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The future of the retail automotive industry has arrived. Going forward, only the most efficient dealerships will survive. What do I mean by efficient? Well, first cutting fat (unnecessary spending), and second becoming lean, and by that I mean making your dealership extremely efficient.
I know what you’re thinking. All analysts point to improving auto sales in 2012. Most dealers just spent the last several years cutting unnecessary expenses and streamlining operations. And therein lies the problem. Now that the good times are back, it’s easy to ease up on spending restrictions and let an old adage seep back into the lexicon: gross hides all problems.
But the difference in 2012 is this: gross can’t hide all problems anymore. Although sales volumes are increasing, margins are decreasing. Technology is making the sales process and pricing ever more transparent to the consumer. In order to survive, dealers must offer competitive pricing, driving overall prices down.
For dealerships with efficient processes, this is not a problem—or at least, not as much of a problem as it is for others. If a dealership has a relatively low overhead, it will still be profitable in a highly competitive environment. If overhead is relatively high, however, a dealership will reach a point where it can’t offer the lowest priced vehicle because it doesn’t have efficient processes in place.
Critical Performance Indicator #1: Trade-Ins
I’ve always said that if you can’t do something with pencil and paper, you can’t do it with a computer. When I was General Manager of a large multi-line dealership, one of the most difficult-to-track processes was getting a used car up to the front line.
Whether a dealer takes a vehicle in on trade or buys one at an auction, all the statistics say that the longer that car sits, the less gross you’re going to get for it. So one critical performance indicator for efficiency within a dealership is how quickly a car gets to the front line.
You would think that most dealers know exactly how this process happens and how long it takes; but if you ask dealers, many aren’t quite sure. They may think and say that it only takes a few days when in reality, it might be taking up to a week or more. Considering every day the car sits results in less gross, you would think there would be a very specific process and monitoring thereof to ensure that every vehicle gets out on the lot within the days specified by the dealer. Here’s where technologically may or may not help. Your dealership management system (DMS) software may offer a way to track this, but if nobody’s tracking it, what’s the point? The best solution might be to use a very non-technological marker and write in large letters on the windshield the date and time that car came onto the lot. Then while that car is sitting there in service, the date and time are a beacon, advertising to everyone how long it’s been there. The very last thing the service department does before putting the car out onto the lot is to wash the windshield. Afterwards, they mark it down on paper or enter the information into a spreadsheet, and voila! An easy and accurate way to track how long it takes to get a vehicle out on the lot. You can even get more detailed and start to track the gross per vehicle per number days it took to get to the front line.
This is just one example of many processes that are an indicator of how efficient a dealership is. This blog will be the first of several in a series that address various processes within a dealership and how they can be improved, whether by technology or other means. I hope that readers will pitch in with their suggestions and experiences.
How long does it take for your dealership to get a trade-in out on the lot? How do you track this? How do you ensure it happens?