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Congrats You Opened A Dealership Now What?
To be in the automotive retail, training and consulting business for 14+ years one would tend to pick up some important business life lessons. At Dealer eTraining I have always kept an open mind when it comes to seeing how a dealership operates. I was fortunate to sell thousands of vehicles in my day and manage multiple dealerships. I was also very fortunate to work with great Owners/GMs and not so great Owners/GMs. One thing that has always baffled me is seeing the difference between a solid, profitable operation and a failing, money losing operation.
Here are some of the things that I WOULD NOT do if I opened a brand new dealership.
- Drop $100,000 foolishly in monthly advertising expense:I have seen this happen and it is painful to watch. The brand new dealer has relationships with vendors and advertising agencies that have never truly looked after their best interest. However, these agencies have made a ridiculous amount of money from them when they were a GM at other dealerships. How about dropping $35,000 on a radio commercial? Talk about burning through money.You build a very weak website. You start with a weak social media marketing plan. You do not invest in getting quality photographs of inventory. You sign up for TrueCar, Edmunds, CarGurus, AutoTrader, Cars.com, Autobytel and rely on getting 20 leads a month off your website and the scraps that the OEM gives you. Now you wonder why you are not converting. Hmmmm….You do not need an advertising agency. You need to sit down and create a reasonable budget of $15-20k to start to drive traffic. There are so many great sources out there. Right now you need traffic without putting yourself into a huge financial hole.
- Hire too many people:Let’s hire 2 sales managers, a finance manager, 4-5 sales people, a BDC manager and a GM. Let’s hire a service director with 2 service advisors, a parts manager, parts advisor, 3 techs and a detailers. The dealership is not turning a profit but staff has to get paid so now the payroll is through the roof naturally. Does this make any sense?No one knows that your dealership exists yet. Your marketing and advertising has not quite stirred a buzz yet. Your traffic is slow. Your product may or may not be hot in the market. Yet you take on this crazy expense. How about managing the people to do their jobs. No one is going to stress out about success or failure of the dealership more than the owner that has to cut a check. I get it. You want to build Rome in one night. But hey slow down a bit. Do you have disposable pockets? Can you really afford to fail?Maybe start with 1 sales manager, 1 finance manager, 2-3 sales people, a CRM, NO BDC Manager, NO GM, 1 service manager, 1 service writer, 1 working parts manager, 2 techs and 1 detailer (or outsource a detailer to save money on payroll). Imagine how much bleeding you will stop right away. Hmmmm…
- Buy exotic used cars from OVE that are not selling anywhere else: Like the song by Prince “Let’s Go Crazy” you are about to really do something nuts. Take a facility that needs a lot of work with a low line new car franchise and try to cater to upscale clientele by putting 30+ exotic vehicles online. You do not even have Starbucks coffee, a comfortable customer waiting lounge and other amenities. This is fair since you are brand new and with growth you will get those things. Yes the calls will come in and some will sell quickly (maybe). But are you managing your floor plan? Do you really think that you will be able to turn some of these cars in 15-30 days?
We are talking $100,000 cars @ 30 = $3,000,000 in used car inventory.Call me crazy but think of how much inventory you can have for $3,000,000 that can turn very fast and move a respectable profit of about $2000-2500 per unit. If an average used vehicle median price is $20,000 you can have 150 in stock. But wait…there is no room for 150 units in stock. There is only room for 50. How much money can I save and not have to pay for floor plan? Looks to me like $2,000,000. Now you create a turn strategy with solid merchandising and you will sell 30-40 right away. Your biggest worry will be to replace the inventory.
There are many solutions for that. Your investment is $1,000,000 not $2,000,000. You can now drop $10-30k into the right long term tools like vAuto (or similar tools), quality staging and photography and maybe even more advertising sources. Still not $2,000,000. You sell 40 cars in your first month at $2000 per unit for an $80,000 profit. Respectable way to start.
