CALL US AT 1.866.756.2620

Tag Archive: Profitability

Steve Hall

Three Hours Lost: Your Top 10 Service Time Wasters

Clock

When we ask service managers how important technician efficiency is to profitability, they most often say that “it goes hand-in-hand” or “if they aren’t efficient, you won’t make money.” While I agree with this, let’s look at it another way: time.

Here are the top 10 time wasters I’ve seen in service departments.

  1. Talking (non-productive talk)
  2. Waiting for the first job of the day
  3. Getting authorizations from customers
  4. Waiting on advisors
  5. Waiting in line in Parts
  6. Looking for or waiting on special tools
  7. Walking to Parts and back
  8. Phone calls, texts, e-mails and using tablets or laptops
  9. Smoking
  10. Arriving late or leaving early

How many hours lost?

I ask managers to make this list during each of my training sessions at the NCM Institute, and then I have them to assign time lost by activity. Sure, there are minor variations each class. But what doesn’t change is that we routinely come up with 2½ to 3 hours spent each day, not working on vehicles!

I know it is unreasonable to think that every minute can be spent on productive work, but how many of these lost minutes can we pick up?

Getting time—and money—back.

Let’s look at an example: We will figure an average shop of 12 technicians and gain just 15 minutes a day in actual production. We will use an $85.00 an hour effective labor rate and a gross profit percentage of 75%.

The numbers would look like this:

12 technicians x 15 minutes a day = 180 minutes of production gained a day (3 hours a day gained)

3 hours gained x $85.00 ELR = $255.00 in labor sales gained per day

$255.00 x 75% gross profit (labor) = $191.25 labor gross gained per day

$191.25 x 300 business days per year = $57,375 additional labor gross profit per year!

Add in corresponding parts gross generated from the labor sales, and you could earn more than $95,000 in additional fixed gross profit per year (and that is figured at 100% efficient). If they are 125%, the numbers are even larger! All of this from just gaining 15 productive minutes per day from each of your technicians.

Take the time to evaluate all of your technicians’ daily time wasters. Find ways to reduce the wasted time. Ask them for ideas and creative solutions. (And, once they know you are paying attention, some of the time wasters may just disappear.)

Go ahead, do the math your own numbers and find your potential: you’ll be amazed!

service_parts_senior

Permanent link to this article: http://blog.ncm20.com/2015/08/what-are-15-minutes-a-day-worth-in-your-service-department/

Steven Banks

A Beginner’s Guide to Managing Data

Snip20150723_1

We all have our inadequacies, both as individuals and as businesses. And it’s no coincidence that a business’ shortcomings often parallel the shortcomings of the individuals behind it. For instance, a business atmosphere that is too fast paced and rushed is often the result of an impatient dealer or manager. (When my wife recently accused me of this unfortunate quality, I explained that I have more patience than anyone because I never use any. She didn’t buy it, in case you were wondering.)

On the flip-side, a carefree and lackadaisical business atmosphere could be the result of an unorganized and unenthused manager. To the same effect, strengths tend to overlap as well, and we often forget that our personal fortes can make a positive impact in the day-to-day operations of our dealership.

One strength that can always be improved upon in dealerships is Data Management. It is very easy to become intimidated by newer nomenclature, and in the automotive world, “data management” absolutely fits that description. It is new, it is intangible, and it is constantly changing. BUT, the dealerships that are embracing data management, and effectively using it, are reaping the benefits.

So what’s in it for you?

Here are three reasons you can benefit from improved data management.

1. Turning numbers into actionable intelligence:

Properly analyzing and managing relevant information can transition your CFO and team of controllers from the mindset of accountants to that of trusted business advisors.

According to a USA Today/Gallup poll, accountants are considered the most trusted business professionals over any other position. If one of your mechanics needs a wrench to perform a specific repair, a hammer in hand would be useless if not dangerous. Similarly, data is the tool that your accounting team needs to ensure they are performing at maximum efficiency, and without the right kind, things can become extremely difficult. When you combine the right data with a high level of trust, it enables them to move beyond traditional accountants and solidifies their role as trusted advisors.

2. Deepening the understanding of cause and effect:

How do you figure out the meaning behind poor performance or even revenue that seems to suddenly vanish? Knowing where to derive data and accurately dissecting it can literally make the difference between driving profit and losing revenue.

