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Feb. 11, 2008 – Gaining insight into different dealership profit centers

February 11, 2008
Filed under Features

DENVER — More than 30 seminars over three days at the RPM Group Update event examined retail practices, probed inventory planning and identified traditionally suspect sale, service and F&I processes.
The following are ideas and best practices taken from some of those seminars.

SALES DEPARTMENT

Is the consumer’s best connection with a dealership tied to the relationship they built with the salesman who sold them their new unit? And if so, what happens to the connection between consumer and dealership once a salesperson leaves the store for another job?
That question can become especially important considering the number of consumers that one salesperson handles over the course of a few months, not to mention a year or longer.
Tim Parsons, a 20 club moderator and trainer for the RPM Group, provided a potential solution to this quandary: have the new hire call the former salesperson’s clients. Parsons mapped out the phone conversation, which could start with the new employee pointing out that the consumer’s previous salesperson is no longer with the dealership and that they, the new salesperson, should now become the consumer’s contact person. The new salesperson also could ask the consumer if they are still riding the vehicle they previously purchased, plus, “when would be a good time for you to come in and meet me?”
The point of the phone call is to obtain an appointment, not to mention provide a new connection between a consumer and dealership.
Finding out a potential customer purchased a new unit from another dealership could be one of the more unlikely benefits to a follow-up system. Such systems allow a dealership to communicate with a customer after they visit a store.
The discovery of the lost sale could benefit a dealer in several ways: They could find out why the consumer opted to go elsewhere plus convey to the consumer their interest in still being a potential retail outlet for them in the future. But the last reason may be the best one: It’s unlikely the dealership that sold them the new unit will be contacting them after the sale, something the consumer is bound to consider when thinking about their next big purchase.

PARTS AND ACCESSORIES

Tire penetration differs tremendously among dealerships. The penetration rate is a comparison of how many tires a dealer sells compared to the number of new units they retail annually. If a dealership falls under 100 percent on its tire penetration, it means the dealer is losing some of their tire business to rivals. The national rate, RPM Group President Sam Dantzler said, can vary from 30-300 percent.
“Tires fuel everything,” Dantzler said of parts and accessory sales. That’s why many dealers sell either the tires or installation below MSRP to drive traffic into the store to generate additional PG&A sales. One key: Tire installation must be a same-day service. What wasn’t unanimous among dealers was what low-cost tactic to use: discount the tire or the installation or both?
“People are very price sensitive to the tire, not necessarily with the install,” Dantzler said.
Line items per ticket is a seemingly small detail that Dantzler pointed to as having a potential big impact on the bottom line. He cited a dealership that had $4.8 million in sales in one year. The dealership averaged 1.7 items per ticket, which is below the national average of 2.2. Dantzler calculated if the dealership had reached the national average in line items, it would have gained an additional $1.4 million in sales.
Noting the impact, Dantzler advised dealers to consider running spiffs for their PG&A employees that would focus on line items.
Could nearly one-fifth of a dealer’s parts and accessories inventory be a year old or older? In fact, RPM Group data shows that’s nearly the case, with 18 percent of metric dealers’ P&A inventory old enough to be considered obsolescent. Harley dealers are closer to 15 percent.
To reduce this figure, dealers were advised to concentrate on three issues: the PG&A buyer, the process of how inventory is brought into a dealership and developing a plan to rid themselves of old inventory.
Dantzler noted the percentage of obsolescent inventory can climb simply because of an inefficient inventory process. He advised dealers use a color-coded process that calls for each box of inventory to receive a color sticker upon arrival at the store. The color could designate a particular quarter of the year, or for those more ambitious, even a particular month. This system allows PG&A department personnel to quickly identify aged inventory and then work to getting rid of that inventory.

SERVICE DEPARTMENT

It can speed up the sales process. It provides the consumer with more ownership of the retail process. If used with an effective sales process, it can increase service department profit. But perhaps the biggest reason dealers should consider going to a menu-based selling system in the service department is consumers’ familiarity of it.
“If you don’t create an atmosphere that your customer is accustomed to, somebody else will,” said Kent Meadows, a service and P&A trainer for the RPM Group.
Meadows presented keys to the process:

  • Keep it simple to look at and digest;
  • Use only customer-friendly language, making sure “OEM” and other industry buzzwords that could confuse consumers are not used;
  • Make sure the menu system points out the features, benefits and advantages of the service to customers. All three may not fit on the actual menu, so service writers should concentrate on the benefits and advantages of the service. “People don’t buy features,” Meadows said, “they buy advantages and benefits.”
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