If dealers compare their current front-end gross profit averages in new and used vehicles to similar data five years ago, you’d likely notice a troubling trend.
I’ve conducted this exercise with dealers recently as part of conversations about margin compression in automotive retail. In most cases, the analysis shows that front-end gross profits are pretty much what they used to be, if not even a little less, depending on a dealer’s franchise.
Likewise, the analysis often shows that front-end gross profit averages haven’t grown in tandem with rising transaction prices, which continue to climb in new and used vehicles as the best-selling cars often carry more equipment and special features than their less-popular peers.
The best dealers have come to terms with margin compression on two fronts in their new- and used-vehicle departments — their strategies for inventory management emphasize selling more units in less time to increase total dealership profitability through volume, and their processes for selling new and used vehicles aim to close common profit leaks that typically make the problem of margin compression only worse.
For this article, I’d like to focus on the second front. The following are three ways that dealers are changing their sales processes to eliminate lost profits that occur when their managers and sales associates discount asking prices and frequently give away more gross profit than they need to or should with customers.
1. Market-transparent pricing.
This is the starting point for building confidence and credibility with today’s buyers. Thanks to their online research, customers know if your new or used vehicle price is decent and fair for the market. Dealers who align their pricing strategies to this higher level of customer price awareness find that their cars get more attention online, and retail in less time than dealers who have yet to fully embrace a transparency-minded pricing strategy.
2. A transparency-minded sales process.
A growing number of dealers now start their in-store conversations with customers by explaining how and why they price their new and used vehicles to the market. This “documentation as negotiation” approach bucks traditional sales methods that steer price discussions to the final steps of the sale.
Herein lies a common disconnect: Dealers sometimes offer market-based pricing, but their in-store sales processes effectively pretend that the prices customers saw online don’t exist. Rather than diffuse a customer’s concerns about getting a fair price, this traditional approach often steels customers to negotiate—and sets up the fear among managers and sales associates that they’ll lose the customer unless they knock another $300 to $500 off the price.
Of course, a successful transparency-minded sales process needs careful oversight. This oversight should include measuring the discounts managers and sales associates offer on every new and used vehicle deal, and training them to avoid unnecessary giveaways of front-end margin. A benchmark: Dealers say they expect to see 70 percent to 80 percent of their new and used vehicle deals close at the asking price.
In addition, more dealers are now arming their managers with a “bottom price” for every new and used vehicle. That is, the managers know exactly how low they can go if necessary to complete a deal. As a Northeast Toyota dealer puts it, “my managers are really telling the truth now when they tell a customer, ‘this is it.’ The managers love it, and over time, they’ve gotten better at sticking close to our asking prices. In fact, I’m now planning to raise my ‘bottom price to help us increase our front-end averages even more.”
3. A pay plan that promotes transparency
There are two hallmarks of the compensation plans dealers are now using as they work to minimize discounts and maximize front-end gross profits in new and used vehicles.
First, dealers pay their teams on a per-unit, volume basis. Typically, the “real money” kicks in for sales associates after they sell 15 units, as the pay plans generally pay more per unit as sales associates sell more cars.
Second, the pay plans include bonuses that reward managers and sales associates when they close more deals at the asking price—an incentive to stand behind the market-based pricing that attracted customers to a new or used vehicle in the first place.
Taken together, these efforts have helped dealers increase their average front-end margins in new and used vehicles by as much as $500 per car. In addition, these dealers see another benefit: Their customers like the experience, and they tell their friends.
Dale Pollak is the founder of vAuto. These entries and Pollak’s entire blog can be found at www.dalepollak.com.
It shouldn’t be news for dealers that margins in new/used vehicles are under pressure. As we look ahead to the coming year, there are few, if any, signs that margin compression will abate.
On the new vehicle side, there are predictions that a push to sell more cars will drive higher factory incentive spending and, in turn, press down front-end margins for dealers as they retail the vehicles.
On the used vehicle side, an expected (and ongoing) rise in wholesale supplies will put dealer margins at risk unless dealers are able to maintain their inventory velocity while carefully controlling costs as they acquire and recondition used units for retail.
To be sure, the effects of margin compression will be most problematic when dealers stock the wrong new and used vehicles. The right cars will always fare better gross-wise than less desirable units. Thankfully, many dealers today use technology and tools to help them identify the new and used vehicles that align best with market demand and acquire them in a cost-effective and efficient manner.
