Category: Dealer Principal

FUEL DEALERSHIP GROWTH BY MEASURING THE RIGHT KPIs

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Is more data always better when it comes to financial reporting? While dealerships certainly want visibility into what is happening in their operations every month, amassing lots of data points from every department is fruitless if you don’t know which numbers matter the most.

Often, dealerships try to diagnose what’s happening within their business by implementing custom report builders that are not built for the specific needs of the vehicle sales and service industry. These builders require the assistance of outside programmers to build and customize the solution, ongoing maintenance to keep up with changes introduced during software upgrades and patches, and alterations as business operations evolve.

After all that effort, most dealerships end up running the same set of reports every month, but they may not be using them to uncover opportunities for improvement that can make a real difference for the success of the business.

A better approach to financial reporting focuses on specific key performance indicators (KPIs) that can guide dealerships toward improved operations and profitability. The first step is gaining an understanding of which KPIs enable critical analysis of financial results, and how to uncover improvement opportunities in the findings.

Less work, more value

For dealers, the ideal financial reporting solution would do most of the heavy lifting to enable meaningful analysis of data by providing dashboards and reports that offer a holistic view of information from multiple departments across all stores. Managers would be able to drill down into data as needed to explore operations from multiple perspectives without chasing down input from every store.

To get accurate views of how new vehicle, used vehicle, and service and parts departments contribute to the profitability of the business, dealers need:

● Flexible reporting modules for every department in the store
● A view of data across all dealerships in a dealer group
● The ability to easily filter, group, and segment the data with a few clicks to answer any question
● A clear understanding of the KPIs that matter to the critical analysis of how the business is performing

The KPIs that matter

Every dealership is striving to increase gross profit by maximizing revenues and controlling expenses. While there are lots of things to measure and monitor throughout each department, there are three essential KPIs that every dealer should evaluate regularly. Effectively managing these reports can immediately drive better results for the overall success of the business.

1. Contracts in Transit
The faster dealers can move assets to cash, the healthier the dealership. Karli DeVall, a corporate controller for Tim Dahle & Red Rock Auto Groups, knows how important cash flow is for her business.

“It’s all about the cash for me,” said DeVall. “I want to be able to measure contracts in transit and get the average days delivery to cash, not just for the store, but for specific finance managers, lenders, and sales managers, so we can figure out who is delaying the process.”

DeVall wants to be able to assess KPIs on a weekly and monthly basis to measure how teams are progressing.

“If the executive team is only talking about performance every six months, it’s hard to move the needle,” said DeVall.

2. Sales to Accounting Reconciliation
Current reporting options generally only provide controllers with access to what’s happening in the finance office and accounting in separate reports that are generated from different parts of the DMS. The results rarely, if ever, match. The monthly process of reconciling every posted vehicle deal requires a time-consuming manual audit to determine if there are reporting discrepancies.

A better approach is to see all deals in one report that lists information from both departments as well as any differences.

For example, imagine a dealer has 18 deals on the books but has a discrepancy between the gross in the business office of $60,000 and the gross in the accounting records of $74,000. Currently, figuring out which deals are still hanging, and why, requires a lot of manual investigation.

A holistic view of every deal (including capped and uncapped deals) reveals the status of deals with banks, chargebacks, and other issues that can hold up finalization. With that information, F&I managers can take action to fix discrepancies, push financing decisions, and finalize every deal in a fraction of the time.

A clear view of deal flow also enables analysis of the performance of individual F&I managers in terms of cash collection. This data can be used to inspire competition between managers, increase efficiency, and close performance gaps by enabling informed coaching conversations.

3. Income Statement
For dealerships that operate multiple stores, providing the ability to map each individual chart of accounts to a standard, holistic view of the performance of the entire auto group enables critical financial analysis.

The process should be automated so managers and controllers have access to the information as soon as the books close. Without an in-depth reporting tool, dealers burn a lot of time putting each individual store’s report into one consolidated Excel sheet. Custom segmentation of data, for comparing metrics of smaller subsets of the overall group, can take days to configure.

For example, to get a consolidated view of what’s happening in her auto group, DeVall must pull data together manually from multiple general ledgers, as well as the business office, and inventory reports — and then spend a considerable amount of time formatting the results to make them usable and presentable.

She observed that it would be valuable to be able to easily group data however she wants, so she could figure out group performance and provide actionable recommendations based on KPIs. For example, how are the Nissan dealerships in the group performing? How can we compare high-volume stores on an equal standard with lower-volume stores? What data can we provide for managers to drive next month’s performance?

