Today I visited the expo for the first time which was an amazing sight with literally hundreds of suppliers vying for dealers’ attention.
Some of the tactics included guest appearances from the San Francisco 49ers quarterback legend Joe Montana and golfer Hunter Mahan.
Like Australia the big US dealership groups have continued to get bigger and as the economy has improved they proved to be excellent business for delivering a high return for investors, the best topping an amazing 309% over the past three years and an annual return as high as 41%.
Top questions to ask your CFO – Jonathan Wilke and Adam Lawyer
The first session I attended today focused on fraud and the key questions for dealership management to ask their finance team. Whilst the presentation didn’t provide any significant new insights it did confirm that the issues faced in Australia are very consistent with the US.
A 2009 NADA survey indicated that 20% of dealers who responded had been subject to some kind of fraud over the past five years and dealerships are prosecuting in only 50% of those crimes. In part, the reason for such a large exposure is growth in the dealer networks with multiple locations that are hard to monitor consistently, and a large number of transactions with high monetary value.
Jonathan and Adam’s key accountability questions to ask your CFO are:
- What are you doing to protect this dealership from fraud?
- Where is the cash?
- What are our greatest financial risks?
- How are we monitoring compliance with regulations?
The key message in respect to fraud was never relax in the amount you watch and monitor your key risk areas, make it known that you are watching and change what you are checking on a regular basis. The five key recommendations were:
- Tone from the top: set a standard for excellence, have zero tolerance (including minor frauds) and establish ethical guidelines.
- Inspect: deal files, transaction ledgers for high value items such as inventory, bank reconciliations.
- Pay attention: is there anyone in the dealership living above their means?
- Complete background checks: for all staff and read them.
- Segregate duties: staff should never complete two of the following tasks: authorisation, custody, record keeping, and reconciliations. Rotate roles and make sure all staff take their annual leave.
The final part of the presentation focused on assisting dealers with understanding how they can be highly profitable despite this not being reflected in their cash position as a result of increased capital frozen in assets of the business. The recommendations included decreasing inventory days’ supply, returning obsolete parts, and increased focus on debtors >90 days.
Unleash the ‘Raging Bull” in Your Used Vehicle Department – Tommy Gibbs
Tommy was an engaging presenter who is clearly one of the most popular at the convention with a full room for his third presentation.
Whilst the US dealer network have not lost as much market share to private sellers as Australian dealers it has been consistently declining. With the average gross of a used vehicle in the US being double what is made on new vehicles, it is imperative that dealers maintain their focus on this department.
During his presentation Tommy provided what he called five 'Raging Bull' strategies for used vehicle management:
- Roll Money Roll
- Get on Down
- The Attack Mode
- Getting after the Internet
- The Winning Bull
Roll Money Roll
A consistent theme to Australia at the moment was that dealers “can’t find the right stock”. Tommy’s recommendation to rectify this was to provide a laminated A4 sheet with everyone who might appraise a vehicle, and the service department, of the top 10 Hottest SUV and Passenger Vehicles in your market today.
Get on Down
Tommy emphasised the most important consideration for analysing used vehicles is Return on Investment (ROI) and despite being talked about for some time it is still something we rarely see dealers consistently doing. Utilising ROI takes the focus away from purely gross per unit and includes turnover with the objective being an ROI of 110-120%.
Consistently ROI highlights that cheaper cars generate a better return and are obviously less risky than high value vehicles. For this purpose he recommends that on a daily basis dealers should calculate their average cost per unit with the objective of lowering it from the previous day.
Attack Mode
With the objective being to reduce your exposure to high value vehicles, rather than having a list of old inventory on a daily basis dealers should have a listing of their Top 10 most expensive vehicles and attack them. Attacking these vehicles would include:
- getting them out of service as a priority
- making all sales staff aware of them and bonus them
- changing your normal pricing strategy for sale
Getting after the internet
Used car buyers do 80% of their research on the internet. By the time they visit the dealership it is because they like the car, the colour, the kilometres driven and most importantly the price but sales staff still discount the car further. Like parts prices adjusted at the point of sale, Tommy suggests you should track the difference between your internet advertised price and sales price, summarise it monthly by sales staff and focus the department on reducing the running monthly average. Taking it a step further could also include reducing sales staff commissions based on the amount of discount provided each month.
The Winning Bull
Tommy’s Winning Bull strategy involves flagging the windscreen of vehicles with an “early warning radar” when:
- stepped up with a vehicle
- traded it to make a deal
- has odd equipment
- previous poor sales history
- bad colour
- no experience with the model
- bad service history
- potential large service bill
- high kilometres
Like Attack Mode when a vehicle has the early warning radar sales staff are encouraged to do a deal at all costs and pricing is reviewed and monitored daily.