But even when dealers have the right new and used vehicles, they often lose margin as they follow traditional pricing formulas and sales processes. The problem is that the traditional, negotiation-based methods are out of step with today’s buyers, who increasingly want (and will pay for) a far more transparency-focused purchase experience.
In recognition of this reality, big dealer groups like AutoNation and Sonic are choosing to let go of traditional pricing and sales practices. Instead, they are adopting pricing and sales models that limit, if not eliminate, negotiations, and aim to provide a more efficient and satisfying experience for their customers.
At the same time, these retailers are placing their bets that these transparency-minded processes will help them retain, if not increase, their front-end margins as market conditions continue to put them at risk.
As dealers map out their goals for new/used vehicles for 2015, I believe they would be wise to consider three operational strategies that help them satisfy customer desires for a more transparent experience and minimize the harmful effects of margin compression:
Align asking prices to the market. I believe 2015 will be a watershed year for market-based pricing of new vehicles, thanks to the advent of new vehicle inventory management tools that help dealers easily identify competitor pricing and allow them to find the pricing sweet spot for every new car. In many ways, this trend mirrors the shift toward market-based pricing of used vehicles that has occurred during the past five years. With more transaction-realistic asking prices, dealers effectively convey a fair market price to potential buyers that mitigates their desire to negotiate. In simple terms, buyers are less likely to push back if they perceive you’re offering a fair price for a vehicle. And, if they do ask for a better price, you’ve got the market data to stand behind your offer.
Promote your pricing strategy. When dealers price their new/used vehicles to the market, they sometimes overlook the next step—telling customers, right up front, about the way they arrived at their asking prices. This runs counter to traditional sales practices that use craft and cunning to avoid the price discussion, and typically only deepen a buyer’s resolve to press for a better deal. By contrast, dealers who make the price discussion a primary part of the conversation find it builds buyer confidence and trust because it speaks directly to their desire for a more transparent experience.
Help your managers hold margin. I recently spoke with a Pennsylvania Toyota dealer who attributes a $400 increase in his front-end margin for new vehicles to two changes he made to his sales process. First, he set a “bottom-line” price for every car (typically 1.5 percent to 3 percent above invoice, depending on the unit). With this knowledge, managers can more honestly convey “this really is our best price,” and customers respond favorably, the dealer says. Second, the dealer tracks the amount of discounting that occurs for every new/used vehicle. He estimates the oversight has cut the average discounts from $400-plus to $150 or less. (Note: This dealer plans to roll out compensation plans that reward managers and sales associates for reducing the discounts even further in 2015.)
As dealers employ these transparency- and margin-minded pricing and sales practices, they begin to notice another positive outcome: It takes less time to complete every new and used vehicle deal, which means managers and sales associates have additional capacity to sell more cars — an operational efficiency that also helps the dealership maximize its profit margins.
Dale Pollak is the founder of vAuto. These entries and Pollak’s entire blog can be found at www.dalepollak.com.
Are you marketing by simply highlighting vehicles and price?
Paul Potratz, chief operating officer and founder of Potratz Advertising, says that’s not enough.
In his latest “Think Tank Tuesday” video report, Potratz says dealerships must learn to target and market directly to potential customers’ lifestyles.
“Are you marketing to individuals,” Portratz asks.
For example, this holiday season, Potratz says dealers need to think about what people are going to be doing over the holidays, and tie your marketing into those events.
“We’re all different so stop with the general ads and start embracing the diversity— get more specific! Make your audience feel like you’re speaking directly to them,” said Potratz. “Write ads about the trucks on your lot and target it to anyone it applies to, from construction workers to country music fans.”
He also reminded listeners they can target demographics as finite as parents with children within the ages of 15 to 17. Then, you can market specifically to those parents and highlight vehicles that would suit a new young driver. And the game changes again when those children enter college.
Potratz encourages dealers to “match people with the proper ads.”
To hear more from Potratz on marketing to lifestyles, see the latest Think Tank Tuesday video.
About 15 years ago, I purchased a farm in Northwest Illinois, where I became a USDA-registered farmer. I had more than just a financial interest in the operation, as I was fascinated with the ways my partners planned and worked the land to produce corn and soybeans.
