Profits are being challenged right now. Margin compression is very real for most dealerships. Expenses are growing faster than sales. And with all of this going on dealers have to face another set of challenges. Price creep, arrogance, complacency…all terms to describe some of the suppliers that support auto dealerships today. As companies continue to consolidate, competition can be reduced, prices go up and a take-it-or-leave-it attitude can prevail with some suppliers, giving dealerships even more headaches to contend with.

Categories where supplier consolidations have occurred:

• „Office Supplies
• Shop Supplies
• „Credit Bureaus
• Marketing – Digital Services
• Small Package Transportation
• „Shop Supplies
• DMS
• Vehicle History Reports
• Hazardous Waste Services
• Lubricants
• More

Supplier Consolidation and impact to Dealerships

A few years ago, DHL exited the domestic small package transportation market. It didn’t take long for the remaining suppliers to consolidate, raise prices, and even scale back the support of those who re-sell their services at discounted rates. In the past two years, four major laundry and uniform providers consolidated down to two national suppliers. We have noticed that pricing is going up and supplier competitiveness and flexibility is decreasing. One of the big-box retailers of office supplies has taken the position that they will not discount pricing on existing customers if faced with competition…they feel confident that they can’t possibly be replaced in this market. In spite of additional competition in the shop supply market, a couple of the major national suppliers hold fast to high pricing and continue the process of jacking up pricing every few months hoping that it won’t be noticed. Heavy regulations from state and federal agencies have chased some hazardous waste suppliers from the market, leaving the remaining suppliers to limit services and raise pricing. The acquisition of a number of suppliers in the digital marketing space by a large holding company has produced scale for those suppliers, but that organization has not passed on the savings from newly achieved scale to the dealerships…in fact, many of their prices to are increasing as well.

Dealership Challenges

The challenges that dealerships are witnessing on their invoices and P&L’s are very apparent to my organization as well, and just as frustrating in many ways. Your team, like my team, is charged with managing expenses for over 100 expense categories that dealerships spend money in every day. Competition as we all know it is a ray of sunshine…a disinfectant that can reveal truth in the marketplace. Running a good RFQ (request for quote) for an expenses category with a range of competitive suppliers will usually provide a positive result and peace of mind to the management team. When competition is reduced and suppliers know there aren’t many options for dealers to pursue, those remaining suppliers feel emboldened and it shows up on your invoices, sometimes in the supplier service levels, and even over the phone with a take-it-or-leave-it attitude.

Many supplier organizations are receiving high valuations in this strong economy and as a result, the idea of selling the business is more appealing. Hence…consolidation. As long as the economy is strong, multiples will be strong and consolidation will likely continue, resulting in price increases, putting pressure on everyday expenses.

How to Combat these Realities

Dealerships need a strategy to combat these realities because these challenges aren’t getting any easier.

If your organization is facing these issues, consider one or all of the following:

1. Quote Categories of significance –
   Too many organizations continue with the status quo and leave suppliers in place for years, never challenging the supplier pricing in any organized way. Letting suppliers know that you plan to go out for quotes in their category will make them nervous, and that is a positive thing. If incumbent suppliers are faced with the knowledge that the game has changed and that they need to compete for the business, good things will happen.

   First, develop a list of all expense categories and the corresponding annual spend for each. Start with the largest spend categories working your way to the least cost categories to pick your categories. Within the category, do some research from invoices or usage reports and learn what you buy and the resulting prices you pay. You can now build a RFQ in Excel for that category and quote with three to four suppliers to obtain a competitive result.

2. Gather Price Benchmarks – Data is power. Dealers know the value of data in marketing and sales. The data you gather around supplies and services puts you in a better position when quoting, negotiating, and making decisions on suppliers going forward. Most managers that have been in the automotive space for years have a high degree of confidence in their negotiating skills and feel that is all they need to provide a positive result. Suppliers love that arrogance; they fill the negotiator with notions that they are receiving the best price anywhere in the country and the negotiator believes it. The result is usually a minor adjustment to pricing but may not come close to market pricing. Benchmarks are powerful and can be obtained from other stores in your own group. Another good idea is to utilize your 20 groups to provide and gather benchmarks. The best, real-time solution is to generate a RFQ as was noted earlier. The RFQ pricing represents the best data you can collect in the marketplace as it is real-time and pertains to your geographic footprint.

3. Philosophy of Price Locks –
   Rather than accepting short-term tactical pricing from suppliers that can increase whenever they feel like it (price creep), use a different approach and request “firm, fixed pricing” for 12, 24 or 36 months from your supplier(s). That strategy alone can save significant dollars to your organization and provide real peace of mind to the management team as well. While you are requesting price locks, require the supplier to provide the following business terms as well:

• • „ Pricing to include delivery
  • 2% 10 days, net 30 payment terms
  • Accept credit card payment for invoices
  • Price locks on all supplies or services for 12, 24, 36 months
  • Warranty, service levels, return policies

4. Get Creative – Personally, I don’t like being backed into a corner by a supplier with fewer options. When options are limited, when results are going in the opposite direction than expected, I tend to get hyper-competitive and so should you.

   As an example, if the options coming in from your Uniform and Laundry suppliers are not what you expect or what you need, what can you do? One approach is to blow up the paradigm altogether. Maybe your dealership buys the uniforms from a manufacturer directly and you provide those directly to your employees. Employees are then responsible for regular laundering (as they do in many industries), eliminating the need for lockers, weekly delivery services, and infamous environmental fees, etc. Maybe you buy your own mats rather than renting mats and maybe you use disposable shop towels rather than those that now cost $.12 rather than $.04 each that they used to cost before consolidation. This is a viable and cost-effective alternative to “renting uniforms, rugs, and towels” and I guarantee it will get the attention of suppliers if enough dealers adopt this approach. Consider using the U.S.P.O. for time-sensitive deliveries and use couriers for time-sensitive in-state deliveries. For digital marketing, one suggestion is to either complete or hire someone to complete a digital marketing audit to eliminate redundant services that you likely have today. That action will allow you to have some power in your negotiations with your suppliers and help reduce costs.

   Managing expenses in a dealership are always challenging given the 130 expense categories you have to contend with. Industry consolidations, and acquisitions and mergers add to the expense pressure that dealers are facing. There are strategies you can employ to combat those price increases. You have a choice, either get proactive and take steps to combat those supplier actions now or face additional cost pressures with little or no recourse.