CALL US AT 1.866.756.2620

Tag Archive: Net Profit

Robin Cunningham

Are Your Managers Guaranteeing Profitability at Your Dealership?

guaranteeHi again from the training room floor…this is Robin Cunningham from the NCM Institute.  That’s a pretty strong word, GUARANTEE, but our participants do it every day in our NCMi® classes.  After initial introductions and within the first half hour each Monday morning, we introduce them to the Guarantee of Action (GOA) process.  Accountability Management is one of the cornerstones of our curriculum and PLAN YOUR WORK, AND WORK YOUR PLAN is the first of The Six Primary Elements of Effective Accountability Management.

So we show them a sample completed template of a GOA that describes how a dealership intends to put daily work plans into place for the salespeople and how that is going to help them sell more cars.  A GOA has several components in order to help GUARANTEE the success of the idea.

We ask that the idea be described and then quantified.  We have all heard the saying that “ideas are a dime a dozen.”  And we certainly agree.  So the quantification part is where our students initially struggle and require some extra coaching.

In the Salespeople’s Work Plan idea, the quantification scenario was as follows:  they would produce no less than 21 incremental units per month, which, at no less than a $2,750 PVR “all in” gross, and an overall incremental expense of no more than 35%, will result in a monthly Net Profit Improvement (NPI) of $37,537 (21 x $2,750 x 65.0%).

Then we asked them to continue with the Three-Point Detailed Corrective Action Plan which starts with identifying the responsible parties involved in guaranteeing the plan.  In this case it was the GM, GSM, Sales Managers, BDC/CRM Manager, and Sales Consultants.

Then the plan is further detailed with planning elements:

Planning Element 1:  BDC/CRM Manager Accountability.  Generate work plans each morning (Monday-Friday), and issue them to the salespeople at the start of their shift.  Collect all work plans at the end of the shift.  Verify that a manager has signed off on each assigned task, update all the tasks in the CRM, and transfer all “out-of-market” and “bought elsewhere” prospects to the GM’s work plan.

Planning Element 2:  Sales Consultant Accountability. Complete all tasks on the work plan before the end of the daily shift, and turn completed work plan in to the sales manager.

Planning Element 3: Sales Manager Accountability.  Review each task on the work plans of each sales consultant on his/her shift, and sign off when completed; list and confirm all the appointments set on the Appointment Log and the Customer Welcome board.

Each participant creates approximately two GOAs per day per 2½ – to 4½-day class.  They keep a copy, NCM keeps a copy and most importantly, the sponsoring dealer or GM gets a copy sent to them to help ensure the most efficient transfer of all of critical ideas the participants learn, so they have the highest possible chance of being fully integrated into the dealership culture.

Each of these GOAs has the potential to add very significant increases to dealership profitability, and yet we make sure they are conservative and very well thought out.

Earlier in the year we were working with a large dealership group focusing on their used vehicle departments.  It came to light that they were wholesaling a very high percentage of older used cars that were very definitely “retailable” if they expanded their comfort zone on keeping some older, higher-mileage cars.  Going from wholesaling 43% of total used vehicles sold down to 25% (which is an NCMi Best Practice) at one of the stores resulted in retailing an additional eight units per month.  So the quantification was something like this:  We will retail eight additional used vehicles per month (rather than wholesaling them).  8 x $2,800 front/back per month = $22,400 per month/$268,800 per year.  Plus that extra 72 vehicles reconditioning at $825 per car @ 50% fixed gross added an additional $3,300 per month/$39,600 per year, not including additional Doc. Fee income.  So, they could generate $308,400 additional gross profit, just from keeping an additional eight wholesale vehicles per month (that were going to some other source) for them to retail.

So when our students leave our NCM Institute classes, they truly are in a position to realistically GUARANTEE their dealerships’ increased profitability.  Relatively small ideas done well can make dramatic improvements in your bottom line.

So the next time you are talking with your managers about improving profitability and they tell you it’s going to get better…ask them if they can GUARANTEE it!