I thought of those days over the weekend while reading a New York Times article. It discusses the ever-more critical role that technology plays in helping today’s family farmers succeed in an increasingly difficult environment.
Take the opening lines from the Times article, titled “Working the Land and the Data:”
“Kip Tom, a seventh-generation family farmer, harvests the staples of modern agriculture: seed corn, feed corn, soybeans and data.
“I’m hooked on a drug of information and productivity,” he said, sitting in an office filled with computer screens and a whiteboard covered with schematics and plans for his farm’s computer network.
Mr. Tom, 59, is as much a chief technology officer as he is a farmer. Where his great-great-grandfather hitched a mule, “we’ve got sensors on the combine, GPS data from satellites, cellular modems on self-driving tractors, apps for irrigation on iPhones,” he said.
…But for farmers like Mr. Tom, technology offers a lifeline, a way to navigate the boom-and-bust cycles of making a living from the land. It is also helping them grow to compete with giant agribusinesses.”
As I read this article, I couldn’t help but think of how much farming has changed since the not-so-distant days when I would occasionally ride along as my partners would harvest or plow our fields.
I also thought of how much data and technology have changed the car business. I recalled countless conversations with dealers who, like farmer Kip Tom in the article, have come to rely on data-based insights to achieve the level of efficiencies and profitability today’s challenging automotive retail environment requires.
The piece goes on to highlight how some tech-savvy family farmers are taking their competitive advantage to the next level, expanding operations while their tradition-minded neighbors struggle to survive—a dynamic that’s familiar to most, if not all, dealers.
As I finished the piece, I realized that the same essential story could appear in any automotive industry publication, albeit with a different headline: “Working the Deals and the Data.”
Dale Pollak is the founder of vAuto. This entry and Pollak’s entire blog can be found at www.dalepollak.com,
I received an extremely astute question from a fixed operations director in Gainesville, Fla.:
Dale: What’s the best way for us to forecast our sales goals for 2015? We typically look at current year volume as a guide for the future. However, this approach seems like we might be misleading ourselves, especially if we have been, and expect to be, in a strong selling environment. For example, our dealership is performing at 145 percent of last year’s sales volumes. But I concede we are in a better selling environment and the market this year was better than last year. I believe we should be looking at market share as opposed to volume. Your thoughts?
Before I share my response, I think it’s appropriate to offer two observations that don’t directly pertain to the question at hand.
First, it’s an extremely good sign that a fixed operations director wants to get a more realistic read on sales expectations for the coming year. As we all know, dealers are increasingly dependent on fixed operations revenue for their overall profitability—a reality this fixed operations director no doubt fully understands. By asking the question, this manager is clearly looking beyond the four walls of his department to properly manage his team’s performance next year—evidence, I believe, of a “total gross” mindset at the dealership.
Second, the manager’s looking ahead to 2015 before Thanksgiving. This proactivity suggests a careful, deliberative approach to planning for the new year, a stark contrast to the rush-jobs that often typify next-year planning at many dealerships.
Now, on to my response:
I told the fixed operations director that I agree with his assessment of the value of market share, rather than sales volumes, as a benchmark for future performance—particularly in the current environment where “a rising tide lifts all boats.”
I also cautioned that sales volume forecasts and projections are often too broad to be meaningful for dealers in a specific market or region, where more localized factors (e.g., economic conditions, weather, etc.) can spur or stunt vehicle sales volumes.
By contrast, a dealer’s new and used vehicle market share essentially measures a store’s piece of the automotive retail pie in a given area. Even as the pie itself grows or shrinks, a dealer’s market share remains a telling gauge of sales performance.
I would encourage all dealers to undertake the same exercise as the fixed operations director. Calculate your dealership’s new and used vehicle market share for the current year, and then, with an honest assessment of your retailing strengths/opportunities and the competition, set your sales goals for 2015.
Dale Pollak is the founder of vAuto. This entry and Pollak’s entire blog can be found at www.dalepollak.com
With the new year quickly approaching, rather than look back at 2014, let’s take a moment to look forward at 2015. Below you will find four things every dealership will need to do in order to achieve their marketing goals in the year to come.
- Educate yourself on organic and paid search — search engines are where everything starts.
When a person needs to find someone or something in 2015, chances are good that they will start on a search engine. Whether it’s finding the nearest ATM, coffee shop or their next car, people are becoming increasingly reliant on search engines, and this trend can be leveraged to help grow your dealership.
