In a market where goodwill multiples are at an all-time high and the quest for turnover can sometimes overtake the need for profit, Dealers are asking the question, “What dealership should I buy that future-proofs my profits?”

Steven Bragg, KPMG Director Motor Industry Services, says franchise success comes and goes but best practice fundamentals don’t. You need to equate the price you pay with the value of the business you are buying.

Mr Bragg says Dealers need to understand what drives profit longer-term. “It isn’t always about following the fashion and buying the hot franchise at a point in time,” he says.

“In the end, buying a dealership (not a franchise; they are different things) that delivers a minimum level of return is a mathematical equation. Factors like location and franchise are important variables that can impact on whether this business can achieve these minimum returns in the short term. To achieve longer-term success the basic foundations that underpin the operations need to exist.”

Mr Bragg says it might take multiple acquisitions within the one PMA to deliver the ultimate outcome.

“The key to longer-term success is to have a clear plan on what the business needs to look like to guarantee the longer-term success you are after,” he says.

“When buying any business, the key is for the owner to control their destiny. I have been involved in many transactions where, from day one, destiny is in the hands of the brand or the customers. As a business owner this is a very difficult position to be in, so the goal from day one should be to have the steering wheel in your hands.”

What does a long-term successful dealership look like?

Location or franchise aren’t necessarily the key to success in having a long-term successful dealership. However, what these factors can do is make the mission easier, because the current market and location deliver the minimum metrics without additional effort. But these factors are variables and can change with time.

When building for long-term success, Mr Bragg says Dealers need a strong foundation of what he terms ‘The Big 6’.

The Big 6 KPIs

1. Minimum 100 retail units sold per month. (For the sake of the exercise, let’s say 70 new and 30 used.)
2. Maximum monthly rental of $500 ($750 luxury) per unit sold, so at 100 cars that’s $50,000 per month for all facilities.
3. Minimum $1m ($1.5m luxury) turnover per employee per annum (say $85,000 per month).
4. Gross Profit orientation of 55 percent front end (new, used, aftermarket but no F&I) and 45 percent back end.
5. Own Your PMA – 25 percent market share for Provincial/Rural or 15 percent Metro.
6. A workshop with active bays equal to 20 percent of your retail volume.

According to Mr Bragg, if your dealership has the above fundamentals it has the foundations of being a long-term successful dealership, if it doesn’t, the focus needs to be on achieving these fundamentals first or looking for the compensating factors.

“Too often I see dealerships that don’t meet the Big 6 KPIs, creating a fluctuating result and a lot of angst,” he says.

To manage this, Dealers tend to do two things when confronted with a dealership that isn’t achieving its minimum acceptable levels:

1. Try to over-compensate at the individual performance metric level. This is not sustainable, as solid performances can be maintained but high level performance fluctuates over time.
2. Not deal with the six key fundamentals above and wait for market intervention. This has the impact of taking control of your business out of your hands.

“In the end the Dealer has a right to make a minimum return on investment. The best way to guarantee this is to have a strong foundation from day one, avoiding the need to grab victory from the jaws of defeat,” he says.

Individual performance metrics

“Having the six fundamental metrics is not a guarantee of success, it just means your business has the correct ‘ticket to play’, so is armed with the correct structure to deliver a result” Mr Bragg says.

“We still need to run the business to some minimum metrics to deliver a result. Remember, these are minimum metrics not benchmarks of market performances or top level performances. These are just the minimal acceptable performance levels that need to be achieved to deliver a minimum acceptable ROI. Every time these numbers aren’t achieved we are performing below the minimum, so focus needs to be placed on maintaining these metrics as a minimum.”

The minimum metrics are:

New cars

1. Average gross (all inclusive) of $2,500 PNVS ($4,500 luxury). This could look like:
   -Vehicle gross $900
   -Aftermarket $600
   -Holdback $1,000
2. Units per sales person of 15
3. Maximum stockholding of 45 days including demos
4. Minimum 70 percent valuations of test drives
5. Minimum three appointments per sales consultant per day
6. Minimise advertising and promotion spend, basically online, CRM (database follow-up) and factory minimum standards.

Used Cars

1. Minimum gross of $2,500 PUVS ($4,000 luxury)
2. Minimum ROI 80 percent per unit
3. Maximum cost of sale $18,000 (volume only)
4. Units per sales person of 15
5. Maximum 30 days stockholding including drive cars
6. 70 percent of cars sold in the first 15 days
7. Minimum advertising, predominantly online only.

Finance & Insurance

1. 50 units per BM maximum
2. $1,200 minimum F&I income PVR
   a) $850 Finance
   b) $350 insurance
3. Maximum 30 percent employment costs percent income.

Service

1. Minimum 75 percent labour gross overall
2. Minimum $13,000 labour gross per tech
3. Minimum 65 percent total department gross (including oils, sundries, etc)
4. Daily retail RO count should be minimum 40 percent of monthly retail sales volume
5. 15 ROs per advisor per day (advisors do the warranty, should be max two ROs per day)
6. Cap warranty work at 15 percent of total daily ROs (five ROs per day for a 100-unit yard)
7. Minimum average two hours per RO
8. Minimum 40 percent of ‘wait’ jobs per day.