“When you set goals and then give managers the information they need to track those goals and be accountable, all of a sudden people start moving and things get progressively better than when you weren’t talking about them,” said DeVall.

Finding the right balance

These three KPIs are the starting point for the types of data dealerships should track when implementing a better approach to financial reporting. It’s a smart way to identify and narrow the data that’s valuable, from the entire universe of a dealership’s operations.

Want to learn more? Click here to download key takeaways from our on-demand webinar, “Mastering the Art of Data-driven Practices,” to learn more about the steps that can help you maximize the power of your data for improved results.

PAYROLL: DISCOVER THE COMPETITIVE ADVANTAGE HIDDEN IN YOUR BIGGEST EXPENSE

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Dealership managers are laser-focused on procuring vehicles and parts inventories with margins in mind. Marketing campaigns are carefully scrutinized to make sure every dollar produces results. Yet, dealerships’ largest operational cost – payroll – is often thought of as a “necessary evil” and gets little attention. As long as checks get cut on time, everything is OK, right?

Not necessarily.

Payroll can account for an average of 60% of a dealership’s total expenses.¹Payroll systems are typically viewed as simply a way for the human resources (HR) team to administer employee compensation. Some rely on outdated spreadsheets to manage the process. Others wrestle with large enterprise-level systems that have too many bells and whistles and not enough auto-industry-specific features.

What many dealers do not see is the opportunity hiding in payroll and benefits management to create competitive advantages by streamlining inefficient processes, realigning human resources to focus on talent retention, and reducing compliance risk.

Payroll can account for an average of 60% of a dealership’s total expenses.

Breaking the Stereotype

It’s no secret that dealerships struggle to hire and retain qualified employees. In a market where unemployment is low, the pool of candidates is already limited. Plus, a Hireology / Cox Automotive study reveals that only about one in 100 people would consider working for a dealership because of their perceptions of what it’s like to work in the industry.²

The only way to solve the issue it to address it head-on. Dealers develop strategic plans to manage margin compression, customer loyalty, and F&I efficiencies by leveraging data from their dealership management system (DMS). Now it’s time to use the same approach to improve employee relations.

By integrating the DMS with the HR management system, dealers get more accurate visibility into how employees are compensated, with which they can make better long-term decisions.

And the payroll process is greatly simplified, freeing the human resources team to focus more on culture-building initiatives that appeal to current employees and potential recruits.

Building a Competitive Advantage

The automotive industry is evolving along with changing market forces. Younger generations are less interested in commission structures and want the comfort of pay stability, benefits, and work-life balance. Dealerships seek ways to respond that address these desires that workers can find in other industries, but still motivate employees to meet sales and service quotas. It’s a fine line.

Integrating the HR system with the DMS can help find a balance that works for dealership management and team members while creating a competitive advantage in the following areas:

Streamline operational expenses and tasks
Most human resources teams pull double duty entering data about commission plans / pay structures, schedules, time off, tax withholding, and other key data into multiple systems. It’s a never-ending, time-consuming process that is prone to error. The American Payroll Association estimates an error rate of 1–8% of gross payroll.³

Dealer managers usually have little visibility into how the process is managed because they rightfully rely on comptrollers or payroll management personnel to handle the function.

The integration of the DMS with the HR system streamlines how data about sales is filtered into the commission equation, minimizing the impact of human error from duplicate data entry.

Overall visibility into employee management is improved, enabling managers from multiple teams to more easily pinpoint operational inefficiencies by assessing metrics that are valuable to them. For example, sales managers can see which team members are nearing overtime. HR leaders can evaluate what benefits are not being used and adjust plans. General managers can see trends in turnover based on a number of factors such as role, manager, and commission structure.

Also, it’s not uncommon to hear horror stories from payroll managers about the excessive amount of time it takes to process checks every two weeks. Many note they spend 60–75% of their time every month just making sure payroll is accurate and issued on time.

HR systems that are integrated with the DMS can greatly reduce the amount of time spent on processing payroll and managing benefits. The HR team can then shift their focus to creating much-needed employee engagement programs.

For example, the Kingman Honda dealership in Kingman, Arizona, reports recouping about one day worth of work every week after switching to another DMS. The efficiencies come from more straightforward car deal posting processes and bank reconciliation, easier accounts payable, simplified cashiering, and faster, more direct vehicle stock-in processes. Essentially, updating data in one system automatically syncs data with other systems such as payroll.

