My Advice: “CLOSE YOUR EXISITING DEALERSHIP”

No, I’m not actually advising dealers to close their dealership down. However, as you move out of this crisis, I do think you need to look at it like I am closing my existing dealership, everyone is laid off, all my vendors are fired, and knowing what I know now, “WHO WILL I HIRE BACK”?

In this unprecedented time when manty states are trying to define “essential”; maybe it’s time we do the same in our dealerships?? Perhaps you are one of the few dealers who did this before you were forced to, and if so, congrats you don’t need to read any further. Everyone else…let’s chat.

Where do I go from here? How do I survive this mess? What are the implications moving forward?

Every dealer I know is asking themselves these same questions every day. Many of us are scrambling to try and figure out how to retain employees, pay bills, generate as much gross as humanly possible, and at the same time minimize or cut expenses entirely. For many of us, we are 30 days into the COVID-19 crisis and find ourselves looking at another 30 – 45 days before we can even hope for any semblance of normalcy. 

The good news for most of you is that you’ve already done all you can do for now. The temporary cuts and corrections have all been made. The most important thing that you can do now is to analyze why your dealership wasn’t better prepared to survive this crisis, and to formulate a “moving forward” action plan on how to recoup the money you have lost when the market does come back. “KEEP IN MIND” The market that comes back “WILL NOT” be the market we had before the pandemic started.

In the 2008 downturn over 700 dealerships shut their doors and many are predicting that we may see more this time. An automotive “buzz word’ that came out of that downturn was “right size” your dealership, but what does it mean? How do you go about it? It’s time to figure that out!

I believe that “right sizing” is about making sure that your dealership mirrors the market that you are in and operates within the operating and productivity guides that are recognized as industry standards i.e. if the industry standard for your manufacturer for Total Variable Selling Expense is 25% of the dealership gross you can’t pay out 38% and expect to be successful. Very simply, your gross needs to increase, or you must pay out less to get to where you need to be! If this expense is out of line in your dealership, you will find the “fix” in one (or a combination) of two places; you have an ineffective sales process resulting in low volume and/or gross, or your combination of compensation plans, and uncovered guarantees is way out of line. Who controls both items? Ultimately the person that is currently sitting up at night trying to figure out how to survive; “YOU”! Complaining about “spilled milk” does no one any good, you can’t fix the past, but you can adjust for the future; "START NOW”!

The place to begin is by finding out where you are at. What is your Commissions & Incentives expense as a percent of your dealership gross? What is the industry guide for your manufacturer? Adjust accordingly and get there as quickly as you can. Over the last several years many dealers have added another layer to our sales departments with Internet/BDC teams, yet we haven’t adjusted our overall sales compensation accordingly. At the same time, the manufactures have cut margins drastically, and we wonder why 90% of the new car departments in the country now lose money?? As the market adjusts, so must you to be profitable.

Another mistake that many dealerships have made is by succumbing to the pressure of their manufacturers, especially regarding inventory. The standard industry guide for new inventory (profitable dealers) is a 1.5 months’ supply (units & dollars). I realize with some manufacturers allocation system that can sometimes be hard to do, so OK, let’s say we flex to a 60 or even a 75 day supply; I can live with that in some cases, but according to the most current statistics 50% of the new dealerships in the country have a day’s supply of over 120 days. Whose managing that? Nobody!! Having too much inventory costs you in so many ways i.e. interest, additional advertising dollars to market it, spiffs & bonuses to sell it, wholesale loss (buying deals), lot damage, curtailments, etc. The manufacturer is not your friend when it comes to loading your new car manager up with inventory. Set strict guidelines for your manager to follow and control it moving forward.

Another expense that we find many dealers out of line on is Advertising. Yes, I know it’s hard to measure, and control, but are you “REALLY” even trying? Most dealers aren’t. When I talk to a dealer about advertising the first question, I usually ask the dealer is, “do you have an advertising budget”? The most common answer I get is “well, we usually spend about” or “it depends”. Depends on what? You wouldn’t operate your household without a budget so why wouldn’t you have one for advertising? Some dealers actually start with one, but early in the month the sales manager will decide he needs a mailer using the rationale that “it only cost $10,000 and if I sell 5 cars it will pay for itself”. If you practice that R.O.I. strategy throughout your dealership you are already in “BIG” trouble!!

Let me give you a very simple advertising budget plan to start with and then tweak it from there to fit your store. At the start of the month, take your projected new & used sales for the month and budget $350 per unit for advertising i.e. 100 units = a $35,000 ad budget for that month. You may think the number is $400 per unit, but the message here is “have a budget and stick to it”! By the way, this budget does not include any advertising reimbursements that you get from the manufacture; that is your money!!!

Another common problem is the overlap of vendors. Most dealers are finding that not only are they paying two vendors for basically the same service, but that overlap is costing them more with the operational conflicts it is causing within the dealership, not to mention the missed opportunities. This is particularly true with digital vendors.

There are two other questions regarding vendors are that I feel are extremely important. What vendors do I currently employ simply because I can’t get my staff to do the work; and could I consolidate vendors by finding a company that brings multiple things to the table?

Seem overwhelming? It doesn’t have to be if you look at it as an opportunity. An opportunity for you to finally “right size” your dealership. In fact, the proper attitude is to see that this pandemic is going to give us the opportunity to fix things in our dealership that we know should have been fixed years ago!

The dealers that come out of this crisis will have to make some tough decisions, especially regarding the number employees they really need, the proper compensation plans for the ones that stay, and what parts of their current processes are “non-negotiable” and what needs to change. You will need to adopt the mindset that something bigger than me has created a situation that has forced an adjustment on my part to survive!

The best approach is to be upfront with your employees and let them know that the decisions that this pandemic is causing you to make are painful, emotional, and gut-wrenching. Now is not the time to be prideful, or to hide your emotions, let them know it hurts because I believe that this shows the employees that you really care. Be truthful about why it is happening, and why you are making the changes. They may not like all your decisions, but they will respect you for being up front with them and making them! 

In helping dealer partners work through similar situations before this pandemic, we have learned that when they come out on the other side, they can’t believe how quickly it changed their attitude as well as the attitudes and energy levels of their employees. Almost immediately they go from people standing around and complaining to people that are energised and looking for something to do to make themselves, and more importantly, the dealer more money. You will find that the change in attitude will also increase your margins and your CSI because your people are busy and completely focused on the job at hand!

If you need help with “right sizing” your dealership, especially with managing and analyzing your financial statement to profitability, Advanced Dealership Management Solutions has a staff of Controllers, Digital Marketing, Compliance, as well as Variable and Fixed Operations specialists to help you get your store back on track quickly. We aren’t consultants, we’re partners. The difference being we can “walk the talk”. If you people can’t do it right away…our people can sit in your employee’s chairs and show them how it’s done.

The time is now, and we would love to help in any way possible. We specialize in saving our dealers an avg of $400,000 per year BEFORE we ever walk through the door and we don’t just mean by cutting expenses. It’s all about providing you the same (or better) products and services at a fraction of the cost!

If that sounds like a partner you would like to have on your team, let's talk! The initial consultation is absolutely free.

Stay strong……………………..