There is a simple rule of business that we all want to live by. It’s not that we forget that this simple rule is our guide to success, it’s that we get so overwhelmed with many things that we take our eye off the net “ball.”
You all have said to me, “Tim, I want more volume and more gross, but how do I get it?” My first response to you has been: “Why don’t we take a different approach and look for net and growth?” When we take both of those key elements into perspective, we then go back to the basic fundamentals that put us in business in the first place.
Here’s an example: if we are going to gross X number of dollars in a month, the key simply is to make a profit from that gross. In chart #1 you will see gross by traffic source (which you probably will not get from your software provider). Compare this chart to your own dealership and make your salespeople aware this is where the original commissionable grosses come from.
Private sales average $1,800 per copy more per sale on current to six-year-old models than similar sales from a new-car dealer. So we know there is a lot of opportunity to improve gross.
The only way you are ever going to improve your gross is to: 1. Know where it comes from (see chart #2), and 2. Ask for it. To ask for it, you have to justify the worth of the product, in this case the used vehicle. This could be as easy as building a “Storybook” for each used vehicle. I have been preaching this for 30 years now about building a “storybook” for every used vehicle you have on your lot. I remember speaking to a dealership group about Auto-Bio (www.auto-bio.com) a while back. I love this product, it helps improve first time closes and it builds a “storybook” for the vehicle.
Now for the net profit. Every dealership has a daily holding cost, so let’s say your daily holding cost is $32 and your front end gross is $1,650. If you divide your holding cost of $32 a day into the $1,650 you will get 52 days. This end figure means you shouldn’t have a car in your inventory for more than 52 days based on your current rate, because you can’t make a profit on the vehicle after it has been there for those specific number of days.
You should start this rudimentary task on January 1, 2011, then the beginning of every month you will know, based on your cost to hold a pre-owned car divided into your average front end gross, exactly what your average day in stock a vehicle has to be and to not exceed that average. This will eliminate wasted gross on vehicles that are too old to be held in inventory and will turn that lost gross into net.