When it comes to finding the right Dealer Management System (DMS) for your franchise dealership, you've probably got questions. This checklist includes questions you should consider when choosing the right technology to run your dealership.
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.
Data is everywhere in your dealership. Knowing what to do with it and using it to become successful can be overwhelming. Your dealership won’t become a data-focused institution overnight as it takes a real mindshift, from leadership-led initiatives down to the showroom floor, to make it a reality. But, with practice, it is possible to instill the right mindset, practices, and focus to achieve it.
In our recent Auto News webinar, Vice President and General Manager of Dealertrack DMS, Mandi Fang, and Director of Digital Marketing from Autotrader US, Kevin LeSage, shared tips for mastering the art of data-driven practices.
Fostering a business that embraces data is the first, and most crucial, step for dealerships. If you don’t have the right mindset, any technology, any amount of training, and certainly your vendor relationships, will not help you achieve your goals. You have to be certain your team is aligned to the following key drivers in order to build a data-driven culture:
Don’t create objectives based only the data you think you can get from the tools you use, but rather focus on the top 3-5 things you want measure in order to drive different results.
Look at the data that you already have and find out which data sources provide the most valuable information. This will help you hone in on the data you should be looking at and weed out the extra noise.
Next you’ll need to define a process for calculating each KPI, then assigning ownership of each KPI, and finally establishing a regular cadence for updates.
You must consistently measure and monitor your progress to make sure the data being collected is leading you down the right path and ensure nothing is standing in the way of success.
Download the PDF: Key Takeaways: Mastering the Art of Data-driven Practices
When your dealership is able to turn data into insights, prepare for the “magic” to happen. It’s no secret that people proficient in data technology get excited about the results. That’s because data has the tremendous potential to drive success for your business. Once you’re ready to roll, here are three top areas to focus, first.
Accurate, real-time data provided by your DMS is not only important for creating a picture of the past – but provides the framework for your accounting team to deliver process-optimizing financial data relevant to your dealership’s future.
It’s so important for dealers to start digitizing their Accounting functions in order to remain competitive. The right DMS is the foundation for automating and streamlining inefficient processes.
Dealers are starting to shift their focus to finding ways to drive more sales through fixed ops since it’s such a major driver of profit for your dealership. Around half of a dealership’s profit comes through fixed operations. Tracking KPI’s is a great way to maintain peak efficiency as long as your Fixed Ops team is onboard to do it.
While Digital Marketing is a very broad topic, dealers can start by focusing first on two main areas:
Adopting a data-driven approach can lead to greater success for your dealership. While this may seem obvious, the path to profitability can be confusing. Knowing how and where to begin takes experience and guidance. Start here with tips from the experts. Watch the full webinar and download the PDF for Key Takeaways.
Get the PDF: Key Takeaways: Mastering the Art of Data-Driven Practices
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.
Looking for data-driven practices to take back to your team? Download our on-the-go PDF that highlights the key takeaways from our on-demand webinar, "Mastering the Art of Data-Driven Practices"
Your dealership runs on technology. And technology runs on data. Mostly. Having access to the right data, at the right time, without problems like hidden fees or nightmare integration challenges, is extremely important. In the brave new world of “all things Big Data,” dealers need to know the three rules of Data Access.
In one study1¹, dealers used an average of 6.8 third-party software integrations to run their dealership. That’s a lot of getting along and playing nice. While this sounds like a lot, the fact that your have the ability to pick and choose the systems that work together is quite remarkable. “(Dealertrack) doesn’t restrict us to just one particular product,” explains Ken Barczyszyn, CFO of Dwyane Lane’s Auto Family. “We can have other relationships with other vendors and products and Dealertrack is open to that.” See it in action.