Service_Man_Courses

Permanent link to this article: http://blog.ncm20.com/2013/07/are-your-managers-guaranteeing-profitability-at-your-dealership/

Rebecca Chernek

To Women With a Passion for F&I

woman_FandIEMBRACE CHANGE

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/

Joe Basil

What’s your job?

managers not working as a team!A top 10 nationally-ranked auto dealer called me recently and asked me to do an assessment. I said no problem, I’ll send the list of schedules that I need from your controller and we can get started. The dealer responded no, not that assessment, the management assessment that we did two years ago. Based on the urgent tone in his voice, I asked, “Tell me what’s going on?” The dealer explained that in 2011, the store had a record year in volume, market share and net profit. Based on that year, he and his team expected to surpass those results in 2012. Surprisingly, after the first quarter, their volume and net profit were down and market share was about even. He felt the management team had lost the spark that was there in 2011 and he couldn’t figure it out.

I proceeded with the project and began to interview each manager one-on-one. I had a list of key questions that helped frame and definitively pinpoint what the issues were. After interviewing five or six of the 18 managers, it became clear what had changed. Two questions were most revealing. The first question was “What do you focus on when you come to work every day?”  And second, “What did you used to do that made the store successful that you don’t do today?”

After compiling all the input, we held an off-site management team meeting including the dealer principal. One by one I went around the room and asked each manager, “What do you focus on every day when you come into work?” Their answers generally centered around their activities. For example, “take care of customers, sell cars, sell parts,” and so on.

When everyone was asked, “What did you used to do that made the store successful but has faded away?” The responses were very revealing. “We communicated better, we were better connected, we’re on the same page, each manager knew what the other manager was trying to accomplish, we worked better together as a team.”

So I asked all of them, “What’s your job?” The responses were a repeat of what they told me when asked what they focus on every day. When the dealer answered that question, he touched on the “key”: The dealer and the managers had lost sight of what their real job is every day, which was to “build and lead the team.”

As they listened to each other answer the question about what they used to do but has since faded away, they solved their own problem. They became so focused on activities that they forgot to focus on building and leading their team.

So if we asked each manager in your store “What’s your job?” how would they respond? And lastly, Mr. Dealer, if you were asked the question “What’s your job”? How would you respond?

Joe Basil is an Executive Conference Moderator with NCM Associates whose career spans 40 years in retail automotive. Joe is the former owner-operator of three franchised operations with strengths in operations turnaround, culture change, expense restructuring, finance, acquisition and divestiture, and human resources and regulatory compliance. To reach Joe, email jbasil@ncm20.com or call 913.317.6885.  

Learn to lead your dealership team to greater success!

Permanent link to this article: http://blog.ncm20.com/2013/02/whats-your-job/

Robin Cunningham

Is Raising Your ELR the Right Solution for a Lackluster GPM?

phoneThis is a story about a phone call I received several months ago from a service director who had recently attended our NCM® Institute class, Principles of Service Management I. Although not her real name, I’m going to call her “Debbie” throughout the remainder of my story.

“How can I help you today, Debbie?” I asked. “Well, my dealer principal and I have identified a major area of opportunity in my department. Our GPM on customer-paid labor sales is well below the NCM Benchmark® average, and we’re also significantly below our 20 Group average. We need to raise our labor rates, and I’m looking for some guidance.”

I then took a look at her group’s composite and reviewed the “Service Sales and Gross” and “Service Department Expenses and Profit” pages, and I said to Debbie, “I see what you’re talking about. Your GPM on customer-paid labor is at 62.66%, and that’s without question exceptionally low, but let me point out a couple of things.”

“First, your average monthly customer-paid gross profit is one of the highest in your 20 Group. Second, your departmental net profit retention is the third highest in your group. Finally, your departmental operating profit is the highest in your group. Are you sure you want to risk that level of performance, just to improve a metric like GPM? Remember what I told you in class…you can’t eat metrics such as GPM…you can only eat Net Profit! I need to have you slow down a little, Debbie.”

“Also remember that I said GPM is a function of three independent things. First is your Effective Labor Rates (or ELR), that’s what we normally consider it to be the low hanging fruit…but sometimes it isn’t! That’s why we need to consider the other two variables. As you’ll recall, the second variable is our Cost of Labor Sales (or COS). That’s determined by our mix of technicians, their pay rates, and the way we dispatch our work. And the third variable is our Discounting Policies and Practices. Have you taken the last two variables into consideration?” I asked.

“I’m way ahead of you, Robin,” she responded. “I have. Like a lot of dealerships, our technician mix doesn’t very closely match our business mix. We’re way too heavy with master and journeymen technicians, and we are trying to do a better job of dispatching the right jobs to the right technicians, but as you’ve said, that’s not easy with our current technician mix.