Boost talent retention
Employees want to feel like they are in control of their careers. Dealerships that proactively address talent retention are more likely to see better overall results because employees are satisfied, motivated, and understand what is expected of them.

The integration of the HR system with the DMS enables dealerships to provide transparent views into their schedules, compensation structures, and benefits from personalized dashboards that they can log in to and view. Managers and employees have access to the same information and can have open conversations based on data if questions or discrepancies arise.

These types of solutions are commonplace in other industries where companies compete for qualified candidates. New employees will expect technology-enabled onboarding, the ability to check their benefit status online and a user-friendly interface for HR-related tasks. Dealerships need to provide this type of solution for employees to stay current with workplace trends.

Accurate performance and compensation data is also a valuable tool for managers to review and proactively facilitate conversations with employees about what’s going well and areas for improvement. It’s an opportunity to shift the culture to a spirit of coaching and feedback.

Reduce compliance risk
Are you 100% confident your payroll system is 100% accurate all the time? If not, you have a compliance risk. Keeping up with constantly changing state and federal regulations is challenging. Dealerships are open to steep fines or lawsuits, even for what may seem like simple mistakes.

The probability is so high that many dealerships keep a law firm on retainer just in case compliance issues arise.

By integrating the DMS with the HR system, you eliminate the need to manually track compliance updates. An integrated talent management solution automatically populates the relevant modules with updated information such as tax compliance, minimum wage, overtime regulations, equal employment opportunity compliance, employee verification, and other important compliance directives.

Get More Information
When so much of your capital is invested in people, shouldn’t you be 100% confident that the systems used to manage payroll and benefits are accurate, streamline processes, and provide insights that enable the dealership to build a competitive advantage?

To learn more about strategies for recruitment and retention, read “8 Keys For Hiring & Retaining Staff at Dealerships.”

1. NADA. “NADA Data Annual Financial Profile of America’s Franchised New-car Dealerships.” 2018.
2. Hireology. “Cox Automotive Dealership Staffing Study.” 2017.
3. Katz, Eyal. “Payroll Errors That Cost You Money and How to Fix Them.” Business 2 Community, 2017.

Revealed: The Missing Metrics Needed To Fight Margin Compression

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Sell more, make more.

The formula for dealership profits used to be pretty straightforward. Managers that focused on increasing sales volumes could logically expect to see higher profits. Times have changed. According to a recent report from the National Automobile Dealers Association (NADA), for the first time in a decade dealerships on average experienced operational losses.* The culprit: margin compression.

Scouring the Daily Operating Control (DOC) and other financial reports for answers about where to cut costs is a start. But it’s likely that key metrics that affect margins are not included. Dealerships need to expand what data points they incorporate in their analyses of financial performance to uncover the root causes of margin compression.

Managers are better able to make strategic, data-driven decisions by adding metrics from these key areas:

Expenses
Keeping track of operating expenses such as advertising and headcount is a standard accounting practice. Giving meaning to those figures requires benchmarks that can be tracked and analyzed. According to Mandi Fang, vice president and general manager of Dealertrack DMS, the most effective way to uncover the impact of expenses on gross profit is to automatically generate trend reports from the dealership management system (DMS).

“To really get the perspective you need to take action from this data, compare your performance against the benchmarks month over month to understand where you can do more with fewer resources,” said Fang.

Marketing and advertising expenses are also an area where a fresh look can pay dividends. The first step is to take a deeper dive into the existing customer database.

Instead of spending on broad-based campaigns to carpet the potential market, it makes sense to target specific customers who are ready to replace their current vehicles and already have an affinity for the dealership.

Inventory and Asset Aging
The amount of time vehicles sit at a dealership affects cash flow. Fang recommends creating a weekly inventory age report that highlights the top 10 most-aged assets. Look for trends to identify why the vehicles are not moving, such as price sensitivity, upgrade packages, or other contributing factors.

“Most dealers are amazed at what they find with vehicles sitting on a lot for months and excessive warranty claims,” observed Fang. “Using the weekly report to hold department heads accountable to investigate aged assets can bring major gains to your operational efficiency.”

In an interview with CBT News, Dale Pollak, executive vice president at Cox Automotive and founder of vAuto, notes, “Something’s happened in the last two years that I know objectively and empirically to be true … an average vehicle loses its ability to make a positive return on investment [at] somewhere between 30 to 40 days.”**

According to Pollak, up to one-third of a dealer’s new and used vehicle inventory is typically over-age, which ties up capital that could be reinvested in more profitable units. He recommends making “investment-minded” inventory decisions for new and used vehicles based on retail prospects. Then focus on quickly getting vehicles ready for retail to reduce holding costs and improve front-end gross potential.

