6 Key Strategies to drive up your Motor Dealer Profit Margin
- Are you getting full value from your Dealer Management System?
Your dealer management system should be providing you with accurate and timely metrics across all departments in your dealership. From stock turn analysis to labour recovery rates most dealership systems produce these reports if configured fully. When is the last time your system provider upgraded your system or advised you of enhanced reporting options? Schedule a meeting with your provider to explore if the system can be used more efficiently.
- Increase your Stock Turn
This applies to both car and parts stock. A number of surveys have revealed that the average stock turn is 8 times per annum. The surveys however also revealed that the top performing dealerships had a stock turn of 16 – double the average.
Increasing your stock turn on cars involves ensuring that you retain the correct stock profile at the right price. For increasing your parts stock turn consider regular stock checks and system stock reconciliations to avoid over ordering or stock becoming obsolete. Analyse the cost and contribution of different parts lines to identify fast moving and profitable lines of stock.
- Focus on Warranty and Bonus Accounts
Make sure your service and parts team know the specific criteria and process for claiming service warranties and warranty parts for return. Significant revenue can be lost by performing work under warranty that isn’t covered or the claim is not submitted carefully. Warranty return parts should be carefully monitored to ensure that they are returned and a subsequent credit note is received. Encourage your parts manager to avoid the temptation to stock pile or even discard parts that could be returned for warranty credit.
- Focus on Labour Costs
Efficient and economical buying of parts can improve your margin however focusing on controlling labour costs results in much greater increases in profit margin. Profit margins on parts can range between 20 and 30 per cent while labour margins can be in excess of 50 per cent. Consider reducing the benefits (and therefore time commitment) you provide, increase your labour charge out rates or reduce the wages payable. Other strategies could be to add hours to the service timetable and availing of any opportunity to avail of vendor provided training programs.
- Purchase ledger review and order processing
When is the last time someone other than the accounts team reviewed the purchase ledger? Are invoices checked for correct quantities received and agreed pricing or discount structures? Do not assume that you have received a correct invoice from a supplier – this can be a huge source of margin erosion. Implement a robust system of invoice checking and payment approval procedures. Supplier ledger accounts should also be reconciled regularly to supplier statements to not only ensure your month or period end accounts are accurate but also to gauge the level of unallocated payments or unapproved invoices on the system.
Another reason for purchase ledger queries is due to errors in ordering. Ordering the wrong part and arranging returns or replacements increases costs and reduces margins. Ensure staff and trained for accuracy and if necessary incentivise to reward accurate stock ordering and management.
- Encourage departments to Cross Sell
Can or does your top salesman recognise an opportunity to sell a car service or an incremental parts sale?
Does the service team have an up to date list of new or used car stock for the service customer who finally accepts it is time to replace?
Each of the above are opportunities for one department to boost revenue for another. Evidence suggests that for each additional euro of service income, an extra 50 cents of parts revenue can be generated.
In addition, encourage staff to build retail business, such as seasonal driving accessories or kits, servicing kits, batteries or fast fit parts such as wiper blades. These can generate additional revenue at a good margin.
Do you want to improve your Motor Dealership profits?
UHY FDW have been providing relevant hands on business advice to motor dealers, as well as a range of accountancy and taxation services, for many years now. Our focus is to improve your motor dealerships business performance. Talk to us about your motor dealerships business objectives and we will work with you to achieve them.