Drive to Success: Combat Margin Compression
Drive to Success is a weekly series capturing the most influential articles, tips, and tricks from industry experts and publications to help drive your dealership to success. Each week will focus on a specific key topic in the automotive industry.
Dealerships face shrinking margins today more than they have in the past. There are new ways to sell cars, but in order to avoid margin compression, dealerships should invest time and money into selling cars more efficiently and driving more people to the service lane. Try changing your sales processes, scrutinizing the revenues and costs from each of your departments, and increasing the speed at which you sell used cars.
Digital Dealer: In new vehicles, there’s almost an inventory pile-up on some dealers’ lots. In used vehicles, the big headline is the rising supplies of off-lease, or near-new vehicles, in the market. Pursue the fast sellers, manage your return on investment, and reduce your discounts to build up your dealership’s profitability.
Dealer Marketing Magazine: Scrutinize every process. Where you find opportunity leaking, either as an unnecessary expense or a lost sale, fix it. Dealerships can fight back against margin compression by taking a closer look at service turnover, digital F&I, inventory management, and more.
Dale Pollak: NADA data shows that in 2009, used vehicle gross profits ran 14.3 percent of average vehicle transaction prices, compared to 12.1 percent in 2016. Selling used cars in a more efficient manner will help dealerships combat margin compression. Use a consistent sourcing pipeline, engage in faster retail-ready turnaround, and reduce inventory age for used vehicles.
Wards Auto: Dealerships should measure the right metrics, hold their teams accountable for improvement, and focus on being proactive instead of reactive. Taking these steps will help your dealership avoid shrinking margins, even as customers expect more from dealerships. In fact, 60% of customers expect more from you now than they did just a year ago.
Dale Pollak: Your dealership should engage in market-transparent pricing, a pay plan that promotes transparency, and a transparency-minded sales process. By changing up your sales process, managers and salespeople can avoid selling cars at too large of a discount. Integrating these sales process changes will help your dealership eliminate lost profits.
Check back next week for another Drive to Success: Employee Training. You will learn how to optimize the employee training methods at your dealership.
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