come to the conclusion that new car sales in 2017 are forecasted to plateau. Sales will flatten out, and margins are likely to continue on the same trajectory—flat or shrinking. These realities will challenge most of the dealerships who try to improve profits by only selling more new vehicles as their primary profit driver. That top-line sales strategy has worked well for many dealers since the downturn, but many have successfully focused on working both sales and expenses to enhance profitability issues when sales flatten out. In fact, many dealers have realized the untapped potential for big profits right in their own dealerships that are available today.

In the spend management space, we are accustomed to working with dealership spend data, supplier pricing for supplies and services, and multitudes of benchmarks. The following was true eight years ago and according to our internal calculations, it is still true today, though the data has changed slightly:

  • Dealerships spend money in up to 130 expense categories every month.
  • Single-point dealerships average 400+ suppliers to support those 130 expense categories.
  • Multiple-point dealerships can have 800+ suppliers supporting the organization.
  • Dealerships will spend between 4.5% of sales to 9% of annual sales on services and supplies.
  • 94% of dealerships do not have a formal purchasing department.
  • Aberdeen Group (procurement authority) says that if you centralize sourcing and purchasing, you can save up to 25% of your spend in new found savings through leverage and focus.
  • Our internal metrics demonstrate 23% cost savings to validate Aberdeen research in the dealer space.
  • Supplier reductions of 45% of total suppliers are quite common—reducing back office support.

What does this all mean?

  • Dealerships are spending too much on supplies and services.
  • Supplier pricing is generally too high, which accounts for the 23% savings opportunity year-after-year.
  • Dealers are using too many suppliers, impacting price and back office administrative costs.
  • The de-centralized purchasing strategy—using managers to fill the role of purchasing—is not working.
  • Unless dealerships re-think and alter their current purchasing strategy, they will continue to pour money down the drain every day and lose a great source of new profitability.

New profit opportunities.

Based on the data and benchmarks available, dealerships can get a pretty good idea of new potential profits—or lost savings—by reviewing the data in the chart below:

 

Annual Revenues

$25MM

$50MM

$75MM

$100MM

$150MM

Supply/Service Spend as % of Sales

 

8.0%

7.5%

7.0%

6.5%

6.0%

Annual Spend for Supplies & Services

 

$2,000,000

$3,750,000

$5,250,000

$6,500,000

$9,000,000

*Savings Opportunity at 20% – Year One

 

$400,000

$750,000

$1,050,000

$1,300,000

$1,800,000

*Savings Opportunity at 20% – Year Two

 

$400,000

$750,000

$1,050,000

$1,300,000

$1,800,000

Total Savings Opportunity

 

$800,000

$1,500,000

$2,100,000

$2,600,000

$3,600,000

*Year One and Year Two savings are achieved by negotiating a competitive price, then locking those rates in for 24 months or more. Contracts are not necessarily required to achieve this.

Reasons for doing nothing.

I have scratched my head over the years wondering why only 5% of dealerships centralize their procurement and 95% of them still do nothing. As best as I can tell, dealerships do not change their approach for the following reasons:

  1. Owners and management do not realize the potential benefits of changing their approach.
  2. Not enough time to attack their expenses in a methodical manner.
  3. Unsure of where to begin—expense management can be complex with many moving parts.
  4. Too focused on top line sales to drive profits—sales-driven companies are not comfortable in the operations space.
  5. Perceived internal threat—if new savings are generated, those responsible might appear as ineffective managers.

Reasons for taking action, now!

  1. Margins are being compressed and profits are or will be shrinking, therefore it is the obligation of management to be proactive and move.
  2. Taking action today will protect the business when the next downturn occurs—and it will occur.
  3. The cost savings achieved are not transitory; they can be sustainable if approached correctly.
  4. The cost savings dollars are significant, as demonstrated above, and can have a positive impact on the business.

Suggested next steps.

If you and your management team are ready and serious about generating new profitability and stemming the loss of profits, consider the following actions:

  • Leadership: Meeting of the minds. Gather your management team together and get some consensus around your objective of improving profitability and how you can achieve the results outlined above.
  • Assess your spend. Identify how much you spend annually for supplies and services (see above) from your DMS data and then determine who in your organization is managing that spend.
  • Gap analysis. Review your processes and controls today. Do you have purchasing policies? Do you track contracts? Do you have a list of preferred suppliers for each category? If not, you need those tools in place to guide the organization.
  • Develop a plan. You are not going to manage 130 expense categories effectively and generate the profit potential without a plan—let’s be honest. You need to centralize your procurement function; either hire someone—or some group—to assist you in organizing your internal resources so that they have matrix responsibility for generating cost savings. Assign each category to someone on your team and assign a due date to get your resources aligned and your plan established.
  • Execute the plan. Business school taught us the fundamentals of management: Plan, Organize, Direct, and Control; you do this every day in other parts of your business. Now might be a good time to do the same thing with your expenses.

Expenses: The last business goldmine.

Based on the research of outside consultants and what we see in our spend management practice, that statement is true. If you are serious about driving new profitability in your business, now might be a good time to do so. If it is not a good time, then just realize that you are pouring dollars down the drain every month and will continue to do so until you change your approach and strategy.

Permanent link to this article: http://blog.ncm20.com/2017/04/profit-drain-how-many-dollars-are-slipping-away-from-your-operation/

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