“Debbie, I can already hear your next question forming…Have you considered adopting a Variable Flat Rate Pay Plan?”   

She answered, ”yes, we have. But we’re not ready to take that step yet. When you look at the Technician Productivity section of the composite, you’ll see that our technicians are averaging slightly more than 220 flat rate hours per month. That exceeds your NCMi® guideline of 200 flat rate hours per month. We’re afraid that if we implement a variable flat rate pay plan today, our technician productivity will suffer and we may lose some techs as a result. So to clarify my answer…Do we understand the Variable Pay Plan concept…? Yes! Do we like the idea…? Yes! Are we prepared to adopt it today…? No!

I then asked Debbie if she had been tracking her customer-labor discounts, and she quickly replied, “Of course! As soon as I got back from the Service Management class in Kansas City, I met with my controller and we began a process to sub-account for and track discounts. And, WOW, that was an eye-opener! We learned a lot and implemented a lot of quick-fixes. We now believe we have our labor discounts under control and expect to be able to maintain current discounting levels. And my advisors’ average productivity is fine at close to 800 flat rate hours per month, so I don’t want to hamper that productivity by messing around with our budgeted and managed discounting policy.”

“OK, Debbie,” I responded. “You obviously got some important take-aways from the NCMi Service Management training you attended. So let’s tackle the challenge of how and how much to raise your customer-paid labor rates….”

Robin CunninghamRobin Cunningham is an instructor for the NCM Institute’s classroom and web-based training programs, specializing in General Sales Management, Service Management, Used Vehicle Management, and General Management curriculum. A former dealership owner, Robin has served on several local, state and national dealership associations and councils during his career.

 

managingcustomer_blogcta

Permanent link to this article: http://blog.ncm20.com/2012/12/is-raising-your-elr-the-right-solution-for-a-lackluster-gpm/

Leo Hart

Successful Auto Dealership Forecasting

measureThe other day, I started weighing myself each morning. Because of that, and because I have had a long-time goal of losing about 20 pounds, I realized that I was subconsciously altering the amount of food I was eating each day. And with that reminder each morning (the scale), I was either encouraged or recommitted.

That experience has brought to mind what happened a few years ago when I produced a forecast meeting for one of my 20 Group members and his management team. The results of that meeting were ultimately awesome. If memory serves me correctly, the dealership’s actual net profit for the forecasted year exceeded the dealer’s pre-forecast expectations by 50%. The team had forecasted with me $2.3 million net profit. The dealer was only expecting to make $1.5 million. They made their forecast.

The main reason for the store’s success that year was two-fold. First, throughout the forecast meeting all participants would collaborate on what our expectations were for each account or line item on the financial statement, developing some commitments or plans of action as we went. My goal was to create a short form financial statement for the upcoming year. This short form was to include unit sales volumes, gross per unit, F&I, and each parts and service sales account along with number of R.O.’s and the targeted gross profit margins on labor and parts. After the sales and gross profit production numbers, we then forecasted an expense budget for each department, deriving a forecasted net profit for an average month and total year.

This was good, setting a track for us to run on. But the real key product of our forecasting activity were all the action plans we had noted to accomplish in the coming year, along with some how-to ideas to accomplish them. Those notes and action plans were the Real Forecast.

The second reason for the store’s success was the dealer’s own self-discipline to daily and weekly review with his management team their actual performance against the forecast. And, though we gave him a detailed annual forecast, he sat down with his computer spreadsheet and broke it down to a monthly forecast, taking into account the store’s history of sales activity, creating a sales volume and expense budget for each department by month. Then—and this may be another important ingredient for their success—he would review, daily or weekly, the team’s progress and offer his help to a manager individually, and/or the team, to keep them on track with their overall goals. Adding his own infectious energy to the process, from my perspective, was so very important to their success that year. It was the manager’s forecast, but the dealer was engaged to help the department managers along their way.

There’s no doubt that with good measurement tools, a structured and collaborative process to define goals, and a commitment to execute agreed-upon action plans, your dealership’s forecasting efforts will be rewarded. And speaking of good measurement tools, I was recently introduced to NCM’s new web-based software product, axcessa™ and I saw built into the programming the above disciplines—forecasting and daily review. I believe the axcessa tool’s forecasting features will facilitate this disciplined process in any dealership. To learn more about axcessa, I encourage you to visit www.ncmaxcessa.com.

