I recently came across an article that may provide a glimmer of hope for franchise dealers: “Hitting rock bottom is the BEST thing that can ever happen to you.”
It certainly seems like we’ve hit rock bottom if you look at new vehicle profits.
NADA Data’s mid-year financial profile states the average net profit per new vehicle sold has fallen from -$10 in 2015 to a staggering -$406 in 2017. Ouch.
Meanwhile, expenses continue to rise. NADA reports selling, general and administrative expenses have climbed nearly four percent since mid-year 2015. And, we’re all well aware that the new vehicle market is beginning to contract. Double ouch.
It seems to me we’ve arrived at a crossroads. The tailwinds are shifting to headwinds in new vehicles. Dealers have a choice—keep doing what you’re doing, or apply new thinking and new metrics to help you manage the business in a more challenged market.
Major League Baseball general managers know this choice. Two decades ago, GMs identified talented players by analyzing their batting averages, home runs, or earned run averages. Today, GMs place much higher value on new metrics—on-base percentage, slugging percentage, and defensive efficiency—to field a high-performance team.
Similarly, in new vehicles, dealers and GMs have always tracked total sales volume, showroom traffic counts, and average front end gross as primary success metrics. These numbers remain important, but they don’t give you the granular level of insight you need to manage your new vehicle inventory profitably and successfully in today’s more efficient and hyper-competitive market.
With the New Year underway, it’s a good time to think about how we can best position ourselves for better success in the months ahead. Here are three new vehicle metrics that will be critical towards your success in 2018 and beyond.
Percentage of Fast– Movers By Model – The easiest way to turn your inventory faster is by stocking the fastest turning model/trim/color combinations. For example, a Chevrolet dealer should understand that a white Chevy Malibu 1LT turns 4x faster than a Blue 1LT. This laser focus on fast movers in each model line—when you place an order or make a dealer trade—is a big step towards minimizing holding costs and the extreme discounting that’s required to move the distressed merchandise. Plus, there’s another benefit: Fast movers attract five times more attention/interest from online shoppers, which drives higher ROI for online advertising. The benchmark: Aim for maintaining 65 percent of your inventory with lower market days’ supply than the model line average.
Price to Market Rank – It’s not uncommon for dealers to brush off the merits of market-based pricing in new vehicles. Dealers will say, “I don’t want to get caught up in the race to the bottom. I’m just pricing at full MSRP less rebate.” Unfortunately, today’s shoppers see it differently. They expect the right car and the right price, or you lose the opportunity for their business. Progressive dealers use their inventory situation and market insight to drive pricing decisions. The approach: Given the vehicle’s market days’ supply and inventory age, where does the vehicle deserve to be priced relative to competing units? For example, if you are the only dealer in the market with a particular model/trim/color combination that has demand, the vehicle doesn’t need to be priced $1,000 below the next lowest priced vehicle in the market. Conversely, if there is a 220 market days’ supply on a particular model/trim/color combination, you better not be priced $1,000 higher than the market average price.
VDP Engagement – Vehicle Details Page views still matter. But, more and more, the clicks consumers make on the VDP itself offer a higher correlation to the vehicle’s eventual sale. In the coming months, dealers will have greater opportunity to better understand specific engagements—clicks on photos, video views, checking availability, calculating payments—that indicate genuine interest in a vehicle, and whether it’s growing or staying the same. A first step: Assess how well your current vehicle pricing/re-pricing and customer engagement strategies account for VDP views and activity.
They say hitting “Rock Bottom” is a wake-up call that something you’re doing is not working. Perhaps the best part is you can only go up once you hit the bottom.
Beyond helping dealers minimize, if not reverse, the trend of losing $406 per new vehicle retailed, these metrics will help you create upward momentum in new vehicles and beyond. Your vehicles sell faster, your inventory turns quicker, and you provide your F&I and service departments more opportunities for business.
I call it the “wheel of fortune,” and the more it spins, the better off you’ll be irrespective of market conditions in the year ahead.
Author: Brian Finkelmeyer
Brian Finkelmeyer serves as the Director of Business Development for Conquest at vAuto. In this role, he is responsible for all aspects of vAuto’s New Car business. Prior to vAuto, Brian spent 18 years with Nissan North America in a variety of sales leadership positions. He is a routine presenter and author for various automotive trade publications. His topics focus on the importance of increasing new vehicle inventory turn by having the proper inventory mix, strategically pricing based on age and supply, and insights on maximizing effectiveness of dealers marketing investment.