How An Operations Review Can Help Your Auto Dealership Business

August 08, 2019

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Conducting an operations review is one of the most important things your can do for your automotive dealership business.

For many dealership owners, the sales team is the primary area of focus. After all, if the business does not hit its targets or track the right metrics, it can lead to serious financial consequences — even the closure of the dealership.

Regardless of sales performance, however, an owner could be losing revenue if they are not regularly assessing operations and ensuring the dealership is as efficient as possible. In some cases, they could even be missing opportunities to make more money.

Done regularly and proactively, a review can help dealership owners to: 

  • Increase revenue by identifying opportunities for additional profit.
  • Improve finances by cutting unnecessary costs.
  • Raise back-office efficiency by automating processes or reducing time spent on low-priority tasks.
  • Build on value drivers and set benchmarks for future growth.

What are the key elements of an effective operations review?

At a minimum, dealership owners should examine these factors to conduct a thorough operations review. 

  1. The budget

Providing the management team with a realistic budget is crucial. To set targets and benchmarks, dealership owners should review the budget on a monthly basis, comparing it to both prior month and prior year.

Perform a qualitative analysis and address the story behind the numbers. For example, did increased rent at one location cause you to exceed the budget? Did the introduction of a new product affect the numbers? Answering these questions can help you to make informed business decisions. 

  1. Administrative efficiencies
For many dealerships, especially larger groups, money can be lost through overlooked leakage. Reviewing administrative areas for potential efficiencies can help owners tighten up their financials, including: 
  • Service providers. Is the dealership group using different providers for each location? Consolidating providers across the entire group can save costs and may offer opportunities for preferred rates.
  • Insurance. Review employee insurance and benefits plans to ensure they are still the right fit for the team. Owners could be paying high fees for plans that are not meeting the needs of employees. Similar to service providers, consolidating insurance policies across the whole group could lead to better rates.
     
  • Salaries and headcount. When considering future talent needs, ensure the size of your workforce and the types of roles align with what the business really requires. Salary ranges should also match market values. 
  • Advertising. While advertising is important to any dealership, there may be opportunities to spend more efficiently. Review your ad spend to determine return on investment. Has the advertising been effective? Are you using the right channels? Are there cheaper ways to reach your target market? 
  1. HR practices and turnover rates

Turnover rates are a long-standing issue for the automotive retail sector. A lost employee means time and resources spent on hiring, onboarding, and training/developing their replacement — not to mention the loss of institutional knowledge when a key staff member departs.

Without engaged, committed employees, the business performance of a dealership will eventually suffer. Compare HR practices and turnover rates to other locations within the group, as well as market benchmarks. Look for root causes and work with your HR team to create long-term solutions. 

  1. Value and amount of inventory held

While rare, dealerships can run into issues over the value and amount of inventory held. If one or multiple locations have more than the needed supply or the inventory is overvalued, you could be leaking a significant amount of interest.

Reviewing these numbers on a monthly basis can help dealership owners to make a course correction before the issue gets out of hand, and to make inventory management as efficient as possible. 

  1. Absorption rate

What is the absorption rate of your dealership, and how is it fluctuating from month to month, or from quarter to quarter? Measuring the absorption rate can lead to increased revenue, but it can also help owners assess and improve the customer experience and the performance of the dealership team.

How can dealership owners get started?

For a dealership or dealership group to run as efficiently as possible, operational reviews should occur on a monthly basis, along with a quarterly deep dive into the numbers. Don’t wait until the market or a dealership’s performance starts to decline. A proactive, consistent approach can help your business to stay at peak performance, for a competitive edge.

For many dealership owners, the process can be time-consuming and involved. Engaging the services of a qualified financial controller can provide the level of support needed to strengthen and grow the business.

BDO can help

The BDO automotive retail team can help you assess the results of an operations review and build a strategy for the growth of your dealership business. To learn more, contact:

Shane Weimer
Partner, National Automotive Retail Leader

David Hertzog
Partner, GTA Automotive Retail Leader

Interested in learning more about key business issues for your dealership? BDO’s Automotive Outlook 2019 report offers insight on the changing automotive retail market in Canada, including actionable strategies for owners and principals. Download your copy today.