A recent Google study showed that 95 percent of car shoppers use digital channels to research their vehicle purchase. That same study showed that the average car shopper will land on 24 different sites leading up to their vehicle purchase. What does that mean to you? It means that ‘online’ is the new ‘front line’ – it’s where people are going to find you, and not having a great presence on search engines is no longer an option if you want to dominate your market.
- Provide a great mobile experience – mobile will outpace desktop search in 2015.
According to Google, mobile usage is increasing 35 percent year-over-year. In 2015, mobile users are predicted to surpass desktop users for the first time in history. This means that your websites mobile functionality is more important than ever.
When was the last time you pulled your website up on your mobile phone? On your tablet? How was the experience? Was it simple and intuitive? Was it aesthetically pleasing? Are you able to access all of your website content on your mobile site? These questions are just the tip of the iceberg when it comes to delivering a true mobile experience.
- Align your traditional and digital marketing efforts.
Most Canadian car dealers still treat their traditional (think radio, newspaper, flyers, etc.) and their digital marketing (think website content, search engine marketing, email campaigns, etc.) as separate efforts. Think of it this way — when a car shopper sees one of your newspaper ads, where is the ad directing them? Most of the time, their next step is to hit your website.
What are they expecting to see when they land on your website? The first thing they want and expect to see is the promotion that drove them there. Big companies, like Best Buy for example, do a great job of this. It’s done to create a great user experience, and get maximum benefit out of their marketing dollars. Every campaign you run, big or small, should be synced up across all channels.
- Provide a great customer experience – clearly defined processes and strategies for your team.
With website traffic on the climb, and dealers getting more and more online leads, it’s more important than ever to make sure you’re providing people with a great online experience. This means everything from keeping the specials pages on your website current with enticing offers, to getting back to online leads in a timely manner. The expectations of consumers get higher every year, and if you’re not raising your game along with those expectations, you run the risk of your competitors taking a bite out of your business.
What now?
Chances are you’ve been thinking about getting more aggressive in the digital space but have yet to take the plunge. If so, what are you waiting for? You’re going to make the move eventually, why let your competition get a head start? Start small, track your results, and in a few months you’ll never want to see another newspaper rep again.
Want to learn more about Convertus, a fast-growing digital marketing start-up serving the automotive industry? Contact Kevin Gordon at kgordon@convertus.com or 888.354.6441
In the last issue of the magazine (Part I), we discussed the constant problems for dealers with their detailing departments and some of the reasons behind this struggle. If you recall, the real culprit seems to be the paradigm that dealers and the entire automobile industry has regarding the detail departments in dealerships.
That paradigm seems to be that the detail department is looked upon as unimportant — at least unimportant enough to devote management’s time, key personnel or money, to its improvement.
As you may recall, what we did in the article was offer a pattern you could use, the “Principles of Production” to evaluate your department to find the problems. These principles, in order of importance were:
■ Management
■ Personnel
■ Equipment
■ Facilities
■ Chemicals & Supplies
In the last issue, each of these principles were generalized to help you see the problems that might exist in your detail department, and to help you self-evaluate what needs to change in your operation to have a department that functions well, is efficient, and is profitable.
This article will conclude the evaluation by offering suggestions on what can be done, again using the Principles of Production.
Management
As mentioned in the last segment, what almost every dealership detail department lacks is a “Department Manager.” Not a detailer, but a manager — a competent person who understands what to manage and how to manage people, finances, equipment and chemicals.
This does not have to be a manager on the level of a service manager, but it has to be a person who focuses on management of the department, not on detailing. These are the same young people that might be managing a Jiffy Lube, Grease Monkey or the locally owned quick lubrication center in your area.
What the person needs to know about detailing can be learned from a variety of sources.
Remember, you want to hire people with good values and a good work ethic, not detail skills — you can teach them the skills.
This person might train one of their detailers to be the shop foreman, if there is a person capable of handling that responsibility in their absence.
If a dealer is unwilling to put a person like this in charge of their detail department, it is a guarantee that their detail department will continue to operate as it has in the past.
And reading this article any further would be for naught because without a good manager running the department, none of the other Principles of Production will be followed with any degree of consistency.
