Optimizing your operations to drive profits

Running a new or even established independent dealership can be overwhelming. There are many decisions to make in a short time, making it challenging to prioritize operations to move your dealership forward strategically.

The top two mistakes I see most new dealerships make are:

  1. not properly managing inventory (having the right vehicles or enough inventory), and 
  2. not controlling costs (protecting profits)!

All dealerships operate similarly by going through the same four steps. We all buy cars, get them cosmetically and mechanically ready to drive, attract buyers, and successfully close and process the sale. It’s an actual wash, rinse, repeat process with little to no variation. However, there are a lot of strategies to get this done. We all must find the best practices for our revenue goals. So how do you determine what’s best? 

Let’s look at the four things you can do today to ensure your dealership is on track to generate significant revenues. With rising gas prices, interest rates, and a possible pending recession, it matters more than ever for auto dealers to protect their investments and, more importantly, their dreams! 

Tip #1: Use Software to Systemize Operations

Most dealerships use a DMS. If you aren’t familiar, a DMS is a Dealer Management Software. A DMS is absolutely essential in managing operations for dealerships of all sizes. 

A good DMS will optimize how you purchase inventory, how you manage the reconditioning process, how to market inventory, and everything needed to sell a vehicle to a retail or wholesale customer, in state and out of state.

It’s best to have a DMS in place before your first sale. If you have sold vehicles without a DMS, you can import data from your previous sales.

A good DMS will also offer additional services or integrate with other software to:

  • manage customers (CRM), 
  • allow customers to buy their next car easily, maybe even completely online (digital retailing tool), 
  • and run reports to watch the numbers.

Tip #2 Establish an In-House Reconditioning Process

For small and startup dealerships, we need a controlled approach to expenses. Reconditioning is a major expense and is very important in the sales process. 

A strategic reconditioning process can add value to inventory bringing higher profits. It’s important to find the most efficient way to do that.

With an in-house reconditioning process, you can have more control over costs and time to market if managed correctly. 

Tip #3: Find an Inventory Niche

Selecting a niche is a great way to focus your operations to optimize sales. As you further develop your niche, you will learn the specific needs of your inventory and your customers. 

You will be able to focus exclusively on vehicles that fit your niche, improving your operations. You will become an expert at finding cars, fixing cars, and marketing to the perfect buyer for faster sales.

For most small dealerships, a good niche is the cash car market, along with in-house financing referred to as Buy Here Pay Here (BHPH). 

In the cash car market, the inventory costs are low. It’s also easier to have positive cash flow because cash cars sell more quickly compared to other markets.

The cash car market also tends to not ebb and flow with changing economic conditions, like a recession. Sales tend to be steady in all seasons.

Find your niche!

Tip #4: Optimize Acquisitions (Buy Cars from everywhere)

We have experienced challenges with finding used car inventory. Now more than ever, it’s important to have a system to acquire inventory from sources outside wholesale auctions. Some additional ways to acquire inventory are to:

  • Ask your current customer base to buy vehicles
  • Ask your family and friends
  • Advertise and market to acquire cars from other people and wholesalers
  • Build relationships with companies that acquire inventory through repossession or trade-in

With multiple sources to obtain inventory, you can weather any storm, be it a pandemic or a recession.

Start today! Optimize your operations to profit more, protect those profits and operate lean & clean.

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