If used cars are not turning efficiently, it is important to analyze relevant data points such as appraisals, recon costs, pricing, and time to market to determine opportunities for improvement.

Fixed Operations
About half of a dealership’s profits are usually generated from fixed operations. As margins on new and used vehicles fall, the service and parts departments can be a way to make up lost revenue. The main factor affecting profitability is the ability to maintain consistent, efficient utilization of resources.

Kevin LeSage, director of digital marketing for Autotrader, recommends verifying the accuracy of data used to track productivity in the service center to get an accurate view of where to make improvements. For example, the benchmark at most dealerships for technician productivity is 90–95%. If something looks off in performance metrics, verify that sound processes are in place to capture data.

“Technician productivity has more to do with the shop’s loading and scheduling than it has to do with the technician’s ability or performance,” noted LeSage. “Having an accurate understanding of your technician productivity rate can help you realistically assess their bandwidth and capacity for additional work or figure out what tasks that are draining their efficiency can be reassigned.”

Service departments often measure capacity by the number of scheduled appointments. A better metric is evaluating in a week what hours the shop is open, the aggregate staffing hours of service technicians and average time allotment per service type. Then you can realistically evaluate the team’s bandwidth to set goals for the number of services performed every week.

With targets in place for services performed per week, marketing activities can be created to support demand generation. For example, to increase the number of oil changes, series of email blasts featuring promotional offers and links to an online scheduling tool can help boost appointments.

An audit of the service technician dispatch process can also uncover opportunities to maximize the return on each appointment by ensuring lower-level maintenance items, such as oil changes, are not handled by senior-level staff.

Inspection rates are another metric that can drive higher profits. Are service technicians upselling appropriate additional service requests (ASRs)? You won’t know unless you have benchmarks in place to assess results. Additional training and expectation-setting may be all it takes to boost follow-up appointments.

F&I Sales
Tracking the health of F&I sales can uncover opportunities to improve revenue. Metrics to analyze include the average transaction amount, product penetration, product index (number of products per deal), and profit per vehicle retailed (PVR).

According to Tony Troussov, a seasoned automotive industry expert who focuses on the importance of F&I sales, dealerships retain about 70 to 80 cents of every dollar generated through F&I.

“Focus has shifted to improving (F&I) in the wake of margin compression,” said Troussov. “Now there’s a lot more discipline and dealerships are paying attention to the numbers.”

He recommends engaging the F&I team to assess customers’ buying habits and trends, including previous deals and service histories on trade-ins, to craft strategies to overcome customer objections.

Evaluating how F&I options are presented to customers can also reveal ways to boost sales. Instead of offering one item at a time in sequence, bundling F&I products into three or four packages from which customers can select simplifies the sales process and boosts product index metrics.

Final Thoughts
Incorporating these missing metrics into the assessment of dealerships’ margin compression issues is just a starting point. The new and used vehicle market is volatile. Monitoring and reacting daily to real-time data is necessary to hold teams accountable for their performance. Setting benchmarks and using collected data to drive strategic decisions is the best course to mitigate issues and improve margins.

Want to learn more? Click here to download the eBook “7 Solution to Margin Compression: Strategies for Preserving Dealership Profit Margin.” You’ll get an in-depth look at margin compression and steps dealerships can take to combat the problem.

* Lutz, Hannah. “Auto dealers losing money on operations, NADA says.” Automotive News, 2019.
** CBT News. “The Most Effective Way to Reduce Margin Compression at Your Dealership – Dale Pollak, vAuto.” 2019.

The Path to Data-driven Practices Starts With People

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Data is everywhere in your dealership. You have access to cold, hard facts about every aspect of operations, from profit margins to customer demographics to the average time of service visits. You know you should be putting all that data to work to drive business decisions, but figuring out where to start can be overwhelming.

The benefits of adopting — and consistently managing — data-driven practices are compelling. Dealerships that have figured out how to collect and extract meaning from their data sources have a competitive advantage. They use the insights found in the data to boost profits, improve operational efficiency, generate more sales revenue, and create transparency across all departments.

Unfortunately, you can’t just walk in one morning and declare, “We are now a data-driven organization,” and expect results. The transition requires the cultivation of a culture that understands and values how data can positively impact the business. Until you get team members on board, nothing will change.

