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Sept. 6, 2010 – How to add an additional $104,400 to gross profit

September 6, 2010
Filed under Archives

These articles recap some of the opportunities uncovered by our GSA powersports consultants during actual consulting visits. These are followed by recommended actions that address these opportunities. Our goal is to provide you with ideas to help improve your dealership.
The first part of this series was an analysis of the overall dealership. The second part delved into the dealership’s sales department and this third part reports on the F&I department.

DEALERSHIP

This dealership has been in business for more than 30 years. It has carried many different brands under various owners. There has been a recent buy-out, resulting in an absentee owner with multiple dealerships.
The facility is comprised of several, loosely connected older buildings that have been remodeled numerous times. They are planning to move to a newer facility with freeway exposure as soon as possible.
They carry three major product lines and have access to other lines through their other stores. This store sold more than 500 units last year — at a loss. Their market area (30-mile radius) has a population of more than 250,000.
The sales manager (Bob) and the controller (Jean) are acting as a general management team until a new general manager can be hired. A corporate, multi-store parts director does most of the P&A purchasing and parts management functions remotely.

F&I DEPARTMENT

Bob has been trained in automotive F&I procedures and products and is the current business (F&I) manager as well as the sales manager. However, as reflected in the numbers, no significant F&I activity is taking place. Even though it was stated that most of the F&I products are available, Bob does not follow the 300 percent rule (100 percent of the products presented to 100 percent of the customers, 100 percent of the time). In addition, he does not use a menu presentation. There are virtually no sales of F&I products at all. Since this is a very high profit opportunity, this is disturbing.
They do report that many of the customers come in with outside financing or cash. Their finance penetration is only 25 percent, which is well below the norm. They have a high number of finance sources available, so that is not an issue. The indication is they do very little to convert these buyers to dealership financing. There was a discussion of the need to work harder at getting conversions.
The two-touch F&I process was discussed. This requires the F&I person to meet the customer earlier in the process. Doing this allows them to uncover the cash and outside financing customers and attempt a conversion early in the sales process.
Prepaid maintenance was discontinued at the corporate level due to the increase in redemptions. This indicates a possible misunderstanding of the purpose for the program. The reason for selling prepaid maintenance is to get the customers back into your store. High redemptions mean that it’s working as designed. The company has to increase their reserve (and perhaps increase the price), but this program is important to ensuring future sales to their existing customer base.
This department has been turning less than $10 in F&I net profit per unit sold. The benchmark is $350. This area has the most potential for profitability in the store, and must be addressed quickly. Based on last year’s sales history, an extra $100 in gross profit per vehicle sold would have produced another $52,000 in gross profit for the store in 12 months. $200 GP PVS (still below the norm) would have brought in an additional $104,400 in gross profit. It was suggested they look into getting an insurance license so they can expand the product offerings.

ACTION ITEMS

Get serious about selling F&I products. Bring net profit dollars per vehicle sold up to at least $250.
Follow the 300 percent rule: Present 100 percent of your F&I products to 100 percent of your customers, 100 percent of the time. Even without sales skills, a certain percentage will buy some of the products simply because they see the value in them.
Acquire and offer all possible F&I products utilizing a menu-based presentation.
Re-establish the prepaid maintenance program. The high redemption rate indicates the program was doing what it was designed to do — bring customers back into your store.
Maintain an accurate F&I log and utilize it to follow-up on missed opportunities.
Raise your doc fee to area-competitive level.
Look into acquiring an insurance license in order to sell a wider range of F&I products. PSB
Gart Sutton has been a leading provider of on-site dealer consulting, dealer 20-groups, online financial composites, accounting rescue services, and OEM and dealership training solutions for nearly 30 years. For additional information on these services, visit www.gartsutton.com

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