The spring selling season is quickly approaching, and as we turn the page on the very chilly first quarter of 2015, it is important that we focus on the bottom line and make sure that the used-car department is, at the very least, in the black. I’d like to share some thoughts with you on what I believe are the most important areas to focus on when your UCD is not in the black — maximizing the value of third-party vendor products for your dealership, and figuring out the true cost of your retail vehicles. If your UCD is already making a profit, then this article will help you push that bottom line number even higher.

The first tip is that you need to use every third party service or product that you purchase in a way that exploits every possible benefit that you can derive from that service or product.

Then, you need to complete an ROI assessment on all of these products or services to make sure that they’re contributing toward the increase of your bottom line.

What we’re talking about here is any product or service that assists you with the buying or selling of used vehicles — for example, advertising, training, reconditioning services and technology solutions.

Vendors that promote technological tools or services related to automotive sales are particularly plentiful. Technology is moving at incredible speeds for all sorts of businesses and industries, and the car business is no different.

This shift is exciting, as some of the products being offered to the automotive sales industry are truly amazing and innovative, and in the right dealership they can vastly improve the bottom line. However, in other dealerships, those same products could also just add expenses and create a negative ROI.

Let me give you an example to help illustrate this point. There is one dealership that we will call “Rockstar Motors”, and another dealership that we will call “Complacent Motors.”

A software company provides both dealerships with a tool that helps them find service customers who are potentially in a positive equity position or could upgrade their current vehicle to a new model, for similar or lower payments. Rockstar Motors uses this software to sell an additional 10 new cars a month and acquire an additional 10 used cars.

Rockstar Motors has developed staff training and dealership processes to effectively use this software tool and realizes that they’re seeing a positive ROI on their investment. Complacent Motors believes that the software tool will do all the work, and has therefore not put effort into staff training or creating dealership processes to manage the tool in the most effective manner possible.

Complacent Motors sell one extra new car a month and acquire one extra used car, and do not see a positive ROI on their investment.

If you were to ask me if a software tool that can pinpoint service customers who are in a positive position to get a new vehicle brings added value to any dealership, I would say “yes, of course it has the potential to — but purchase of the tool alone doesn’t guarantee a positive ROI.”

At the 2015 NADA Convention in San Francisco, there were over 550 third-party vendors, who were all presumably adding value to their dealer clients. However, the catch is that the majority of these vendors are offering services and products that still require quality people and processes in place in order for their value to be maximized.

If you don’t use a service or product, stop paying for it or make the decision to start using it. If you don’t use the service or product properly or don’t know how to use it properly (in other words, if you’re not seeing a positive ROI for the service or product), then invest in the people and processes that will help your dealership use these amazing services and products for what they are ultimately intended to be used for: making money.

Now, to shift topics a bit, the second area that I think is incredibly important to focus on when your UCD isn’t generating a profit (or not as much profit as you would hope) is making sure that you properly assess the cost of your retail vehicles not only before you sell them but, even more importantly, before you buy them.

I throw this scenario and question to a lot of my dealer clients: “You bring in a 2014 model on trade with 5,500 kilometers and in showroom condition. You paid $20,000 for it. What would the cost be when you sell the car?”

If it takes you more than 30 seconds to answer that question, I believe you are leaving a lot of potential gross profit on the table in your used-car department. In order to clear out a retail vehicle without losing money, you should know what you can retail it for, in a worst case scenario. Once you have that number, you subtract the amount of money you will spend on the vehicle after you own it. Now you have your retail “break-even” number.

Almost every dealer I know tells me that they find it difficult to get their hands on good inventory. This is indicative of a very competitive market. Not understanding what your costs will be on any given vehicle puts you at a disadvantage when you are bidding on vehicles, and it will cost your used car department gross profit.

Most dealers only focus on cost when selling or reconditioning these vehicles – but by then, they already own the vehicle. If you want to generate more gross profit without spending more money, create a clearly thought out exit strategy for each vehicle before you buy it.

As with almost all of the recommendations I give to dealers, the thoughts I’ve provided with you on the two areas of focus in this article relay some relatively simple and logical concepts. However, executing these recommendations is hard work. Execution requires putting the right people and processes in place, and then following through with the discipline to ensure that those processes become part of the fabric of your dealership.

Remember it all starts with you.

Richard Macdonald is the founder of RPM Solutions. Richard provides consulting, training and coaching services to new-car franchise stores to help them maximize their used-car department profits. For more information, contact Richard at (416) 894-1475 or richard@rpmsolutions.ca.