With multiple software integrations, dealers face the real risk of being taken advantage of by unscrupulous vendors. Accessing your very own data can suddenly come at a cost—a cost that can add up to $42,000 per year². If that sounds unbelievable, consider that many of these fees often go unnoticed and simply add up over time. With as many as half a dozen vendors charging you to access what you already own, those data fees chipping away at your profits can start to feel unfair. See how it adds up.
If you’re considering switching to a new technology like a state-of-the-art Dealer Management System (DMS), consider this: signing a contract should protect, not prohibit, the data that you own. Your data—customer names, personally identifiable information (PII), and records of your transactions—need to be protected. But that doesn’t give a vendor the right to hold them hostage from you. Learn why it matters.
Discover a truly open DMS and find out what your technology is costing you. Learn more.
Sources:
¹https://us.dealertrack.com/content/dealertrack/en/challenges/data-fees.html
²https://us.dealertrack.com/content/dealertrack/en/challenges/data-fees.html
Technology changes every day and, often, businesses have a difficult time keeping up. When your dealership falls behind the technology curve, it’s painfully obvious. Auto dealers, famously, tend to hang onto old technology. While staying put and “making do” with outdated technology is very common, it doesn’t have to be that way. Adopting a Dealer Management System (DMS) that is designed to be easy-to-learn is good for you, your business, and your team. Here are three surprising impacts of implementing easy-to-learn technology at your dealership.
According to one study, it can take up to eight months for your fresh new hires to reach productivity. How many lost sales are walking out the door during that time frame? When your dealership runs on a DMS that is easier to dive into, more intuitive, and that doesn’t require endless memorization, you can rest assured that your team can go from “personnel to professional,” faster.
Dealership turnover reached an overall high at 46% recently, causing many employers to hire based solely on DMS experience to reduce the amount of training required. The problem? Your customer experience will begin to suffer if your staff is chosen based on a skillset that has nothing to do with them. However, bringing in an employee who matches the culture of your dealership, who can learn your DMS, and who is likely to grow with your team in the long term, is a valuable asset.
The workforce is changing as more millennials enter the job market every year. This group of smart, digital natives are eager to learn and happy to work in an exciting industry. And at the top of their list of needs? You guessed it: professional development. In fact, 87% of millennials cited professional development as their top need—above time off and compensation—when looking for a career. If your DMS doesn’t offer continued learning options and a community where they can continue to develop their skills, you will lose them.
While choosing a new DMS is certainly a big decision, finding one that your team can learn without a struggle can help everyone in so many ways. Your new hires can quickly get up-to-speed faster while your hiring managers can recruit for the skills that match your company’s mission and goals. Plus, as your sales people, managers, and team members become more engaged, everyone wins. Watch the video below to see how an easy-to-learn DMS made the decision even easier for these real-life dealerships.
This article originally appeared on Digital Dealer here.
Just like we run our homes and our lives, we run our businesses by our calendars. It keeps us on track, organized, and efficient. However, the monthly “must do’s” in the dealership – from administrative work to data cleaning, inventory check-ups, and talent acquisition and retention – have become overwhelming and expenses are adding up.
Consider this: In 2018, NADA reported an average dealership’s expense structure was 100.2 percent of its gross profit. In the first quarter of 2019, this skyrocketed to 106 percent. Fortunately, in Q2, NADA saw this rate finally drop back into the green at 98.5 percent.
But the story can’t stop there. Dealers can’t afford to settle on a 1.5 percent gross profit margin. Rather, they need to take the next step toward right sizing their expense structure, and that means efficiency, efficiency, efficiency. Where better to start than by looking into the system that touches every part of the dealership – the DMS?
However, as the saying goes, you can’t boil the ocean. In other words, don’t try to take on all aspects of the DMS at once. Instead, we are introducing this new series to help take you step-by-step through some of the most common seasonal “must do’s” to keep your dealership running efficiently all year long.
First up on the calendar is model-year turnover season.
Your Personal August “Must Do’s”:
Your Dealership August “Must Do’s”:
It’s already nearing the end of August and that means fall is just around the corner. But in the auto retail world, it also means a busy changeover and selling season.
