This article originally appeared in Digital Dealer here.
Back in August, we started our article series of “must-dos” by looking at the overwhelming weight of dealer expense structures on gross profit margins.
In Q1 2019, an average dealership’s expense structure was 106 percent of its gross profit, while in Q2 2019, it was 98.5 percent, according to data from NADA’s dealership financial profile series.
So, how did automotive dealerships fair overall last quarter? Marginally better. NADA’s Q3 data now puts the average dealership’s expense structure at 98.3 percent of gross profits. While we’re seeing movement in the right direction, the average dealership’s gross profit margin continues to fall below two percent, indicating there’s still a great deal of work to do to get costs down and profitability up.
Despite these findings, a small poll we conducted recently, suggests controllers remain optimistic about their dealership’s ability to generate profits. Results from the poll showed 50 percent of respondents reported they were confident in their dealership’s ability to generate profits today, while approximately 73 percent were confident in their ability to generate profits in the next two to three years.
Although we just captured a small pool of controllers with 26 respondents, the message seems as clear as the opportunity for dealers. The ones who handle the finances, the accounting, the general ledger, the “beans” themselves, feel positive about the direction their dealerships are heading in.
But with gross profit margins sitting where they are, how do you take action to maximize profitability? For the controllers we polled, increasing operational efficiency and reducing expenses rose to the top of the list. While these tactics can get accomplished in several ways, we recommend first doing a deep dive into the most commonly completed tasks and recurring costs at your dealership.
As the adage goes, what you do every day matters more than what you do once in a while. Because the DMS is the daily hub of your dealer operations, it’s a great place to begin mining for additional time and cost savings that will pay you dividends down the road.
To help you get started, we compiled the following list of tips and must-dos from controllers who have experienced firsthand the benefits of increasing efficiency in their daily dealership operations.
1) DO look for ways to automate or streamline repetitive tasks to help reduce non-value-added time. Eliminating non-value-added time has become a focal point for Joe Burris, corporate controller and chief accounting officer at Lou Fusz Automotive Network.
“I’m constantly looking for ways to automate or reduce non-value-added time across my dealer group when it comes to tasks and processes we do daily, such as billing, paying and processing vendor invoices, stocking vehicles, paying out warranty claims, and processing parts,” says Burris. “While I can’t control sales volume or gross profit, I can control my costs, including ones I’m responsible for to positively impact profits.”
2) DO give your staff a platform to voice their suggestions. While keeping a close eye on industry benchmarks and data is crucial, Burris urges that the most effective way to find wasted dollars is by looking through the lens of your team. Observe your staff and talk to them about their day-to-day jobs and processes. “By listening to their suggestions and ideas, you can find new and improved ways to do more with less,” Burris notes. Make sure to reward those individuals who offer recommendations and actively participate in the process of improving and streamlining dealership operations.
3) DO divide big quarterly or annual tasks into smaller weekly or even daily items. Breaking down the quarterly or annual tasks into smaller, more digestible ‘to-do’ items is key for Lori Garrison, the controller at Huffines Auto Group. “This not only saves you from being overwhelmed at crunch time but also makes it easier to find and correct problems/errors before they get worse or cause your dealership penalties,” notes Garrison.
With account payables, there are hundreds of vendors to keep tabs on. To tackle this, Garrison maintains a spreadsheet tracking the dates and amounts with each payment made, which helps her to easily spot anything outstanding or incorrect. Garrison also reconciles every day. “Whether it’s last in, first out reports or payroll accruals, there are a million things that can go wrong in a week and a billion that can go wrong in a month. If I reconcile every day, it’s easier to find and resolve issues and I sleep much better at night,” she explains.
4) DO use technology to your advantage. Garrison uses the general ledger import function for everything. “I tell my team that if it’s more than three lines of information, import it, don’t rely on rekeying the data. It’s faster and creates less room for error,” she notes. “There are so many helpful tools and features in our DMS that I try not to do anything by hand anymore. The same goes for stocking in inventory. We pre-stock vehicles into the system using our OEM invoices. We keep them marked as ‘in-transit’ until they physically arrive, but we get them all set up ahead of time.”
5) DO keep a close watch on your managed accounts. Lisa Feagin, the controller at Tom Bush Family of Dealerships, suggests checking each managed account at least three times a week to ensure contracts are being funded and departments with different P&Ls are splitting funds properly. She uses a combination of financial reports from her DMS to visually scan for abnormal amounts or duplicate entries and trains her finance managers and bookkeepers to study trend reports across the new, used, parts, and service departments weekly.
6) DO stay proactive even when your business is in a good place. “Dealers can’t get complacent when things are good,” cautions Feagin. “We’ve had a fairly strong growth year, and it’s easy to let expenses get out of hand if you loosen the controls.” To stay ahead, Feagin closely monitors expenses by cross-indexing them against volume. Did employee overtime and staff hiring go up to accommodate higher volume? Was that necessary? What about tools and supplies? Are rising costs due to price increases or a result of waste or misuse?
Stay tuned for more “must-dos” to keep your dealership running efficiently all year long.
About the Authors
Susan Moll is Senior Director of DMS Field Services for Cox Automotive, and Matt Hurst is Senior Director of Client Services for Dealertrack DMS.
This article originally appeared in Digital Dealer here.