An important factor when assessing business operations is profit margin. Auto dealerships are no different. Is a dealership generating sufficient sales revenue to cover operating costs?
On the Road to Driving Costs Down – 10 Tips for Dealerships
Maintaining a dealership’s bottom line has become increasingly difficult due to competition, manufacturer requirements and compressed margins. While the focus is often on increasing sales to address this problem, operating expenses are an important component of the profitability equation. Dealership management can do their part to maintain or increase their net income by reducing operating costs. Short-term changes can help steer a dealership toward long-term success.
High employee turnover can be costly for a dealership as additional resources are spent onboarding new employees. There is also the potential for an unforeseen impact on the morale and productivity of other employees. Establish a sound recruiting process to ensure the right people are hired. Remember that employees want to feel their work is valued. Showing appreciation can also lead to increased employee retention.
Some vendors’ provide discounts for paying bills timely or if certain payment methods are utilized. These can accumulate quickly for vendors that a dealership uses frequently throughout the year. Identify significant vendors and inquire whether discounts are possible.
Data and file storage and processing can be costly. With how quickly technology updates and improves, it is also costly to purchase new equipment and servers every few years. Consider switching to cloud-based software and dealer management systems as a way to address these costs. While there may be a short-term increase in costs for setup and employee training, it will lead to reduced costs in the long run.
There are a number of tools available to dealerships to help facilitate the transition to remote meetings. Utilizing these tools will not only ease travel and other expenses (i.e., parking/rent, lunch, etc.), but will also allow employees to be more productive as they will be working during the time they would normally be traveling to/from in-person meetings.
Cash is king; however, credit card sales are trending upwards and thus there will always be processing fees. Given the numerous choices, it is important for management to take the time to choose the right credit card processing company. Not only should management review the fees before a company is selected, but they should also review the actual fees paid to ensure they are consistent with what is expected.
Advertising is a vital expense of any dealership. Considering the variety of ways to reach customers, it is important to have a strategy in place or advertising costs can add up quickly. Customer surveys are one way to help identify which advertising methods had the biggest impact on those who recently made purchases. Given the significance of social media, it is also important to utilize these resources.
Floor plan interest is a significant expense for all dealerships. Some ’finance sources provide the option to utilize cash offset accounts as a method to reduce floorplan interest. Not only is it good for the dealership, but it provides peace of mind to the bank knowing the cash is. Discuss this with your bank and whether it is possible to incorporate offset accounts to benefit both parties.
Utility costs can add up quickly for a dealership, especially during the summer months. Consider making the following changes to reduce energy costs: install LED lights and set up automatic timers. Outfit showroom and offices with energy efficient windows. Conduct energy audits to help identify inefficiencies.
A large number of companies charge interest and late fees when payments are not received on time. Management should ensure payments are timely in order to avoid unnecessary fees. Possible solutions include scheduling weekly check runs or setting up automatic payments.
Dealerships typically utilize a variety of third-party service providers to assist with business operations. The most common ones relate to payroll, insurance, retirement benefits and employee expense reimbursements. There are a variety of service providers available that can be used as leverage when selecting which company to use. It is also important to monitor fees and periodically review alternative providers to see if better options are available.
The examples above are just some of the many ways to address dealership costs. At blum, we know the challenges that dealership faces and how to overcome them. Our automotive group works with dealerships to examine all possibilities to ensure long-term success.