In this edition, we discuss how to make the most of your free franchise.
Most dealers have a free franchise, one where you set your own targets, determine your own RRP and set your own standards on customer service.
But for many dealers, this opportunity is not fully maximised and in many cases is allowed to operate at a lower level of performance and customer handling processes than their new car counterparts.
As a nation we still sold almost twice as many used cars, as new, and the stock of used cars running around was a lot higher than the new car stock on the ground, but the dealers have allowed "others" to occupy this space.
In our role we visit a lot of dealerships and in our travels we still continue to see a growing number of new cars on the front line, where the used cars used to be. When we ask the question "why?", the same 3 culprits always raised their head:
All of this sounds like fairly good reasons to me, but when I had the chance to run my own yards, the opportunity arose to see if I could break the mould and build a larger used car business.
The results were good, not amazing, but I was able to prove to myself that volumes and profits could be lifted in used cars (with the side advantage of pushing up new car volume by being able to buy more trades and the F&I that came with it).
Monthly reconciliations must be up to date and any issues that have been carried forward from month to month need to be dealt with in the April/May month ends.
When I first got my hands "dirty" and spent time looking at my own business I found a number of key opportunities:
Much of this probably sounds familiar, and to say it was an easy fix would be a lie, those that "know the business" don't like change but once you get them on the program the results start to happen.
The one thing I knew was the following:
Actions & Activities = Results
So to improve my results, I had to dramatically change our actions and activities.
The old adage is very true, to make sure we did buy right we did the following:
1. Stopped wholesaling anything over $5k until I had a look at them and with the GM determined whether it fitted our stocking matrix (had an ROI over 100) and was worth a go at retail. Each month I'd review the wholesale reports and question the UCM's on any cars wholesaled that were over $5k that I didn't see.
2. Measured valuations by sales person and set a target for each sales consultant to hit each month, we wanted 70 percent of all trade in's test drives valued, we published the league table of best "converters" and our trade intake to did increased markedly.
3. We used "live market" to work out whether we should take a punt on a car or not, we had the functionality available but the GM's didn't use it to challenge the UCM's on trades because they weren't trained on how to use it effectively.
4. Each month I would do an ROI spreadsheet by UCM and vehicle sold to assess the cars where we had achieved greater than 100 percent ROI and as expected they had 3 things in common:
1. less than 30 days in stock
2. low reconditioning spend
3. less than $15k value.
This would then be circulated as a league table to the GM's and UCM’s to see the best performing stock and teams.
The focus would then be on buying cars that fitted the above profile, fast turn, low reco, less than $15k.
5. We didn't retail anything with more than $2k reconditioning spend, it just took too long in paint and panel.
Auctions are no go zones and trades, even with the extra push with valuations, would only generate about 60 percent of our required stock each month and grow our volumes.
The things we did to generate more stock were focused on proactive acquisition as part of our CRM culture.
When I first arrived it could take up to 2 weeks to get a car from arrival to lot ready, to pull this back we did the following:
One of the cultures we did have to change was the "go for gross" culture that resulted in cars missing their opportunity as we waited for a certain "gross figure" to materialise.
We worked on getting Dynamic Pricing into all our yards with the focus being:
Turn your stock every 30 days, and if a car is in stock more than 30 days, reprice and move it quickly.
You just don't make any money out of cars sold after 30 days, I measured this month after month and it never showed a profit.
Limit your guys to 30 days stock on hand and let them have more when they sell what they have, the fear of not replacing the stock is what impedes your profit, act with no fear and the results will keep going up.
Each month circulate the net profit performance per unit based on the ageing classification, it would look something like this (albeit these aren’t the real numbers).
|Days in stock||Typical stock structure||Ideal stock structure||Average holding cost||Average gross||Net|
|0 - 30 days||25%||90%||$450||$2,000||$1,650|
|31 - 60 days||20%||10%||$1,350||$1,500||($250)|
|61 - 90 days||30%||0%||$2,250||$1,000||($1,250)|
|91 - 180 days||15%||0%||$3,600||$500||($3,100)|
|Over 180 days||10%||0%||$5,400||($1,000)||($6,400)|
|0 - 30 days||$413||$1,485|
|31 - 60 days||$(50)||$(25)|
|61 - 90 days||$(375)||-|
|91 - 180 days||$(465)||-|
|Over 180 days||$(640)||-|
|Net profit per unit||$(1,117)||$1,460|
Try to maximise your ROI out of your free franchise.
The keys to success are:
Your goal should be to get 90 percent of our cars sold in the first 30 days and for this you sacrifice short term gross of about $1000 PUR. Once you go beyond the 30 day mark, there just isn't a profit in the stock due to the holding costs of having the funds employed with no return.
If you'd like to find out more please feel free to contact KPMG’s Motor Industry Services team (PDF 310KB).
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