Personnel
As big an issue as the lack of a good manager, the lack of good detail personnel is just as important. As I have preached for years to dealers, car wash operators and owners of detail businesses, the typical “experienced” detailer is NOT the person you want.
First, their experience is very suspect. Up until the International Detailing Association started their program of certification, there were literally no truly trained detailers. Most learned their skills “on the job;” and these skills were suspect because the person they trained under, like them, got their experience on the job.
What a dealer must do, as mentioned above, is look for people with good values and teach them the skills they need. There are numerous places that a dealer can go to get on-site training at the dealership for his employees.
As is always said in the industry, “If you hire an experienced detailer, their experience is only good if you let them do what they want.”
What you need to do is place an advertisement in the local paper or on Craigslist (or other online job sites) for people looking for a career in the automobile industry and offer them a ground floor chance for a career with your dealership. Such an advertisement might read:
AUTO SERVICE TRAINEES – ABC Auto Group has immediate openings for auto service trainees in a new dealership department. No experience necessary, will provide complete training. Candidates must have a high school diploma, valid driver’s license and a clean driving record. Must be a self-starter, have stable work history and be looking for a long-term career. Send a cover letter and resume to Human Resources – ABC Auto Group.
NOTE: If you want them to apply in person, then indicate where they should go and to whom to speak to for an application.
Equipment
As poorly staffed as many dealership detailing departments might be, most are also terribly equipped to clean vehicles whose values are well above $20,000 and some over $100,000. What can be worse, working on these vehicles with ill-trained personnel makes the chances for poor quality work and damage a sure thing.
There is more technology and equipment available today to allow detailers to recondition vehicles to a like-new condition, but someone in the dealership needs to understand what is available, how it functions and how to use it.
Too often, the attitude in dealerships can be summed up in this phrase: “It costs what? You have to be kidding; you don’t invest that kind of money in the detail department.”
With that attitude, even with a good manager and good personnel, if they do not have the proper equipment, you are preventing them from doing the job.
Furthermore, dealerships often might have some of the correct equipment, but they do not have sufficient equipment to keep “all” employees working all the time. For example, a heated soil extractor (which is an absolutely necessary piece of equipment to properly clean carpets, carpet floor mats and fabric upholstery) is either not available, or the department has only one machine.
The folly of this is that if you have three to five employees working on two to three vehicles at the same time, some employees are going to be standing around “waiting for the soil extractor”, while someone else is using it.
Think about that: you are paying an employee a minimum of $12 an hour with social security, etc., and they are standing around waiting. This happens more often than a dealer realizes. And that is only the “tip of the iceberg.”
It happens with something as simple as a vacuum, a buffer or a polisher. In addition, it happens with supplies. Do you know why vehicles have swirls in the paint? There are many reasons, but a simple one is that the detail department does not have a sufficient supply of the proper and clean buffing and polishing pads. Pads that cost under $10 each are being used on the paint finish of a multi-thousand dollar vehicle.
In short, a dealer has to be willing to invest in all the equipment necessary to have a modern detail department, and enough of it to keep all the employees busy every hour of the day with no “standing around waiting.”
What you need to do is have someone in the dealership become familiar with the equipment technology available today and properly research it: things like heated soil extractors; dual-action polishers; vapor steamers; ozone generators; and automatic chemical dispensing systems.
Moreover, you need to be certain you have employees that know how to use the equipment. I have seen ozone generators, for example, sitting on a shelf or in a corner not being used because no one knows how to use it. You must insure that all your personnel are competent enough to learn the benefits of using the equipment, and then know how to use it to accomplish the job for which it was designed.
Doesn’t this come back to a competent manager and a competent staff? Without those in place, any investment in equipment is foolish. Just as well, give the detailers a shop vacuum and a can of wax and some towels.
Facilities
While some dealers devote whatever space is leftover to the detail department, many today are designing a few bays for detailing that are, more or less, thought out reasonably well. However, even here there is a lot lacking, simply because those doing the planning and the layout are not experienced with the everyday workings of a detail department.
It involves more than a couple of dry bays and one or two wash bays in the back of the dealership.
Thought has to be put into the volume of vehicles that will go through the department in a day, week and month to ascertain how much space will be needed. Once that is done, then the exact layout of the space into and out of the bays should be considered for smooth flow.
There should be marshalling space; that is, space for vehicles needing detailing and those completed and/or waiting for final inspection.
