U.S. franchised new-vehicle dealerships sold about the same number of new vehicles through June this year as they did the year earlier, but dealers are making less money on them.
Even profits on used vehicles, which are typically fatter than those of new vehicles, will narrow because “residual decline is accelerating and depreciation is accelerating.”
A closer look at the data…
Through June, average light-vehicle dealership sales were $16.6 million, vs. $16.8 million in the year-earlier period.
But gross profit as a percentage of selling price was 5.9 percent, down from 6.1 percent a year ago and 6.5 percent in the 2015 period. In dollar terms, average retail gross profit per new vehicle sold was $2,014, vs. $2,075 a year earlier and $2,148 in 2015.
Used vehicle gross profit as a percentage of selling price dipped to 12.0 percent from 12.5 percent. In dollar terms, it came in at $2,396 per vehicle, vs. $2,478 a year earlier.
Based on the midyear results, dealers can expect continued profit erosion in the months ahead.
Right about now, you might be asking how do I stop my profits from evaporating during what is clearly the most challenging time in auto retail?
When profits trend southward, leaders don’t panic…they get lean.
With real threats and market uncertainty, leaders must work to steady their ship. Flat sales are inevitable and downturns are part of the auto retail cycle. Acknowledge this so you can stay out of denial and alleviate panic.
Keeping your eye on trends and data is key, which is why this study should be a wake up call for anyone who assumes “business as usual.”
Even though national trends are important to watch, a close eye must be kept on data and trends within your own organization and the market it serves. There’s nothing quite like taking a closer look at your store’s performance and it should be done on a monthly basis.
5 Tips to Increase and Retain Dealership Profits
1. Perform a Detailed Expense Analysis
With dealership profits evaporating, it’s a good time to look at your operation and determine where specific expenses might be trimmed. A deep dive into variable, personnel, semi-fixed and fixed expenses will likely open your eyes to many possibilities.
The goal is to identify and “consciously cut” in places that will still keep operations humming while improving your store’s performance.
Here at Kruse Control, we’ve found that especially in good times, financial trends don’t get as much attention as they should. Everybody has excess expenses when things are great. Who cares, right? Frankly, you should.
As a former executive manager who’s run many dealerships, some very large volume stores, I’ve witnessed over and over that it’s too easy to let things go. I’ve found hundreds of thousands of dollars wasted by dealerships over the years simply because times were good.
I’ve seen a lot wasted when times were tough, too. There’s really never a good reason to be lackadaisical about profit.
Isn’t it just better to track expenses and respect the process, no matter what state the economy is in?
2. Establish ROI (Return on Investment) with Every Vendor
Once you’re doing a regular expense analysis, expenses will begin to reveal themselves for what they truly are. Many will be worthwhile. Others, not so much.
- Determine what you’re getting for the dollars you’re spending.
- Ask yourself, “Is this expense in line with the value I’m getting?”
Information is powerful. Be prepared to ask the right questions and hold the vendor accountable.
3. Improve Processes = Improve Performance
- Restructure operational processes to meet customer expectations. (Example: is your lead process on point?)
- Deliver frictionless transactions.
- Examine every position in the store for viability in the new “digital operations” model.
- Assess and revamp your financial reporting process. Are you getting the information you need to make the best decisions?
4. Review and Update Your Website
Most dealership websites rarely satisfy customers. Many go a step further by providing a complicated and confusing interface that forces visitors to find solutions to problems that didn’t exist until they visited your site.
Ask yourself: What value do we provide that holds our customer’s attention when they land on our website?
Clearly define what you will do for your customer and why you’re better. Provide solid information that cuts through their confusion.
According to ChartBeat, you have between 5 to 30 seconds to hold the attention of a viewer. In other words, if you can’t communicate your value in less than 30 seconds, you’re losing out on a sale.
5. Do a Social Media Audit
Whether your social media marketing is in-house or outsourced, it’s difficult to see where the gaps are between your current successes and where you need to be.
Due to the tremendous amount of time, skills, budget and human resources it takes to master social marketing today, more dealers are opting for a social media audit. They know it’s more crucial than ever to understand where their investment is going so they can assess whether it’s delivering the best return.
Improving store performance while retaining profit is no small feat. With our extensive experience in dealership operations and our expertise in digital and social media, we can help you weather a challenging time. Contact us >>here<< and we’ll get back to you within 24 hours.