Every year at this time we prepare an elaborate business plan and a sales forecast for the upcoming year among all of our clients. This of course is second nature for some of you retailers and therefore has been a way of life. But for some others which I believe make up the majority of the crowd, it remains to be an unrealized potential. It is no coincidence that among over 100 active and inactive clients, our average return on sales continues to travel over 3% against a national average of 2.2%. While I expect those of you who practice this religiously to blast out of this e-mail, I would ask that you don’t. Not only will this validate your behavior it may give you a quick perspective of what checks and balances you really needed to do. For the rest of you, I suggest you make this approach a new year’s resolution and stick with it.
It is evident, and as predicted, we are now on the down side of the cyclical bell curve of retail sales. All things assumed to remain unchanged, at a minimum, this trend will continue for the next 4-5 years. At that time if any of the mobility transformation has taken shape, it is anyone’s guess how it will affect the auto retailing industry as we know it today. Let’s just assume that business will be as usual after we have weathered the down turn. You still will have to deal with a declining sales environment for the next few years.
It is evident that from manufacturer’s perspective ether is going to wear off as more and more incentives will become few and far between. In addition to the declining margins lower sales volume will make new vehicle gross revenue even more challenging. Excessive used vehicle and off lease inventories will also affect used car transaction prices. Departure trend of service customers after warranty period will also continue to increase due to price competitiveness of the independent repair shops.
So the first rule of business is to intelligently calculate your market potential in units for new vehicles with realistic margins that will support the forecasted unit sales. Then make sure that you have a plan to maintain at a minimum 1:1 new to used sales ratio. When pricing used vehicles utilize a dynamic marketing software to monitor day supply and transaction prices in your market. For the fixed operations revenue, calculate your shop capacity and have a forecast that supports to utilize at least 85% of the available hours at a rate of 110% efficiency. Once all of your revenue is forecasted and other income has been included in the total revenue, you can now start working on the every line item of the expense structure. Generally speaking you have to keep a close eye on the moving targets that end up costing a fortune. Most of these expense lines include commissions, salaries, flooring, delivery expenses, policy expenses, office and other supplies, advertising, data processing and outside services. Unfortunately without knowing each of your recording practices, it would be difficult to throw out some percentages of those expenses as a function of the overall revenue. No matter what though, you have to strive to maintain 80/20 ratio between expenses and pre-tax net profit. It is a cynical excuse not to be able to attain this objective unless you are spending someone else’s money.
At the end of the day it is either ego or lack of checks and balances that would cause to spend more than you are able generate as revenue. Last but not least, you entire staff must be shared this information and have a clear understanding of the expectations to achieve these objectives and their seasonal adjustments.
Car business will always remain to be exciting and nerve wracking at the same time which makes it addictive for most of us involved.
I WISH ALL OF YOU A HAPPY, HEALTHY AND PROSPEROUS HOLIDAY SEASON AND NEW YEAR!
ARLAN