Not every model year changeover is massive, some years are easier than others. Either way, it’s important to find out as soon as possible from your OEM what you can expect – major or minor. That way, you can plan ahead.
This year, at least one OEM has indicated plans for significant model line changes, which will necessitate nearly 200 new account additions to a dealer’s general ledger. In broader terms, for every model line modification an automaker makes, it is not unusual for it to generate three to five changes to a dealership’s accounting practices. If you multiply that out across several brands or automakers, that could mean a substantial amount of administrative work that you will want to get ahead of.
As a result, whether it is a major or minor year for model changes, you will need to take swift action to get new accounts added, validated and routed to the corresponding sections of financial statements and related documents to ensure your reporting is accurate from the minute the new vehicles start rolling in. There’s also the task of removing old accounts for models that have retired and executing a merger of accounts when the OEM indicates it’s necessary.
The average dealership has between 800 to 1,000 accounts in its general ledger chart (assuming a dealer has one brand). That can be a lot to manage and update. Here are some key do’s to help you through this busy time of year.
Stay tuned for more as this was just part one of an article series covering “must do’s” to rein in expenses and drive efficiency at your dealership
About the Authors:
Susan Moll is Senior Director of DMS Field Services for Cox Automotive and Matt Hurst is Senior Director of Tech Client Support for Dealertrack DMS.
This article originally appeared on Digital Dealer here.
Upgrading your Dealer Management System (DMS) is a must-do. But, just like other franchise dealerships, you may postpone this important upgrade for many reasons. And it makes sense—who wants to introduce fear, change, and relative inconsistency to their entire staff? Switching your DMS doesn’t have to be daunting. So, we asked Susan Moll, Vice President of Client Implementation at Cox Automotive, to share the tactics and best-practices that lead to a successful technology transition.
Dealer Principal Owners and General Managers often wait to make the move until it’s absolutely necessary. According to Moll, “many dealers have been using the same system for decades, with years of accumulated customer lists, outdated setups, old reports, records and files that need to be dusted off and sorted through.” Fortunately, in a recent interview with the team at Jim Browne Auto Group, Moll assured dealers that a DMS switch doesn’t have to be scary. Here are Susan’s four keys to making a successful switch:
Step 1: Make an Action Plan
Before you begin, you and your management team should set up time with your future partner to establish a clear roadmap for the implementation. This should include a thorough timeline that defines how and when the new technology will transition.
Most DMS transitions will take around 90 days from start to finish which should include planning and training your crew.
Step 2: Find Your Team Champions
A successful DMS switch doesn’t happen overnight, of course. But it also doesn’t happen without the help of individual department champions. Identify team members who are eager to learn and ready to help lead change. Make sure to incentivize your crew as the new technology rolls out. Your champions will become an important part of the process as learning and training assignments are distributed.
Step 3: Keep an Open Door
Fine-tune your change-management skills as this will become the key success factor when making a big technology switch. Aligning your goals to your values is a great way to start, so be sure to keep an open-door policy and allow employees to reach out when they become frustrated. Communicating openly, and frequently, goes a long way. And it simply must come from leadership. According to Moll, “The most successful implementations start at the top.” Hold weekly status updates, send frequent emails to the staff, and let people know that you’re proud of their progress.
Step 4: Practice with the New DMS Technology
Learning a new DMS will take some time and practice. Your team will be given access to train on the new system inside of a “sandbox” environment. You will be assigned lessons and training that cover how to use the new technology. Dealertrack is rated the #1 easiest-to-use DMS, but it will be different than the current tool you have used before.
Automotive dealerships are a fast-paced business that deal with change, daily. Covering your basics and preparing for a successful DMS switch will help ensure that your entire staff is ready to hit the ground running once you flip the switch.
Ready to learn more? Check out the tips and best practices below to make sure you hit the ground running with your new solution here.