Of course, a software program cannot interject the passion and leadership of the dealer. That, you have to supply.

Leo HartLeo Hart is an executive conference moderator for a number of NCM Associates 20 Groups, including franchised and multi-store dealership operations. You can reach Leo at 913.649.7830 or email lhart@ncm20.com.

 

 

 

 

 

Permanent link to this article: http://blog.ncm20.com/2012/12/successful-auto-dealership-forecasting/

Garry House

Corrected: Service Incremental Improvement Metrics

On May 8th of this year I published an Up to Speed article titled “Did You Ever Look at Your Service Gross Potential THIS Way  In that article I stated that NCM Institute (NCMi®) research showed that, on average, with the proper departmental structure and processes, every incremental customer-paid labor dollar produced should result in approximately $1.25 in fixed gross profit, which should then result in approximately $0.875 in Retained Net Profit.

Unfortunately, my statements were inaccurate, and based on the positive example recently set by Hyundai and Kia, November is a good month for admissions of guilt.

Fortunately for me, however, and unfortunately not for Hyundai and Kia, the inaccuracies I supplied to you in May significantly understated the benefits you should derive (with the proper departmental structure and processes) from producing each incremental customer-paid labor dollar. When I made those bold statements back in May, I didn’t provide any supporting information for you to review. Not so, in this article!

The following chart displays a recent pro forma developed with an NCMi attendee. The “Current” columns of the chart display the current average year-to-date (YTD) monthly performance of the attendee’s service department. The “Projected” columns display the service department’s potential performance, if, in fact, the attendee is able to effectively implement and execute the NCMi recommended processes to which he is now committed:

before-after-med_

Note that in this example, the ratio of Incremental Gross Profit Improvement (IGPI) to Incremental Labor Sales Improvement (ILSI) is 1.531. This means that for every incremental customer-paid labor dollar we sell, the resulting fixed gross profit is $1.53. Also note the ratio of Net Profit Improvement (NPI), at a 70% retention level, to Incremental Labor Sales Improvement (ILSI) is 1.072.  This means that for every incremental customer-paid labor dollar we sell, the resulting Net Profit Improvement is $1.07. These incremental improvement metrics are obviously very significant…and they are 22% higher than those that I presented to you in May.

If you believe you have opportunities for improvement in your customer-paid business, maybe you should consider jump-starting your service department in 2013 by attending one of our upcoming NCM Institute training programs for service managers in December and January:

How to Increase Customer-Paid Gross Profit in YOUR Service Department – San Diego, Dec. 8-9 and again in Orlando, Jan. 10-11

Managing Your Customer-Paid Service Pricing Strategy – Webinar at 1:00 p.m. EST on Thursday, Dec. 13

Principles of Service Management I – Kansas City, Dec. 17-19

Principles of Service Management II – Kansas City, Dec. 19-21

If you prefer a private, in-dealership training or consulting program, we can help with that, as well. Call Brandiss, Kara, or Cassie at 866.756.2620 for details on any of these programs.

onsitehelp-med_

Permanent link to this article: http://blog.ncm20.com/2012/11/corrected-service-incremental-improvement-metrics/

Brent Carmichael

Done Right, BHPH Can Be Your Golden Ticket

h--rek-pictures-blogs-bhph gold ticket-thumb_In the Buy Here, Pay Here business, the average dealer makes $2,000 in net profit per car sold.  Last year, the average NCM® BHPH client dealership made $1.4 million in profit.  As you can imagine, with the state of the automobile industry the past few years, and because of the lack of viable lending sources for this segment of the auto buying public, there is no better time to be in the BHPH business. However, as with any business, BHPH is not for the uneducated, unprepared and undercapitalized.

The days of a $250,000 initial investment and a business model based on selling a few cars and collecting a little money are long gone. Those ingredients in today’s BHPH market would ensure a business life of six months at most. Success in today’s BHPH environment requires a little more sophistication and a lot more understanding.

The first step to a successful BHPH operation—whether you’re just getting started or you’re currently in BHPH—is understanding the two key elements of the business. These two key elements are risk management and capital requirements. Simply put, not understanding and not maintaining the discipline to focus on these elements will lead to a short and unsuccessful foray into the business.