If the dealership has a car wash, that does not obviate the necessity for a wash bay for the detail department. Yet many dealerships design their detail department without a wash bay.
The detail wash bay is for more than washing, it is used to clean engines, hand-clean wheels with “baked on” brake dust, and remove excessive amounts of tar — processes that can take 30 to 45 minutes, in addition to the wash.
Then there is the question of lighting. Again, it is more than putting up some fluorescent lights or halogen or metal halide fixtures. Care and consideration has to be taken in analyzing the needs of a detail department: to be able to see the scratches and swirls in the paint, not only on top surfaces, but also the sides where they show the most; to be able to see inside the vehicles to catch the dirt and grit in the cracks and crevices. That is the reason that most interiors are found to be unsatisfactory: the detailer’s inability to see the dirt inside the vehicle.
In short, a detail department in a dealership needs to be designed by someone who knows what is needed and has the ability to engineer a proper design with proper lighting.
Chemicals & Supplies
While last on the list, it does not indicate that this area is not important.
The key with chemicals is that only one person should make the decision on what to purchase and in what quantities. Like the service department, the dealership makes a decision of purchasing one brand of motor oil and lubricant; the mechanic is not allowed to use his preferred brand of oil, etc. That would be chaos, and that is too often what is happening in the detail department.
Furthermore, every salesperson from every company in the area calls on the detail department and drops off free samples. This is a practice that should be completely eliminated. That is why a dealership ends up with a myriad of small, unmarked plastic bottles containing “who knows what”. This is a violation of OSHA Regulations that could result in heavy fines for the dealership.
The manager in charge of the department should be completely in charge of what is used and should be required to keep a weekly inventory control of the chemicals and supplies (which will be mentioned below) and held accountable.
Operational supplies is a broad area in a detail department, but many of the supplies can make the detail job so much easier, faster and more efficient, and should be controlled and inventoried on a weekly basis, or the cost will easily get out of hand.
Some of the supplies to consider are:
Buffing pads: Today there are both wool, poly-wool blends, and a myriad of different foam pads that must be understood and used to achieve a shiny, swirl- and hologram-free finish.
Towels: For years, dealerships have used a towel service, which, in my opinion, is a HUGE cost that does not have to be incurred.
The best towel to use today in detailing is the microfiber towel. It is very absorbent, picks up dirt and wax far better than terry or cotton towels, and is excellent for cleaning windows. Personally, I recommend a dealer buy their own stock of microfiber towels and an inexpensive washer/dryer to maintain their own towel program.
Brushes: There are many new and innovative brushes available to aid in cleaning tires, wheels, carpets, upholstery, taking dirt and dust out of cracks and crevices, removing compound/polish/wax residue from the exterior of the vehicle.
A manager really needs to know what is available and insure his employees are well trained in their use; and again, maintain an inventory control system.
Summary
While this article only scratches the surface of how a dealer might evaluate and improve their detail department, it does provide some insight into what to look for and how to go about making improvements.
A properly functioning detail department is the result of what sociologists call “multiple causation.”
And what you have with the Principles of Production are the multiple causes that result in the detail department every dealer wants. Now you know, and you have what it takes to evaluate your department as well as a brief but insightful look at what you can do to improve.
As always, if I can help you or answer any questions feel free to contact me at buda@detailplus.com.
While many may be dreaming of turkey and gravy and planning holiday get-togethers, chances are many dealers are busy working out their Black Friday promotions.
Most in retail know the day-after-Thanksgiving shopping madness marks one of the biggest selling opportunities of the year — and that means dealerships, too.
That’s why founder and chief operating officer of Potratz Partners Advertising, Paul Potratz, touched on this topic in his latest “Think Tank Tuesday” video report, during which he offers some tips and tools for dealers looking to jumpstart their Black Friday promotions.
“Black Friday isn’t just a retail holiday; dealerships can cash in on the flocks of people who are looking for a bargain during the holidays,” Potratz said.
Potratz says, keep it short and sweet. The consumer is drawn to Black Friday sales because of limited time events. He cautions dealerships not to provide monthly sales this time around, but limit it to a week, at the longest.
He also cautioned dealers not to fall into the trap of thinking Black Friday sales should only revolve around the car and price. He says go farther and have sales events on items such as tires, window tinting, car washes, and more.