Example: Turn wholesales into a profit center by focusing on more than just the number of units sold and whether or not you made money from them. Instead, monitor how those deals impacted BOTH front and back end gross. If your actual comp percentage shows different from commission percentage, giving attention to this could explain why. If you pay 25% commission on front end gross but lose money on the wholesale, you could potentially be paying commission on a deal that already is costing you. If you use the right data, you can properly analyze each wholesale deal and adjust commission accordingly, which guarantees you aren’t throwing away additional cash.I would recommend that your dealership invest in a data management platform, as I’m willing to bet that your DMS system doesn’t provide data reporting this granularly.

3. Knowing what to improve at all times:

The most powerful data available, arguably, is having up-to-date industry trends. You should be monitoring your dealership’s pulse and comparing that with the beat of the industry. Leveraging this method is a great way to provide fast and easy dealership comparisons so you know where you need to improve and where you are maintaining a competitive advantage.

Data management is extremely powerful, but knowing what to look for and when to look for it can be overwhelming, so remember to keep it simple! Look at the big picture before diving into the details. As you can see, the question isn’t whether or not data management can be beneficial, but rather how it can benefit you. And hopefully this lays a foundation on where to start.


Learn More:

databanner

Permanent link to this article: http://blog.ncm20.com/2015/07/a-beginners-guide-to-managing-data/

Steven Banks

What is the Answer to Work/Life Balance?

pages

I was at Barnes & Noble the other day to burn through a gift card that has been sitting in my wallet since Christmas, and on my way to the coffee nook located in the back corner I had to walk past three rows of “self-help” books. I mean literally, three full rows, from top to bottom and side to side. I couldn’t help but wonder if we really live in such a desperate time where we need 3,519 books that claim to hold the solution to life’s problems.

Most of us are guilty of reading at least one of these in our lifetime. I know I am. And while there is a plethora of good advice and friendly reminders found in the pages of these books, the truth of the matter is that there is no single perfect solution to life’s crises. And that includes the infamous work/life balance predicament.

I’m a firm believer in the quote by Lord Kelvin that states:

“If you cannot measure it, you cannot improve it”

And time is a key ingredient to some of the most valuable measurement standards. Think about it, MPH is a measurement of speed but could not be done without “hours” being involved. RPM is a measurement of rotations that could not be done without “minutes” being involved. And light-year is a measurement of distance that could not be done without “year” being involved. While I do not hold the answer to the work/life challenge, I certainly feel those measurements are proof that one can at least improve upon how they manage their time.

What does this mean for dealerships?

I’m glad you asked.  Let me first throw a few stats at you.

Stat 1: The average dealership is manually generating, creating, or updating reports nearly 300 times per month.

Stat 2: The average time spent updating a single report is 15 minutes.

Stat 3: A manager in a dealership is averaging $50/hour.

What this means is that, on average, a typical dealership’s managing team is spending 900 hours per year manually generating reports. This is 900 production hours spent behind a computer screen and not on the floor. That is equivalent to $45,000. Here’s the catch: You NEED these reports because they contain information that is essential to operate the store.

So what are we supposed to do about it? Well, here’s a thought: With the ever-advancing technological world, there are invaluable resources and tools designed specifically for dealerships to automate these reports that are being generated manually. I believe these tools have now moved from the nice-to-have category into the essential category. Although people have access to an abundance of information, particularly inside the DMS, it is not always easy for them to find, compile, and make sense of.

Yes, there typically is an investment to obtain this kind of tool, but the return of the productive time that a dealership gets from leveraging it should outweigh the expense tenfold. By automating what many of us are doing manually, we can be more productive and save an abundance of time. Time which we can invest in areas of our lives that don’t consist of data mining or number crunching.


axcessa_cta

Permanent link to this article: http://blog.ncm20.com/2014/04/what-is-the-answer-to-worklife-balance/

Garry House

How Do You Increase Service Department Sales?

serviceThis is a pretty basic question, right? But when discussing this subject recently during 2014 Annual Business Planning conferences with several client dealership Service Managers, I discovered that the answers were far more elusive than they should have been. Most of the NCM client dealers continually try to achieve 5% – 8% year-over-year improvement in Fixed Operations profitability. And those that successfully do so fully understand that it doesn’t just happen. This level of increase requires detailed planning, clear definition and communication of expectations, and flawless execution of processes…or more simply stated, Accountability Management.