Of the two elements, risk management is primary. BHPH is a collection business, not a sales business. Since the BHPH customer is generally a higher credit risk, understanding how to best mitigate that risk is paramount. Even the best BHPH operators experience loss rates of close to 25%. The reduction of risk is best accomplished through underwriting, deal structure, and collection practices. Effective underwriting grades the customer’s stability and ability more so than other factors. Deal structure will fit the term, payment, and down payment to not only the customer’s needs, but more importantly, to the dealer’s financial model. And collection practices will focus on starting the customer on the right path and keeping them on it. It won’t matter how many are sold if they can’t be collected. All that will be generated is a large book of nearly worthless business.

This segues into understanding the second key element, which is the capital required to effectively operate the business. It is a fairly cash-intensive business, for obvious reasons, and can be more so if there is a lack of understanding and focus on managing risk (the first key element). To gain an understanding of your capital requirements, you must first decide what your objective is for the business—will it be structured for cash flow or for aggressive growth?  This will determine where the money will come from and where it will go.  Then, prepare a cash flow model showing a minimum of three years’ worth of assumptions.  Of course, once the cash flow model is in place, there must be the discipline to manage the business by it. Mismanagement of this aspect of the business will drastically shorten the life of the business.

These two elements go hand in hand. If the risk isn’t managed, all the capital in the world won’t matter. It’s simply throwing good money after bad. And if the capital isn’t managed, it will put the business in a dangerously over-leveraged position.  But despite the risk and capital required, BHPH can be a very profitable business and one that is becoming more appealing as evidenced by the increasing interest.

So while this is a great time to be in BHPH, as with any business, education, preparation, and proper execution of the key elements are paramount to success. The future is very bright for well-run BHPH businesses, so if you need help getting started or need to fine-tune your sales, underwriting and collections processes, consider attending my upcoming BHPH training workshops in Kansas City later this month.

Brent Carmichael is an executive conference moderator for NCM Associates’ BHPH 20 Groups and is the lead instructor for the NCM Institute’s BHPH training programs, including “Sell More, Profit More” and “Collect the Cash, Not the Cars.”  You may reach Brent by email at bcarmichael@ncm20.com or by phone at 913.649.7830.  

h--rek-pictures-ctas-bhph-med_

Permanent link to this article: http://blog.ncm20.com/2012/08/done-right-bhph-can-be-your-golden-ticket/

Garry House

Managing Controllable Profitability in Your Automotive Dealership

h--rek-pictures-blogs-profit keyboard-small_The NCMi faculty members and the NCM Retail Operations field consultants have learned that managers who effectively manage the elements of “controllable profitability” within their respective operating departments normally produce a significant departmental net profit. This, of course, assumes that the majority of dealership expenses (limited-control and fixed) are fairly distributed to each operating department.

Many managers, however, lack the proper focus on controllable profitability because:

  • They’ve never learned what the driving elements of controllable profitability really are, or
  • Their compensation plans lack suitable emphasis on the elements of controllable profitability

The thrust of this article is to clearly define and communicate the elements of controllable profitability and to provide some best practice guidelines for your departmental targets. Let’s begin by looking at the combined New and Used Vehicle departments.

We combine the two vehicle sales departments for this analysis because:

  1. Many dealers intentionally manipulate their new vehicle department gross to the advantage of their used vehicle department (or vice versa), and
  2. Several expense categories (i.e. advertising, training, etc.) are difficult to accurately prorate between the two departments.

The first element of combined sales department controllable profitability is gross profit. This is a function of retail sales volume, overall $PVR, and inventory turn. When calculating gross profit to determine controllable profitability, you should include any and all gross profit that is recorded in Net Additions to Income (i.e., Doc. fees, hard packs, and manufacturer incentives related to “one more vehicle sale”). The remaining elements of controllable profitability are the expenses directly controlled by the department managers. We define the controllable expenses in the vehicle sales departments as follows:

  • Salesperson direct compensation expense – this includes salaries, commissions, and other incentives for sales personnel, sales team leaders, closers, and may also include BDC personnel, and demo allowances
  • Financial services direct compensation expense – this includes the F&I director, all F&I producers, and any dedicated F&I clerical personnel
  • Other salaries and wages expense – this includes only the expense for the employees within the sales department over which the manager has direct control (i.e. porters, inventory attendants, clerical assistants, etc.)
  • Net new and used vehicle delivery expense
  • New and used vehicle policy, claims, and service loaner expense
  • New and used vehicle demonstrator and company vehicle expense
  • Net new and used vehicle advertising and sales promotion expense
  • Net new and used vehicle floorplan interest expense
  • New and used vehicle training expenses