But wait — don’t let your guard down after Black Friday — Potratz encourages dealers to participate in Cyber Monday, as well.
For more insight into plans for holiday sales events, see Potratz' latest video report.
Do you have problems with your detailing department? Silly question to ask a dealer, “of course you do.” Every dealer that I have worked with, consulted for, or sold equipment to have problems.
What do most dealers do about the problems? Not much. They complain and wish it were better, but in most cases, things remain the same.
As the old saying goes, “keep doing what you have always done, you will get what you always have.”
In some cases, a dealer simply does not know what to do, and in others, they just accept it.
Well, let me tell you there are things that can be done, but it requires a major paradigm shift.
Doesn't everyone in the dealership share the same opinion (paradigm) of the detail department? It’s the Cinderella of the dealership that no one wants to claim.
For that reason, all dealers have the same problems with their detail departments, at least in the U.S. and Canada, where I have worked.
What is the Paradigm Shift That Needs to Be Made?
For most dealers that is the $64,000 question. What to do? Part I of this article will attempt to give you some basic steps to follow in evaluating your detail department, and Part II will give you the solutions. If you cannot wait, feel free to contact me (buda@detailplus.com), and I will be happy to discuss some solutions to consider.
Principles of Production
The best way to evaluate your detail department is to use what are called the “Five Principles of Production” for an automotive service business or department, which are:
• Management
• Personnel
• Equipment
• Facilities
• Chemicals and supplies
What I will do is help you through these five principles, and show you what to look for in evaluating your present detail department
Management: As a dealer principal or general manager of a dealership, I do not have to tell you the importance of having good managers of the various departments in your dealership. New-car manager, user-car manager, service manager, body shop manager, fixed operations manager, Internet manager, etc.
There is a qualified person “in charge” to manage the department. They are held to certain performance standards, and they in turn hold the employees in their respective departments to certain performance standards. And, in most cases, you give them all they need to achieve these performance standards.
Take a look at your detail department. There is no real manager. Normally, the management of the department is given to the used-car manager, the service manager, the body-shop manager or the fixed operations manager. The problem with this arrangement is any one of those people is far too busy in his or her own area of responsibility to give the detail department more than cursory attention.
The only reason they take the responsibility is that the dealer principal or the general manager tell them to take it. Worse, they really do not have a clue what to manage for an effective detail department so they often leave it to the detailers to tell them what they need.
They might have someone in the detail department they call the “manager,” but that is using the term loosely. This person is not actually a manager, but a detailer who has been there the longest and spends most of their time detailing, not managing.
Worse, they really do not know what to manage either. And, they are often paid on flat rate, not a salary, so they are more interested in getting work done than managing.
So, you have two people in charge of a department that neither really know how to manage or what to manage.
That is the No. 1 problem in every dealership detail department that I have had any contact with, without exception.
Next time, I will give you some suggestions on what to do.
Personnel: If there is one problem I hear all the time, more than any, it is the inability to find good “detail” employees. Is that any wonder? In my 40-plus years in the business, I can tell you that, in my personal opinion, there are no good detail employees. If they were good, they would be working.
In today's market, there are great employees out there to hire and ways to train them to be long-term employees functioning the way you want them to function. That will be discussed next time.
Equipment: If you have a person in charge that is not familiar with the detail industry, how do they know what equipment is necessary for a well-functioning department? And, if you depend on the detailers who work in the shop to tell you, that is a dead-end too. They know only what they have always been using. A 10-pound electric buffer and a portable shop vacuum. Most do not even understand how to use a soil extractor properly.
Suffice it to say, that today there is so much advanced equipment available in the detail industry to make it possible to get vehicles detailed perfectly the first time and in much shorter times than were ever thought possible, but someone has to understand what the equipment is and how it works.
You can get the right equipment, but if you have the wrong people working in the department they will not use it and tell the person in charge it is junk and does not work.
Typically, a dealership detail department might have one or two 10-pound. electric buffers, maybe one or two shop vacuums, possibly one soil extractor, and that is about it. Towels, a few brushes that are not used, and a box of dirty buffing pads that are used over and over again on cars causing scratches and swirls.
In the next issue, I will outline what is available for dealerships to equip their department to increase productivity, decrease labor and chemical costs, and reduce the turn-around time for a vehicle in the shop.
