Drive to Success: Challenge Margin Compression
Margin compression in auto sales is a problem that’s been building for years. And, unfortunately, it’s not going away anytime soon. But there are several things dealerships can do to mitigate the negative effects of margin compression, including being smarter about used vehicle sales, focusing on alternative sources of revenue in service and F&I, and improving operational efficiency.
WardsAuto: In times of slowing sales and shrinking profits, dealers are expected to do more for their customers with less money. To assess operational effectiveness during down times, dealerships should pay attention to sales metrics, set meaningful but reachable goals with team members, and be proactive (not reactive) in identifying inefficiencies and adjusting processes.
CBT Automotive Network: Gross margins in auto sales continue to drop. To combat the problem, dealerships can do more to build long-term relationships with customers. Ensuring that repeat customers come back to the dealership to visit service lanes provides an additional avenue for generating profits. In addition, shortening reconditioning times, having a good inventory management system, and paying attention to what the customer is looking for can keep dealerships profitable, despite slimming margins.
Automotive News: Auto retailers consider margin compression to be the biggest threat to the industry. And even though used car sales are also affected by slimming margins, used vehicle demand continues to be strong. Cox Automotive expects used vehicle sales of 39.5 million units in 2018, which is up from 39.3 million in 2017.
Dale Pollak: Thanks to margin compression, dealerships can no longer retail their way to improved profits. The best way to find profits at the dealership level is with increased operational efficiencies. Dealers need to find ways to sell and service with better efficiency and lower costs.
Digital Dealer: Margin compression, like a leaky water line, has been slowly becoming a bigger problem over time. And although there isn’t an immediate fix for margin compression, dealers can find ways to mitigate the problem. These include trimming reconditioning costs, minimizing discounts on sales, reducing inventory age, and being more efficient in the acquisition of used vehicles.
Check back next week for another Drive to Success.
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