October 2010

Again and again, it seemed like everyone had a strong used car month as I reviewed October’s ACAR Reports.  Not only gross, but sales volume too.  The timing couldn’t be better since it is the best time of the year to get the used inventory clean as you enter November and December. Aside from used car sales I didn’t see any strong consistencies in other departments. Overall dealers had a good month. 

One of our high end dealers had their best month ever in volume, gross and net profit.  Chrysler Dodge and Jeep dealers continue to build their profitability. Keep cleaning the inventories and take advantage of year end marketing opportunities.

Forecasting

With December fast approaching, it is time to start thinking about 2011.  This is a good time to have your managers sit down and review what they want to accomplish next year.  It is always good to take a step back and look at the big picture.

We want to ensure that systems are in place, to generate the net profit you anticipate based on your volume.  The hard work you put into the dealership must pay off each and every month.  Our philosophy is to increase sales, keep all the gross, while controlling expenses and optimizing inventories.  Once systems are in place, it leaves you free to concentrate on sales, while your profits flow to the bottom line.

The ACAR Profit Planner allows you to try various scenarios to optimize your 2011 profits.  For successful forecasting, it isn’t just entering numbers, but it is the discussion behind the numbers. Educating your managers on how to build profits and stepping back to review your profit structure is key.

After completing the budget we suggest that each department manager make a ten to fifteen minute presentation on how they intend to achieve their forecast, including market conditions, new opportunities, changes in gross and expense structure.  We expect them to take pride in their department and arrive at a game plan that will make 2011 successful.

As you build the Profit Planner use your current ACAR Report.  Look at your past performance, trends, your ACAR guides and the ACAR plus in arriving at your forecast.  For new retail units, used retail units, parts, service and body shop gross use the four year tables on the right hand side of your report to generate monthly volume forecasts. 

Once your annual forecast is in place, I suggest using the Quarterly ACAR Profit Planner it is more relevant to current market conditions and can be used to build more accountability.

I anticipate 2011 will be similar to 2010. Just keep focused on optimizing sales and getting the gross, while keeping the trimmed down expense structure in place.

As we wrap up the July ACAR Reports, my first thought is increased volume equals big profits.  A number of dealers had a very profitable July, several with record profits.  With all of the cutbacks over the last two years, the expense structure is drilled in and increased gross is flowing to the bottom line.

Not everyone had a big month, but it was much better than June.  It was by far the best overall month since March.  I know a lot of dealers were very focused on how to keep 2010 profits up over 2009 profits as they entered the months where we had Cash for Clunkers last year.  It will be interesting to see how August compares.

It has still been a strange year.  There is no definitive trend that says the majority of new sales are up or used sales are down for dealers.  Each individual dealership, regardless of manufacturer, is making gains in different directions.  It depends on their market, strengths and where they are focusing the most attention.  Each dealership needs to determine what ingredients work for them.

We are now preparing an increased number of projections for dealers looking to add dealerships due to many of our customers having sold or closed their weaker locations.  We have, and can, prepare a historical analysis and build an ACAR Profit Planner for the future as you go forward and analyze these opportunities. 

As you go into August, I suggest watching your used inventories as you enter the last quarter and make sure everything over 60 days old is gone.  Don’t start hiring a bunch of employees or loosen your grip on the purse strings because you have had a couple of good months.  It could be a very bleak 4^th quarter, so stay lean and make sure you are banking your current profits.

Keep Focused and Have a Great August.

As a dealer, you invest a lot of time and money into the dealership.  Are you being compensated for those investments?  The capital you have invested and your time have an intrinsic value.  If you include the true costs many dealers are losing money.  Those costs not expensed in the dealership generate phantom profits.

The majority of dealers self finance their used vehicle and parts inventory.  What is that annual financing worth?  If you took the money out of the dealership and floored the used and parts inventory, what would the cost to the dealership be?  These costs can often be overlooked or forgotten.

Another area that creates phantom profit is rent expense.  Dealers in older facilities or those who have paid down their mortgages usually have a lower than market rent factor.   As a rule of thumb rent should be 1% of your facilities fair market value.  If you are currently making $30,000 an average month, but have a discounted rent factor of $30,000, then you are truly breaking even.

Are you both the dealer and general manger?  If so, are you compensated the same amount as you would pay a general manager?   In most cases, the dealer is paid a lesser amount since the dealer usually takes dividends and the current salary has been set to cover his (her) monthly expenses without regards to market value.  It is important to know the true cost of your time and effort to have an accurate view of income.

In addition, the largest overlooked adjustment is income taxes.  Very few dealers book income taxes since the dealership is usually held in a partnership or S-Corporation.  If those income taxes were booked on the dealerships statements income would be reduced by approximately 40 percent which makes for a large variance in actual income.

If you are trying to show additional profits to the manufacturer, bankers or your 20 Group, I don’t suggest expensing these differences on a monthly basis, this would be counterproductive.  Many GM & Chrysler dealers that recently lost their dealerships wish they had booked as little expense as possible.  The advantage of booking these expenses is that you see your true net income and would be much more motivated to generate higher profits.  If you are satisfied with $100,000 profit, and you are hitting your goal make sure this is not phantom income.  If you are really only making $40,000 a month but you are looking to make $100,000, this new awareness will make your drive to succeed kick in.

Below is a table summarizing these phantom expenses:

January 27, 2010

It is good to have 2009 in the books!  As I reviewed December 2009 it was much better the December 2008 almost across the board, except for our Chrysler Dodge & Jeep dealers, which continue to struggle. 

One of the surprises was the increase in service gross.  On new domestic and import vehicles, gross per unit dropped off at least $100 to $200 per vehicle from November.  December is always a good for new luxury vehicle sales, which continued in 2009.

I am looking forward to comparing 2010 performance to 2009, since dealers should now be able to build on what happened in 2009.  Make sure you continue building your gross per unit, market share and keeping your expenses controlled.

Welcome to our new ACAR Report Blog!  As I review over 140 dealerships every month, I get a great feel for what is working and what isn’t.  Each month I will try to share how the market looks for dealers and thoughts on how to make the dealerships more successful.

This month the volume comparisons between October 2009 and October 2008 were surprisingly similar, but profitability was usually up $40,000 to $80,000 per dealership.  The big difference is in selling expenses.  Last year the market had dropped and inventories were out of control not anticipating the change in volume.  This year new & used inventories are very tight.  Also, gross per unit has gone up.  The only way to be profitable is ask for a reasonable gross.  The change in personnel counts is very stark, most dealers are down at least 20% in employees from last October although there volume is the same.  The Toyota dealers stood out as the main franchise with new unit sales being way down the October, compared to October 2008.

For November it is time to make sure the used inventory is staying clean!  A 30 days supply should be your.  Anything over 45 is too much.  Are you enforcing the no units over 60 days old rule?   This will keep your gross up.   Also, make sure those increased grosses from “Cash for Clunkers” stay the norm.  It has been surprising how many dealers have increase grosses $200 to $300 per unit over the last three months. 

 As the year is winding down, have your manager’s focus on how to make 2010 more profitable.  We suggest you complete the ACAR Profit Planner for 2010 and have each manager make a 20 minute presentation on how they will be optimizing profits for next year.  This is a great time to discuss new strategies.  We want your managers to look forward to next year and to understand how they will be building the profitability of their departments.

Please add any ideas or notes that will be relevant to other dealers!

Thank You,