I’ve Got a Feeling

Change is a pretty scary word for most people. Introduction of new, data-driven practices can feel threatening to team members who may be resistant to learning new systems or changing their work habits. If things are going well the way they are, why make changes?

It’s a common sentiment. Even though there is more data available than ever before, 39% of organizations say that making decisions based on gut feeling or experience is good enough.*

Part of cultivating a culture that thrives on using data to make strategic decisions is recognizing the emotional aspect of embracing analytics. Help team members understand how data is just another tool the dealership can use to improve operations. While their job responsibilities may change a bit, they will now have the resources to make a real impact on the success of the dealership.

According to Mandi Fang, vice president and general manager of Dealertrack DMS, organizations that are able to successfully create and execute data-driven cultures demonstrate how collaboration across the entire dealership shapes decisions at the management level.

“Remember to share your progress, including your successes and the areas you’re still working on, with your employees across all levels on a regular basis,” said Fang. “It can be a difficult transition, but consistency is key.”

Consistency Over Time

To make lasting change happen, you have to be vigilant. Only 37% of organizations that pledged to become more data-driven have successfully met that goal.** Organizations that stay the course ultimately provide better experiences for their customers because they are better attuned to market demands.

Team members need to see how their work is utilized by the management team to drive decisions. Make sure everyone across all levels understands the value of each metric that is monitored and how it supports the goals of the dealership. Communicating expectations openly with the entire team on a regular basis and explaining how individual contributions combine into larger analytical models can inspire long-term commitment to the effort.

Experience is valuable, but by motivating your team to inform their expertise with data, your dealership will get better results.

Steps to Becoming a More Data-driven Dealership

Now it’s time to get started. Just having access to data doesn’t equate to insights. To successfully implement data-driven practices, you need to follow three key steps:

1. Define your business objectives

Fang recommends developing a one-page document that summarizes your mission, vision, and objectives to clarify why you are seeking to become a data-driven dealership. What are your short- and long- term goals? Looking to boost sales revenue? Need to tighten operational costs to combat shrinking profit margins? Expand your objective beyond what data you think you can get from your tools.

Narrowing the scope of what you want to accomplish is the first step to setting goals that are realistic and actionable. Prioritize three to five measurements that will drive results for your organization.

Slow and steady wins the race. Start with the item that is likely to have the most positive impact, then continue to move down your list and implement the remaining objectives over time.

2. Identify the right process, people, and tools to execute the plan

Identify actionable key performance indicators (KPIs) and metrics to support the identified business objectives. Analyze current data sources for the most pertinent information. Consider if there is data missing that would be useful to answer key questions. Weed out data that does not support business goals.

Then define a process to calculate each KPI and track each metric, including assigning team roles, establishing the frequency of readouts, and outlining what needs monitoring along the way. Typically, the heads of each department are accountable to track metrics, relying on members within their team to manage the data and follow good practices to ensure the validity of reporting.

Finally, implement the right tools to configure, collect, and visualize the data. Automating the process as much as possible is critical to ensure accuracy and consistency of reporting.

“Within my leadership team, we created a set of 10 KPIs to measure ourselves and the performance of the business,” said Fang. “With some of the KPIs, we discovered we didn’t have one tool or system that can easily provide the data we need, so we continue to work toward automating the process still today.”

3. Measure, monitor, and manage

Doing the upfront work to foster a culture that thrives on data-driven practices pays off in step three. If team members are advocates for the process of collecting and analyzing data and see value in the results of their work, you will continue to get the insights you need to drive strategic decision-making.

“People don’t do what you expect, but rather what you inspect,” observed Fang. “Getting started is only half the battle.”

It is also important to monitor progress on a regular basis and make adjustments as needed. For example, if different departments are using separate systems, the manual process of connecting data inputs may be too time-consuming. Upgrading the technology infrastructure may be required. Solicit input from team members and respond by removing roadblocks or adapting processes to stay current.

The Road to Success Is Paved With Data

Becoming a dealership that succeeds with data-driven practices is challenging, but the rewards are worthwhile. The process begins with the cultivation of a culture that motivates team members to embrace the value of data and willingly contribute in new ways. With a clear picture of business goals, measurable KPIs can be established and championed across the organization.

Want to learn more? Click here for the “Mastering the Art of Data-driven Practices” webinar. You’ll discover ways you can leverage data for more profitable dealership operations across fixed ops, accounting, sales, and digital marketing.

*BARC Institute, 2014 Information Culture Study.
**NewVantage Partners, Big Data Executive Survey, 2017.