Facilities: Any extra space is given to the detail department, or a lean-to is built off the back of the building for detailing. Maybe an old, dirty, poorly lit building that was used for storage or even a two- or three-stall body shop is devoted to detailing.
Then there are dealers with new dealership buildings where some thought was given to the detailing department and they have two or three detail bays and a couple of wash bays that are well lit, BUT this space is given to a department that is not properly managed, not properly staffed, and is ill-equipped, and it is all for naught.
The next article will discuss how to properly layout the detail facilities for maximum efficiency.
Chemicals & Supplies — Again, this is an area that is really mishandled in dealerships. No one really knows what chemicals are necessary for the proper functioning of the department, and very little inventory control is exercised over the department. Once more, this comes back to improper management and staff.
Let me ask you if you really know what chemicals are needed to detail a vehicle in and out, and why. Do you know what operational supplies are needed?
How are the inventory of chemicals and supplies controlled? Is there really any control?
Keep in mind the goal of every chemical supplier is to sell you as much chemical as they can, and they do this by selling to the preference of each detailer. Is this good? Obviously not, but if you do not know what is necessary then how can you make intelligent purchases? If you have no real inventory control, how can you control expenses?
Again, how to solve this problem will be covered next time.
Summary
There you have it, a primer on how to self-evaluate your detail department. If you want to talk about this or want to know what to do before the next column, please feel free to contact me at buda@detailplus.com
As the fall season is firmly upon us, I see three potentially problematic trends for dealers in used vehicles.
First, inventory levels are climbing. For many dealers, the increases are due to a rise in the number of off-lease and trade-in vehicles that flow from new vehicle sales. Some dealers have also chosen to increase inventory levels due to favorable purchase prices and a belief that consumer demand will not abate.
Second, wholesale values continue to slide south. In early October, analysts noted declines in most vehicle segments (an $84 drop for cars, and a $20 drop for trucks, according to Black Book analyst Ricky Beggs), with higher-end premium vehicles suffering the most. Most predict the trend to continue, which will put pressure on dealer margins for the inventory they currently own.
Third, it’s taking longer for dealers to retail their current inventory. I’ve heard from several dealers who report the average days in inventory is increasing, while their inventory turn rates are decreasing—a two-headed symptom that appears to owe to higher inventory levels and, in some segments, a potential softening in buyer demand.
To be sure, these dynamics are typical in used vehicles at this time of the year. Even so, they pose potential profitability and return on investment (ROI) risks for dealers who do not proactively address them as they manage their used vehicle inventories. In my recent conversations with dealers, I offer the following three best practices to minimize the chances that a seasonal slowdown becomes a seasonal slump:
- Pay close attention to your pricing. A Midwest dealer recently noted that he’s making $300 to $400 weekly price adjustments to individual cars to keep his current inventory in line with the market and meet his inventory turn and profit objectives. As he says, “It’s painful, but we have no choice. The cars are still here and we need to move on.”
- Stick to a 45-day retail window. In the current environment, some dealers choose to hold on to vehicles longer than they should because they “can’t replace the car for what I’ve got in it.” Such decisions typically only make a bad situation worse, particularly when there are few signs that wholesale values will increase in the near future. I encourage dealers to maintain at least 50 percent of their used vehicle inventory under 30 days of age, and to give each vehicle a maximum 45 days as a retail unit. If a car doesn’t sell in the 45-day timeframe, dealers and managers should examine the hows/whys behind their inability to retail the unit in a timely fashion.
- Mind your average used vehicle investment. I’m seeing the average used vehicle investment increase for many dealers. The rise appears to be due to two factors: First, dealers are paying up to acquire certified pre-owned (CPO) vehicles, which has proven to be a profitable, fast-turning segment for much of the year. Second, some dealers are buying more large SUVs and other higher-dollar inventory because declining wholesale values make them more attractive. Neither approach is necessarily wrong, but I caution dealers that increasing their average used vehicle investment also means a commiserate increase in the amount of risk inherent in each vehicle.
Ultimately, dealers who maintain a consistent, steady course of market-based inventory management decisions during the fall will be better positioned to meet the challenges of fewer customers and slower sales as the winter months arrive.
Dale Pollak is the founder of vAuto. This entry and Pollak’s entire blog can be found at www.dalepollak.com