- Handle an abundance of new car inventory: Let’s assume that you have a new car franchise which typically is not very popular and does not sell many vehicle. However, the OEM does not care about your struggles. They want cars on the road and big numbers. They gave you a rooftop to grow their brand. They also gave you way more new inventory than you should have in the first 30-90 days. What do you do?You do whatever it takes to advertise these vehicles. You are on a highway with massive competition which means that you need to do heavy conquest marketing. Remember that crazy $100,000 advertising spend? Let’s take $10-15k and go heavy on email marketing campaigns with companies like Cactus Sky or City Twist. I would also go heavy with direct mail in some cases. You want your local demographics to see the brand awareness and really welcome you to the area.I would go hard with social media with blogging and press releases to promote the dealership and the new cars so that people understand why your brand deserves a chance. I would also start an employee pricing sale promotion to all local businesses (Hospitals, Fire Fighters, Police, Board of Education, Retail Businesses and Professional Services). This involves getting creative and contacting HR departments of businesses. They will gladly let their staff know about the promotion as an added benefit. You will get UPs and phone traffic from it. The investment is just a few hours of your time and creativity.
Make a plan to sell 20 new cars your first month. With all of the advertising mentioned in this section there will be enough traffic to sell at least 20 cars. So let’s say you sell 20 @ $1,500 (remember it is new cars) you will only make $30,000. Add that in with the $80,000 you made with used cars now you sold 60 cars and made $110,000 from sales. Hopefully you did not drop more than $25-30k into advertising.
- Completely Ignore Service Operations:You overstaff the department. No one does any work all day. You have no advertising plan to drive traffic. You are lucky to see 3 customers per day. Your service department is barely grossing $20,000 per month. The number one profit center in the dealership that should cover your expenses is failing you. Your service director is not willing to come up with a solution or ask for help. Personally, I would fire them and get someone that will turn it up. Again, get involved in the community. Offer some aggressive deals on oil changes, wheel & tire work and other basic services. My solution is to do direct mail, email marketing, social media marketing and get involved with sites like Groupon (especially if three of your local competitors are on it). You will make minimal profit on some ROs and take a small loss in the beginning. However if you treat the customers right they will come back. Initially the service director and 1 service advisor should handle the job. Only 1 person should work parts with the service writer helping out in the beginning. Make a goal for the first month to get an average of 10 customers in the service drive every single day with a goal of $2,000 per day. This should earn roughly $50,000 for the first month.
- Hire a BDC right away:Naturally you will have leads from your advertising sources that sales people need to be working and following up. That’s right I said “Sales People”. Now is not the time to staff people to do the job that your sales people are not willing to do. Think expense control! Think about that $4,000-5,000 that you will spend on an additional employee.Eventually when the store is moving 100 units and service is making six figures consistently every month you can build a BDC department with a goal of taking you to the next level. The next level means going from 100 units per month to 150 units and service revenue going from $100,000 a month to $200,000 month. In fact, if you get some solid people to sell cars and work in service you might not need a BDC. If you do go with a BDC think of making it the GRC (Guest Relations Center) as a support department for sales and service. They will be responsible for appointments.
Let’s talk facts and figures.
Now you have $110,000 + $50,000 = $160,000 Profit
Keep your costs lower by not employing too many people, having proactive staff that actually works, investing in the right advertising tools and managing your inventory properly. The worst case scenario should be that in the first month you will break even. This is how you can start to see what the potential is and how you can move the needle. With every new month you want to grow the profitability 10-20%. You can now start doing other things to sell and service more cars because the budget can increase. When you look back in 12 months you will be amazed at what you have accomplished.
Think about what happens when you are doing $150,000 in sales and $200,000 in service. $350,000 per month affords you expansion for facility improvements, more staff, a BDC (GRC), better tools, more advertising and more inventory. This is all positive and real world stuff I am talking about. This is a sure way to build a $1 million a month store at some point.
But here is the scary parts of what I have seen. I have seen dealers that sell 30 cars per month barely cracking $50,000 in profit. They do $20,000 in service. They have an expense of $200,000. Is that insane of what? How many months of losing $130,000 can you go before you lose everything? This can happen to anyone.
(Photo Credit: http://www.freeimages.com)
The key is to really open a new store by being patient and managing the current available reasons. There is nothing scarier than opening a brand new dealership. I have been a manager and director in a brand new store. My owners were smart and broke records every month. In only 9 months our store was doing 250 cars per month.
I sincerely hope that this has been eye opening and entertaining to read. If you are interested in discussing this article or seeing how Dealer eTraining can help you please contact me directly. Thank you.