Need a list of cost cutting ideas for a dealership.

Hello All,

I need feedback on how best to cut cost at our dealership. A top ten list or link to a web source will greatly be appreciated!

Best Regards

Joe Tareen

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Permalink Reply by Big Tom LaPointe on October 15, 2012 at 1:59am

I don't disagree with you, but if TruCar's claim to 4600 stores (25% of dealers) is correct, there are a boatload of dealers that fit your description. A critical ROI analysis should reveal trucar as a huge expenditure, but may LOOK LIKE it is providing adequate ROI.

I think it was an AUTO DEALER BUSINESS story a few months back that noted many stores don't know they're getting MUGGED each month.

Permalink Reply by Doug Davis on October 15, 2012 at 12:23pm

I think it was an AUTO DEALER BUSINESS story a few months back that noted many stores don't know they're getting MUGGED each month.

Tom, Managers that fall below the GSM level are not usually tasked with P&L responsibility.  Throughout the month, they are looking at how many "Xs" and average gross.  

They make purchasing decisions based on an estimated number of additional sales relative to the cost.  Their thinking is, "I need to sell "X" number of cars to justify this expenditure".  You can extend that type of logic to the sales floor.  The average Salesperson sells 9 cars per month.  If we add three more salespeople, we can expect 27 additional sales?!?  I've been in stores where even department heads are not exposed to the financial statement much less accountable.   

A vehicle is worth what you can sell it for.  The internet determines the market, not book value.  People that understand this, move their focus from gross to departmental net.  They need to examine their expense structure and concentrate on additional revenue streams.

I really question the TrueCar's claims.  At those stores, how many sales are they responsible for?  For a dealership to save $5000, they would have to find 17 customers that sent in leads prior to the TrueCar lead. The better CRMs are going to show this as a duplicate, when it comes in.  They also provide a utility to show when leads are coming from multiple sources. In a matter of seconds, it will pull up all of your duplicate leads.  It is the height of laziness not to be doing this. 

I didn't purchase leads, from any source, including the manufacturer's third party leads.  Every store, that I have worked for, became limited by the number of desks, computer drops and phone lines.  With limited resources, I could not afford low percentage leads.  We still accounted for 70% of the business with an average total gross the exceeded the floor.  At the time, there were 142 stores, in the group, and we were the volume department.  I wouldn't be receptive to paying TrueCar $300 for a low gross customer.  

Permalink Reply by Leonard Buchholz on October 15, 2012 at 1:41pm

Great question Joe. And there are a lot of good ideas here. Having looked at quite a few dealers in the past few years, I can tell you that most go for the "easy stuff" (eliminate a position, cut back on paper towels) and not so much for the hard stuff...increase revenue!

One way of doing this to take the financial statement, the ledger and compare all of the fixed costs to known industry standards. Using a guide is important. Remember that it is not a perfect guide and some adjustments are made in regards to your local area, vendors, etc. 

After making comparisons, it's time for the the calls. Vendors, providers, suppliers, etc. "Hey Mr. Paper Towel Guy, I noticed that you have increased your costs by 20% in the past year. I know times are tough everywhere (including me) and I need to make a business decision on whether or not I can continue to use XYZ Paper Towels at this price level."

Be prepared to say goodbye to vendors and providers if they cannot meet your price. It's business, not personal. 

Now that you have called everyone and expenses seem to be in line, what are you prepared to do to increase your revenue stream?

Maybe the best question is, "Can you SAVE your way into PROFITABILITY?" Chances are , NO.

It's time to look at the other side. How do I increase revenue? Are my Sales per Employee in line? No? What do I have to do to get that going?

Since I am from the other side of the demarcation line, I tend to see everything from a Fixed Ops point of view. So, what are my Sales per Service Advisor? How are my Margins? What is my EFL, HPRO and RO Count? What is my Productivity, etc.

And of course, what is my Service Absorption? AM I at 40% or 75%? What do I have to do to increase that number?

Good Luck Joe. 

Permalink Reply by Doug Davis on October 15, 2012 at 2:29pm

Leonard, good to see a fixed operations guy enter the conversation. Though, different departments, I think that we view things in a similar fashion. I recently was working with a couple of Lexus stores where the newer store was nearly 100% absorbed and the other was well over. They were running a nearly perfect CSI. That takes a lot of pressure off, everyone.

When I think about additional revenue streams, coming from the internet department, I consider fixed operations. The quicker you turn your used car inventory, the more business there is for the shop. F&I can't do their magic until a customer is sold. Leasing provides a continued stream of quality used cars. Continued success, for the fixed operation, is dependent on Units in Area, etc..

Permalink Reply by Patric Timmermans on October 16, 2012 at 3:20pm

This recently recorded webinar discusses how to reduce workers' comp which can save you quite a bit: http://www.dealerwebinars.com/workcomp.html

Permalink Reply by George O'Sullivan on October 18, 2012 at 2:37pm

In 2008 when we and everyone was retrenching, we called EVERY vendor that we did business with.  We told each vendor that we have to cut costs across the board by 20%, any vendor willing to cut their current costs by that amount would be kept, anyone not would be considered for elimination.  We were amazed at the amount we saved from those calls.  Then we went back reviewed the rest, cut some and those that we could not cut, we put their contracts out for bid or eliminated them. 

Then we took our time and reviewed everything one by one.  It is amazing how much waste you will find.  We now do this on an annual basis.

Permalink Reply by Don McEwen on October 19, 2012 at 8:50am

When it comes to cutting expenses in a Dealership there is no question that educating your managers will have the biggest impact. This might sound silly because managers know the numbers, right? I recently attended a 3 day Fixed Ops financial management class held by the manufacturer and was amazed at how many attendees could not find their gas, oil and grease or tire inventory on their financial statement, these were Service managers, Parts managers and Directors! To make matters worse, when one guy couldn't make heads or tales of a number his DPSM took a look and said "those aren't your numbers", someone at the store had doctored up a statement for him to bring along and he had no idea. This produces managers that make decisions with no clue as to the impact on the income statement or balance sheet, unless you've got something to hide which is a bigger problem you need to educate them.

Permalink Reply by Shawn Case on November 1, 2012 at 3:34pm

I have recently found that printing full page window stickers alone can cost some dealers over $1.50 each! I know we print on a new printer, Xerox ColorQube 8570, which only costs us about fifty cents or so per page. 

Last week at Digital Dealer we found out some dealers are being charged huge fees (some in the THOUSANDS PER MONTH! UGH) to have a mobile site. That's absurd. Having a Computer Science background, I know what their markup is for that.

Awesome post! Hope everyone is saving tons of money now. 

-If you don't know, ask!

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