Improvements in departmental profitability require increased sales, or increased gross profit margins, or expense reductions…and sometimes all three together. Today I’m just going to talk about increasing Service Sales, and since the Service Manager has little control over Warranty Sales and Internal Sales, my focus will be on Customer-Paid Sales. At the NCMi management training classes, the faculty emphasizes that there are only three ways to increase Customer-Paid Labor Sales:

  1. Increase the number of customer-paid service transactions (Customer Repair Order Count)
  2. Increase the number of customer-paid hours sold per Repair Order
  3. Increase the customer-paid Effective Labor Rate (ELR)

Each of these three areas of potential improvement will be addressed in more detail during future articles. At this time it’s only important to understand the differences in the degree of difficulty for each strategy.

  • By far, the easiest initiative to undertake is increasing the customer-paid ELR. Although it may take a lot of research, combined with a significant period of trial and error, to develop the “perfect” customer-paid ELR, everyone in the industry agrees that it’s pretty simple to implement a price increase. Note: It’s very important to remember that there will be no additional parts sales      associated with this strategy.
  • Moving next up the ladder of difficulty is increasing the number of customer-paid hours sold per R.O. This initiative is process-driven and requires a high level of documentation, advisor and      technician training and counseling, and may be assisted by certain innovations in service department technology.
  • The hardest initiative to successfully implement is increasing the customer R.O. count. Although all manufacturers and most dealers are becoming more and more focused on customer retention, most service departments today are not adding new customers at a level commensurate with the level of defecting customers, and their resultant R.O. count is decreasing.

So why should we care so much, and concentrate so heavily, on increasing customer labor sales in our Service Departments? Because, as most Service Managers understand, a $1.00 increase in labor sales results in a $0.75 increase in labor gross profit! And, as most Service Managers don’t readily comprehend, when considering the associated sales of parts, tires, oil, and shop supplies, each $1.00 increase in customer labor sales (accomplished through strategies #1 and #2 above) results in a $1.10 to $1.25 increase in Fixed Gross Profit!

Next week, January 9th and 10th, NCMi will be conducting a 1½ day regional training program in Orlando Florida, titled How to Increase Customer Paid Gross Profit in YOUR Service Department. To learn more, click here. Enroll now if you want to Jump-Start your Service Department in 2014!

service_roadshow

Permanent link to this article: http://blog.ncm20.com/2014/01/how-do-you-increase-service-department-sales-2/

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/

Garry House

Does Your Service Department Have a High-Performance Culture?

strategies and tactics

At the NCM Institute Center for Automotive Retail Excellence, the training that we provide in our Service Management courses focuses primarily on strategies and tactics. However, we have discovered that the effective execution of the strategies that we teach is most often hampered by an important missing ingredient: most dealership service departments do not have a “high-performance culture.” And as noted management thought leader Peter Drucker said, “Culture eats strategy for breakfast.” Without a strong and persistent focus on workplace culture, technical knowledge and business expertise alone will not optimize service department sales, gross and profitability.

To gauge whether or not you have a high-performance culture in your service department, ask yourself the following questions:

  • Are your service advisors, technicians, and support personnel fully engaged? Are they producing at 100% of their capability? Do they love what they do and look forward to arriving at work each day because of the passion they have for serving your clients and each other, finding it meaningful, challenging, and fun?
  • Does your service manager lead from the front (in the service lane and on the shop floor) or from the back (in his office)?
  •  Is your service department a “selling organization” or a “fix it and smile organization?”

Employee engagement is a problem in the retail automotive workplace. We find in every dealership we have the opportunity to work with, that employees actually care less about the bottom line and more about their inner wellbeing. People will sacrifice wages for a positive business culture. So what are the values you need to employ to create greater employee engagement? Research shows that the following represent some of the key elements that the best employees desire from the workplace:

  •  Clear performance expectations
  • Coaching that develops employee skills and potential
  •  Resources that enable employees to do their job right
  •  Opportunities to do their best work
  •  Sincere and genuine recognition and appreciation for efforts
  •  Meaningful participation in matters that affect them
  •  Encouragement and support for development
  •  Fair, equitable and respectful treatment
  •  Genuine concern for them as a person.