In the fixed departments (Mechanical Service, Collision Center, and Parts & Accessories) we see common elements of controllable profitability. As in the vehicle sales department, the first element of controllable profitability is gross profit. This is a function of shop capacity (technician count and quality), transactional count (repair orders and parts counter tickets), transactional quality (lines per R.O. or ticket, hours per R.O., effective labor rate), and margins (business mix, technician cost of sale, parts mark-ups, and discounting practices). The remaining elements of controllable profitability are the expenses directly controlled by the department manager. We define the controllable expenses in the fixed departments as follows:

  • Salesperson direct compensation expense – this includes salaries, commissions, and other incentives for service sales managers, service advisors, body shop estimators, front and back parts counter personnel, sales assistants, and may also include BDC personnel
  • Other salaries and wages expense – this includes only the expense for the employees within the fixed departments over which the manager has direct control (i.e. shop foremen, dispatchers, production managers, technical specialists, parts inventory specialists, parts shipping and receiving, parts drivers, porters, shuttle drivers, bookers/billers, cashiers, and other clerical assistants, etc.).
  • Net shop supplies and small tools expense (or profit)
  • Policy, claims, and service loaner expense
  • Company vehicle expense
  • Net advertising and sales promotion expense
  • Departmental training expense

We do not include supervision compensation in the controllable expense categories for any department because the department manager does not have any control over how he/she is to be paid, although he/she may have the opportunity to write his/her own pay check, based on the department’s performance.

NCM Retail Operations’ field consulting staff has developed the following best practice guidelines for controllable profitability, which are based upon their experience with the highest performing dealers with whom these NCM professionals are regularly engaged.

Best Practice Guidelines for Controllable Profitability

Operating Departments

Domestic Franchises

Import Franchises

High-Line Franchises

Combined New & Used Vehicle Sales

60.0%

58.5%

72.5%

Mechanical Service

71.5%

71.5%

71.0%

Collision Center

70.0%

70.0%

70.0%

Parts & Accessories

73.5%

76.5%

76.0%

We thoroughly discuss the elements of departmental controllable profitability in NCM 20 Group meetings, NCM Profit Correction Meetings, and NCMi management training courses.  Call us at 866.756.2620 for more information.

Permanent link to this article: http://blog.ncm20.com/2012/05/managing-controllable-profitability-in-your-automotive-dealership/

Paul Stowe

Have You Made the Strategic Adjustment to the New Normal?

h--rek-pictures-blogs-chess board-small_These days, there is a lot of conversation in the retail automotive business as to the 14 million sales pace being the “new normal.”  After three years in the industry’s most challenging business environment, the truth for many NCM® Benchmark® dealers is that the new normal is a pretty darn profitable environment.

Let me share some key metric observations with you, which are reflective of trends seen in NCM’s Benchmark database of domestic dealers for the past three years, through March 2012 YTD vs. 2009 YTD.

  • Profitability – All Domestic Brands: Profits Up 178.4%; Net to Gross Up 91.0% to 29.8%
  • Employee Counts:  Average Employee Count Up 7.8% or 5.5 employees
  • Gross Profit Per Employee:  $8,901 – Up 32.3% or $2,175 per employee

The point here is to illustrate the strong relationship between personnel productivity and profitability.  The Benchmark dealer clearly had a plan then and continues to execute it very effectively.  The keen focus on productivity―employee productivity― was rewarded with stunning profit increases year over year.

Looking deeper, they would not have been as significant had the Benchmark performers not stabilized and restructured the expenses in their dealerships.

Total Big Three Expense % of Total Gross Profit40.1% vs. 48.2%

Relative to the Big Three Expense trends (Personnel – Advertising – Interest), it is apparent that through the period, the Benchmark dealers were very serious about attacking and controlling expenses each month. This operational discipline enhanced the results of increased productivity dramatically every month by converting more of every revenue dollar generated into net profit.

There is no reason to pine for the return of a 17 million sales pace year to make great profits if you’ve made the appropriate strategic adjustments.  The reality is that super profits were being made in an 11.5 million sales year, and the Benchmark performers will continue to make great profits because they’ve mastered the operational discipline to do so.

