3 Ways To Make The Good Times In New Cars Even Better

November 25, 2015

We’ve had an amazing year in new vehicles.

September’s sales were very strong, spurring some analysts to raise predictions that we’ll close 2015 with more than 17 million new vehicles on the road.

2015-chevrolet-camaro-convertible-configurationsAs the good times roll, I like to poke around behind the curtain—to see if dealers are doing as well as they could while the sales juggernaut continues.

In recent conversations, I’ve asked dealers three questions:

1.  Do your sales associates sell more cars on an individual basis than they used to? The question’s intended to determine if dealers are leading their sales teams to achieve higher levels of efficiencies and productivity. Interestingly, the answers I get reflect a roughly 60/40 split.

For 60 percent of dealers, the monthly unit-sold average for sales associates is about the same as it’s always been, roughly 10-12 retail deals a month. Meanwhile, 40 percent of dealers have raised the individual sales associate performance benchmark to 15-18 deals.

2.  What percentage of your new vehicles are online at any given time with a competitive price and proper complement of custom descriptions, photos? This question follows industry stats that suggest only 25 percent of dealers consistently price/market all of their new vehicles online, all of the time.

The stat reflects findings from my conversations. A Colorado dealer estimates roughly half his inventory isn’t priced or marketed properly at any given time. “It’s too time-consuming,” he says. “We do need a better process to be more competitive and consistent.”

3.  What percentage of your new vehicle inventory is over 90 days old? Some dealers don’t track inventory age in new vehicles. Among dealers who do pay attention to new vehicle inventory age, I found that roughly 40 percent of dealers’ new car inventories hit 90 days or more. Dealers cited a combination of factors for the aged units—cars that either they or the factory didn’t get right, or a lack of attention, given faster-selling models in their inventories.

While my findings are not scientific, they do reflect areas of operational inefficiency that, if addressed, would help dealers do even better in today’s record-setting new vehicle market. I asked dealers who have addressed these inefficiencies for tips to help other dealers improve:

Emphasize volume, not gross, in sales compensation plans. “We made the switch about two years ago and haven’t looked back,” says a Midwest dealer who now requires a minimum of 15 sales/month from associates. The dealer says the change followed a realization that market factors—increased pricing transparency, better-educated buyers and stiffer competition—have a greater effect on gross profit levels than sales associates. The dealer also credits a more market-competitive pricing strategy, and “no discount” bonuses for elevating his sales team’s productivity and maximizing front-end gross. The dealer’s next goal: Reduce transaction times to 90 minutes or less.

Use technology/tools to improve new vehicle pricing/marketing consistency, efficiency. The new vehicle manager for a Florida Ford dealership says he used to spend nearly two full days pricing the store’s 600 new vehicles at the beginning of each month. Today, he uses a pricing system that helps him tie incentives to his asking prices and price every vehicle in minutes. The manager also says the technology allows him time to keep up with pricing new vehicles as they arrive from the factory, and stay on top of competitors’ price changes. “I used to spend an hour or two a day checking Autotrader and competing dealer sites,” he says. “Now, I see where I stand on a single screen and make adjustments on the fly.”

Make inventory age reduction a higher priority. Traditionally, dealers don’t believe age matters in new vehicles. But when dealers make inventory age a priority, and focus on retailing units based on time-in-inventory parameters, two things happen. First, they eliminate the shell game of using floorplan credits earned for fast-selling vehicles to offset the expense of slower-moving vehicles. Second, they have an opportunity to redeploy the investment toward better-performing units. “It’s a mental shift,” a Southwest GM dealer says. “Now, my new cars don’t just sell when they sell. They sell when I want or need them to.”

Some dealers may dismiss the need to address these inefficiencies today, when times are good in new vehicles. But here’s a key question: How much more will these inefficiencies cost you when sales slow and times aren’t so good?