The four service management training programs (and also the Webinars) offered by NCMi include significant emphasis on Accountability Management and Leadership…the cultural drivers of employee engagement, sales and productivity. We recognize that great leaders focus on building positive, lasting relationships with the people they lead…and they should be sensitive to how they are perceived by their direct reports. This approach requires department managers to:

  •  Identify and communicate the important aspects of the employee’s position
  •  Designate and communicate what acceptable performance looks like
  •  Communicate clearly to the employee what performance is expected and how performance will be rated
  •  Communicate performance feedback and conduct performance discussions during the rating period, and evaluate performance based on the agreed-upon performance targets

There should be little doubt that the operative word is “communicate.”

Improving workplace culture shouldn’t be reserved just for service departments with obvious issues. It can also help well-performing dealerships progress to their full potential. Once the store’s leaders recognize that the behavioral culture is as important to success as are resources, processes, marketing and the rest, enhanced employee engagement will follow. Culture optimization needs to go hand-in-hand with the dealership’s business strategy. Service departments that integrate cultural optimization into their day-to-day business practices are far more likely to position themselves for success. In most instances, what is good for your people ultimately proves good for your business.

training for service managers

 

Permanent link to this article: http://blog.ncm20.com/2013/01/does-your-service-department-have-a-high-performance-culture/

Garry House

Focus on Vehicle Personalization: Thar’s Gold in Them Thar Hills!

h--rek-pictures-blogs-sema_ford_mustang_ill_ns_102810_815-thumb_Since the 2011 Specialty Equipment Market Association (SEMA) show has now concluded, would it be appropriate to ask why you weren’t there?  Do you realize how much profit is available from the sale of accessories and other “hard” after-sale items?  There’s not much more money to be made in the F&I office…we’ve about beat that horse to death!

I’m sure you’ve heard stories (some of them probably true) about franchised dealers who make an additional $500 in gross per new vehicle retailed by aggressively selling accessories. What I don’t understand is that, for each one of those motivated, high-profit accessories merchandisers, there are at least 50 of you who gross nothing ($0) from personalizing your customers’ new purchases. And it’s not that difficult…all it takes is a plan, a process, and a commitment to succeed!

So for the next few minutes, I’d like you to consider implementing plan to take advantage of the potential profitability available from personalizing the new and used vehicles you sell to your customers. Obviously the primary planning objective is to sell the vehicle first, then sell the personalization! The following is a 5-step plan to help you launch this business element:

  1. Form a “personalization task force” from within your management staff. The best candidate to lead this particular group and drive the planning initiative is usually the parts manager.  A sales manager, a service manager, and possibly a body shop manager, should fill out the task force. Department representatives must participate unselfishly during the planning. The question that needs to first be answered is, “What’s the benefit to the store?” rather than, “What’s the benefit to my department?”
  2. The task force should first determine 6-10 personalization items that could, if priced competitively, be aggressively sold on a large percentage of your franchised vehicles (both new and used). These items should then be shopped at those independent upfitters and accessories installers with whom you’ll be competing. Your dealership’s price points should next be established. Remember, you don’t have to have the lowest prices…a strong value proposition combined with one-stop shopping will get you plenty of business.
  3. The next decision before the task force is determining your cost of sale (COS) structure per personalization item. A major sub-step in making these decisions is determining the best deal you can get by subletting these items. If you can install these items in-house at, or close to, the sublet COS, you should plan on doing so. Developing the lowest possible in-house COS structure may involve using non-OEM accessories and negotiating installation times and/or flat-rate pay with technicians possessing the necessary skill levels. An incentive that will motivate dealership personnel to sell these personalization items should also be included in the COS structure.
  4. Now that you have a proposed selling price and COS per personalization item, it’s a simple task to calculate the targeted gross per item. It’s now time to develop and document the detailed financial plan. Begin by determining your forecasted vehicle sales (new and used) by general model category. Then project a realistic sales penetration level for each personalization item in each of your general model categories. Whenever I perform this exercise with a client dealership, I am overwhelmed by the resulting gross profit potential for the dealership. In fact, the potential incremental gross profit improvement is normally large enough so that each involved department manager is more than happy to split the gross equally.
  5. The final step is to determine what promotional tools and tactics will be employed to maximize sales penetration of the personalization items. These tools and tactics may include, but are not necessarily limited to: (a) brochures; (b) sales catalogs; (c) videos; and (d) example personalized vehicles. I have seen dealers become successful by personalizing no more than ½ dozen vehicles in inventory, while other, more aggressive dealers believe in personalizing 5%-10% of their inventories.

