Get Creative and Step Outside the Box to Reduce Cost.
The automotive dealer space has certainly changed since COVID-19 shoved its way into our lives more than a year ago.
Demand has increased, new and used inventory is constrained, sales and profitability are up, dealership acquisitions are on the upswing and more.
The key questions most dealers are asking are: How long will it be before car and truck inventories increase to meet demand? And what will we do about our expense line in the meantime?
The supplier and solution space is changing, too. Consolidation among suppliers continues, which creates less competition and creates more upward pressure on pricing, impacting your expense lines.
But there’s good news out there, too.
New suppliers are getting into the market, enhancing competition. And more important, new, innovative service providers are entering the market that can help preserve and enhance your bottom line with increased profitability.
Here are a few of those innovative options that can drop additional profit to your bottom line when sales are constrained.
Cash discount strategies: As recently as two years ago, dealerships were less than interested in opportunities to provide a discount to their customers for cash payment, or to charge back credit card fees to their customers.
Today that strategy is gaining significant traction. Single points, small groups and even megagroups are adopting that strategy to reduce credit card costs dramatically.
Savings of tens of thousands, hundreds of thousands and even a million dollars are possible with this innovative strategy.
Low-cost DMS solutions: The DMS space has become very competitive with new lowcost American providers, and even a proven provider from Canada making inroads into U.S.- based dealerships.
Not only are the costs in many cases a fraction of a legacy provider, but new flexibility, fewer restrictions and enhanced reporting are also attractive options.
Workers comp solutions: Innovative solutions and providers today can take as much as 50 percent off of the cost of workers comp insurance. The coverage levels can be maintained with far less out-of-pocket cash from the business.
R&D tax credits: Did you know any consulting services you use to improve processes and any enhancements you make to products, services and vehicles you sell may be eligible for R&D tax credits?
Those credits can reduce your taxable basis and could even result in a check back to you for overpayment in some cases.
Contingent cost reduction services: While contingent cost reduction services have been around for years, they’re now sprouting up in different expense categories.
There are providers today that will reduce your costs for utilities, express overnight shipments, over-the-road transportation, specialized accounting services and advertising, and some groups that will attack any and all expense categories on a contingent basis.
The usual fee for those services is 50 percent of the savings generated, making it essentially a no-risk, all-gain strategy.
Supplier management and payment strategy: Your organization probably spends company funds in 80 to 110 expense categories routinely – office and shop supplies, marketing, DMS, insurance, etc.
If you have more than 225 active suppliers in your database, you’re becoming inefficient andwasting a lot of precious labor and purchasing leverage.
If you pay all suppliers by check and not by credit card with a cash discount, you’re leaving a significant amount of money on the table.
There are some good suppliers out there that can help you manage your supplier base more efficiently and help you realize 1-2 percent of all expenditures in cash back.
New revenue-producing opportunities: Most dealers use a number of suppliers to come on site to replace glass, repair wheels and remove dents and dings from vehicles they’re selling.
An alternative to paying suppliers is to bring those services in-house and keep the revenue and the profit for your own organization. There are a number of suppliers who can train your team, provide the tools and even guarantee trained staff over a period of time.
All expense categories: Research says (and our practice validates) regular sourcing, quoting and leveraging of your 100-plus expense categories should result in cost savings of 25 percent or more.
“Trust but verify” is the watchword to remember.
The economy has changed and prices are trending upward as inflation grows, so now is an ideal time to challenge legacy suppliers and begin quoting.
Inflation is increasing across the economy and inventory issues will plague the industry for months to come.
For dealers interested in preserving or enhancing their bottom line profitability, it will be incumbent on you to get creative and step outside the box to reduce costs.
The strategies mentioned here can impact your bottom line – significantly if they’re implemented in tandem – and these are just a start.
Now is the time to act. The strategies work. The suppliers are there ready to assist.
The next step is up to you.