How about your operation?  Analyze your performance, compare it to the NCM Benchmark performers, then ask yourself these questions:

  1. Do my managers know how much gross per employee is needed to achieve the profit forecasted for their departments each month?
  2. As important, do my managers know what the total expenses are to run their departments each month?
  3. Is every departmental employee necessary?   If so, is each equipped with the educational skills to perform at Benchmark employee levels?  If not, why aren’t they educated or why are they still employed?
  4. If you add an employee, how much additional revenue will that person add to the total gross profit performance of the department/dealership?  No answer – no hire.

How do you feel, now?  You can change it today.  Focus on the awareness and the non-negotiable objective to perform at these Benchmark levels to increase the productivity of your employee team.  It’s still all about productivity and how you control expense―every day. Participate in the new normal and enjoy the profits that are available to you.  It’s hard work, but the returns are great.

Need help maximizing employee productivity in your operation?  NCM can help with on-site retail operations coaching, and training from the NCM Institute.  Give us a call to discuss your concerns and we’ll find a solution that’s right for you.

Paul Stowe is the director of Retail Operations Consulting for NCM Associates, where he leads a team of experienced field specialists and consulting coaches who have helped thousands of automotive dealers enhance productivity and profitability through customized, on-site dealer development programs.   

Permanent link to this article: http://blog.ncm20.com/2012/04/have-you-made-the-strategic-adjustment-to-the-new-normal/

Garry House

Structuring Your Dealership for 30% Net-to-Gross

NCM® Associates has been facilitating 20 Groups since 1947. And even from those early days, our moderators and member dealers have focused on the Net Profit to Gross Profit Percentage (Net-to-Gross %) as a key metric of perfor­mance measurement. Over at least the last three decades, the NCM 20 Group community has established 30% Net-to-Gross (BOT*) as the “best practices guideline” for domestic and non-highline import dealers. Yet I am continually asked by my client dealers and their managers, “How do we structure our store to achieve this target guideline?” Following is the generic (all franchise) example that we use for all management training at the NCM Institute Center for Automotive Retail Excel­lence.

30 Percent Net-to-Gross Dealership Structure

 

Because of the differing financial reporting formats required by the manufacturers, it’s understandable why dealership personnel get confused when trying to understand the Net-to-Gross structure. That’s why this simple generic format is helpful, particularly once you understand “what goes where” when looking at the groupings of financial data.

For an apples-to-apples comparison across all franchise lines, I encourage my clients to include the following items on Line 3, Adjusted Gross Profit: F&I Net Income (after adjustments and chargebacks, but before F&I compensation), Doc. Fees, Manufacturer Incentives, and “hard packs.” The term “adjusted” is used to denote that this line includes all monies received that relates to the sale of a vehicle; many dealers often record some, or all, of this income in the Net Additions & Deductions section.

For this analysis exercise, Controllable Expenses should include the following:

Salesperson Compensation

Supervision Compensation (Excluding General Manager, Controller, or Office Manager)

F&I Compensation

Other Salaries and Wages (Excluding Clerical)

Absentee Compensation Expense

Training Expense

Net Pre-Delivery Expense

Free Service, Maintenance, and Policy Expense

Net Advertising & Promotion Expense

Company Vehicle Expense

Departmental Supplies & Tools

Net Floorplan Interest Expense

Equipment & Vehicle Maintenance

Service Loaner Expense

Freight Expense

Inventory Control Expense

All Other Personnel, Operating, Semi-Fixed, and Fixed Expenses should be included in the Limited Control and Fixed Expenses group.

The final category, Net Additions and Deductions, should include: 1) Net  Rental and Leasing Division Income; 2) Cash Discounts Earned; 3) Interest and Dividend Income; 4) Gain (Loss) on Fixed Assets or Securities; 5) Bad Debts Recovered; 6) Vending Machine Income; 7) Storage Income; 8) Other Non-Operating Income; 9) Allowance for Doubtful Accounts; 10) Other Non-Operating Expenses.

Lest there be any misunderstanding, here’s an important parting comment: Everyone in the NCM community will agree that it’s better to have $500,000 Net Profit at 20% Net-to-Gross than it is to have $300,000 Net Profit at 30% Net-to-Gross.

*Before owners’ salaries and bonuses and before income taxes.

Permanent link to this article: http://blog.ncm20.com/2011/11/structuring-your-dealership-for-30-net-to-gross/