One of the promotional tactics I always recommend is a sound scorekeeping and highly-visible scoreboarding system whereby all sales and management personnel are continually made aware of performance against plan. Measuring what we need to manage, inspecting what we expect, and always letting everyone know the score, are proven motivational strategies.

I’m sure there is a long list of reasons why you are not currently in the personalization business. (Trust me; I’ve already heard most of them.) However, overall dealership gross profit margins on personalization items normally range upward from 35%, and we don’t come close to that margin in vehicle sales. Your customers are currently (or soon will) be spending big bucks to personalize their vehicles. Shouldn’t that money be flowing into your bank account?

Members of the NCM Retail Operations team frequently discuss vehicle personalization during theirProfit Correction Meetings.  What about you?  Are you taking advantage of vehicle personalization in your store?

Permanent link to this article: http://blog.ncm20.com/2011/11/focus-on-vehicle-personalization-thars-gold-in-them-thar-hills/

Garry House

Auto Dealer Compensation Planning

To be effective, a compensation plan will:

  • Primarily focus on those areas for which the manager or sales employee is accountable
  • Provide motivation for the employee to continually achieve higher levels of individual or departmental productivity and profitability
  • Be fair to both the employee and the dealership, under varying levels of operating performance

The following is a process that may help you develop sound, results-oriented compensation programs for your management and sales personnel just in time for your 2012 planning.h--rek-pictures-blogs-money-background-fill-100dollarbills-thumb_

  1. Assess your current compensation methods.  Review your compensation plans and your employees’ earnings histories.  How do the various compensation categories relate to the dealership gross profit and expense structure?
  2. Determine and Forecast Key Results Areas.   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.  Develop a planning model depicting various performance scenarios. To determine individual and overall compensation philosophies and budgets, consider what the position should cost: as a percent of gross;  per Retail Unit;  in annual dollars.  Consider, too, what this specific person expects, needs or deserves based on past performance; based on past and current earning levels; based on the competitive local labor market.
  3. Plan Development and Testing.  Design a compensation plan that attempts to match your objectives at the Planned Performance Level. Then test the plan at numerous variances from the PPL. Once you have developed the initial plan, you may want to test it and even “negotiate” the plan with the involved employee.
  4. Use an Automated Plan Calculation and Presentation Tool.  A Plan Calculation and Presentation software application will: (1) automatically calculate and present current and prior performance and earnings (by line item) for a 12 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.
  5. Implementation and Documentation.  Communicate and validate departmental objectives and individual compensation plans.  Create a compensation plan document that explains the plan and the accountability philosophy in detail. It is strongly recommended that plan documentation be signed by the employee and the manager, then filed for future reference.
  6. Follow-up and Fine-Tune – Even the best-designed compensation plans may need adjusting once they are exposed to the dynamics of the real world retail automotive business.  If the basic parameters are sound, they will remain sound, but it is possible that the detail of the plan may need to altered to accommodate unforeseen and uncontrollable circumstances.

Effective compensation planning is a key element in NCM Institute management training programs.  Get the direction you need from the experts at NCMi.  Call 866.756.2620 about upcoming classes for all your managers or go online to check out the training schedule.

Permanent link to this article: http://blog.ncm20.com/2011/11/4095/

Brent Carmichael

What’s in Store for Your Buy Here, Pay Here Store

I recently had the honor and privilege of hosting a webinar titled, “Understanding the Buy Here, Pay Here Business Model.” I use honor because there were over 400 registered attendees. I use privilege because there are few things I enjoy more than talking BHPH. It’s an industry that has given me so much. h--acb-documents-website-brent_carmichael

Attendees were current Buy Here, Pay Here dealers, those looking to get into the BHPH business and service providers to the industry. We gave a current state of the union and some critical decisions that need to made before entering into the industry. Although we didn’t have time to get to everyone’s questions, the ones we were able to answer were well thought out and relevant.

Earlier this year, I wrote an article about what the BHPH operator should expect in 2011.  It might be a helpful review for those who weren’t able to make the webinar and who have some questions about today’s opportunities in BHPH. Enjoy!

It should be another good year to be in the BHPH industry, although 2011 will not be without its challenges.  In fact, there are certain areas of the BHPH industry that could be more challenging than ever.

To get an idea of what to look forward to in 2011, we first need to review how 2010 treated the BHPH operator.

From a profitability standpoint, the dealers that I have the distinct privilege of working with enjoyed a 22% increase in profitability in 2010 versus 2009.  This sizable increase was due mostly to the rightsizing of overall operations.  Dealers focused on their entire BHPH operations from top to bottom to “cut the fat” and run their operations based on the cash they where generating, instead of relying on lines of credit.

I expect this same focus to continue in 2011.  Although funding sources have become more readily available, overall I think most dealers will be focusing again on generating the capital necessary to run their businesses from their businesses. As always, there will be those dealers looking to grow aggressively through borrowing and rates will continue to make this a very viable option.  I don’t see rates rising drastically in the coming year, so it will still be a good time to borrow. Having said that, I still see it being more difficult to secure new lines of credit in 2011.  It’s going to take some patience and the willingness to educate some institutions on our industry.

With our dealer clients, we saw sales volume increase by almost 3% in 2010 over 2009. Not a record-setting year by any means, but this was driven more by cash management.  Dealers seemed to want to sell what their cash flow dictated rather than sell as much as possible.  We all know that we can sell as many as we want, or have the financial resources to, in this industry.  There doesn’t seem to be a lack of customers needing or wanting what we have to offer.

Same will pretty much hold true for 2011.  We should have the customers in the market to sell as much as we would want. The biggest question will be inventory availability. Now I’m normally a glass half full kind of guy, but when it comes to this, I think the glass may be half empty. Even though the prices had somewhat leveled off the last half of last year, the numbers where dwindling even more than usual.

2010 portfolio performance saw some stabilization from a dollar loss standpoint. But from a number loss standpoint, we saw a slight increase or worsening in 2010. This I believe was driven by a couple of factors, the first being the need for inventory.  I think some dealers accelerated their repo times when a desirable unit was involved.  This also helped stabilize the dollar losses, as the vehicles were repossessed earlier and in better condition and thus garnered higher recovery amounts.  The other factor was renewed focus on underwriting and the overall collection process.  Dealers remained more disciplined in both areas, seeking quality over quantity.

2011 will see more of the same.  Dealers have seen the error of their past ways and are enjoying the spoils of their more disciplined labor.  I expect to see the average charge off to remain essentially the same, the number as a percent of sold to remain higher than in past years, but expect collections dollars to improve as well as overall collection effectiveness.

Biggest thing to affect our industry in 2011 will no doubt come from the compliance front. The Consumer Finance Protection Act was signed in July of last year and with it the establishment of the Consumer Finance Protection Bureau. The “rules” of the Act, per the Act, have to be drafted by August of this year, so we will know what kind of field we will be playing on.  In the interim, I have already heard from a few BHPH dealers who have received a letter from the FTC (The Bureau’s governing body) informing them of pending audits.

This is something that has existing dealers debating whether to remain in the industry, and causing some who are looking at getting into the industry to delay their entry until the rules are set.  What this Act and Bureau are going to do is separate the men from the boys, so to speak. The dealers who are trying to the best of their ability to do the right things will survive and those dealers who like to operate in the gray areas will fall by the wayside.  Sorry to say that the waysiders are going to cause the cost of doing business to increase for everyone else.

So here is the best advice I can give to existing dealers as well as those wanting to get into the business in the coming year: don’t wait. Don’t wait to get compliant.  Don’t wait to spend a little money to do so. Don’t wait to review all processes and procedures.  Don’t wait to review all expenses.  Don’t wait to review all your employees.  Don’t wait to train.  And definitely don’t wait to sell cars, collect money and make profits!

Permanent link to this article: http://blog.ncm20.com/2011/11/whats-in-store-for-your-buy-here-pay-here-store/