Parts

1. Minimum $70,000 parts sales per employee
2. Minimum 25 percent overall parts gross (focus on workshop to improve margin).

Practical processes to future-proof your dealership

Mr Bragg says the key is remembering that ‘The Big 6 is the ‘ticket to play’ and is non-negotiable.

Getting to 100 cars – questions to ask yourself

Used cars – am I in the business?

1. Am I achieving at least 30 retails per month?
2. Are we winning 50 percent minimum of all our retailable valuations and are our trades the best (measure by sales person)?
3. Is 50 percent of our used car stock our franchise?
4. Are all our cars online, with 20 photos and competitively priced?
5. Are we fully utilising tools like guaranteed top spot to get on the shopping list early in the sales cycle?
6. Do we reallocate 14-day-old leads to other sales consultants (they are often still in the market)?
7. Do we regularly contact ‘watchers’ online with offers?
8. Do we have fixed price reco, so we can have cars on display in three days?
9. Do we wholesale everything with more than $2k reco (paint and panel), to keep our display time at its optimum?
10. Do we ensure all 45-day cars are sold or wholesaled so we can recycle the opportunity (inventory and display)?
11. Do we measure ROI by unit and reward the manager accordingly?
12. Do we review the ‘views’ per stock item daily and, if a car is not viewed, run a search and see how far down the search list it is? If it’s too far, take action.

New cars

1. Owning your PMA – have you measured market share in the PMA by model and worked out which models are below target and set an action plan to improve the sales rate in that model?
2. If we can measure market share by postcode, have we identified our black spots and targeted this market opportunity?
3. Do the franchises held offer sufficient opportunity to reach a minimum 70 units? What additional franchise can we add to the dealership quickly to lift volume?
4. Showroom measurement – do you own your enquiry?

• Does reception record showroom traffic (time, customer, sales consultant in attendance) independent of the sales team and report this to you and the sales manager daily?
• Is this loaded into autogate or your lead management system (LMS) daily by the sales consultants to ensure all enquiry is tracked?
• Do you check with the sales consultants, randomly with the sales manager, to ensure these are in autogate or your LMS and the status of follow-up?
• Do you check test drive logs kept by F&I to autogate or LMS to ensure all test drives are recorded
• Do you circulate weekly showroom stats from enquiry source to order and finance contract to all sales teams by sales consultant so they can see their individual performances to their peers and Road to Sale benchmarks?
• Do you have daily order write targets by sales consultant? Is this on display for the team to see and is there a daily/weekly incentive to be achieved for getting the daily and weekly order write (this has the benefit of increasing midweek sales)?
• Do you measure, manage and incentivise your three appointments per sales consultant per day, or do we just handle walk-ins?

Getting and keeping rent at $500 ($750) PVR

“Obviously the first step is to maximise the available opportunity from the site,” Mr Bragg says.

“The logic behind $500 PVR is geared around the concept of pool of gross – how much income can I and should I generate from each vehicle sold? This is where a focus around selling and servicing your PMA-based customers is important.”

This is calculated as follows based on minimum metrics:

Volume Luxury

New or Used Car sales	$2,500	$4,000
F&I Income PVR	$1,200	$1,250
Service gross PVR	$1,000	$1,500
Parts Gross PVR	$400	$750
Total	$5,100	$7,500
Rent should be 10 percent of gross	$500	$750

It is, therefore, essential that the above minimum metrics are achieved to reach the pool of gross minimum, as this drives the rent coverage.

“If the rental figure is beyond the $500 ($750) PVR based on the current volumes, after assessing how we can increase the volume, the next step is to ensure the minimum pool of gross is being met,” Mr Bragg says.

$1m ($1.5m) sales per employee and 55 percent/45 percent front/back end gross mix

Vehicle gross

1. Road to a sale – are we following it and earning the right to gross or are we shortcutting the process and going straight to price?
2. Do we turn away or give high prices to out-of-PMA customers? They don’t add to the pool of gross, save the good deals for the PMA customers.
3. Do we say NO more often?
4. Do we start every negotiation during a deal at the RRP and show the discount?
5. Do we take the focus off price and focus on repayments? In the end this is what they pay.
6. Do we negotiate in small increments and non-dollars (floor mats, etc)?
7. Do we focus on early buying cycle customers, out of warranty in service or finance payout customers who haven’t had time to shop?

Finance and Insurance

1. Do we keep our units per F&I low to give them maximum time for conversions?
2. Early introduction – do they take all test drives (signing in and out) and get a chance to qualify early?
3. Repayment selling – do all cars have repayment window hangers and these are used by the sales consultants as sales tools to minimise the price conversation?
4. Are proper introductions to the BMs made 100 percent of the time?
5. Do the BMs contact all expiring finance customers to start a changeover conversation?

Service

1. Is our full focus on customers in our PMA or close by who will service with us?
2. Are 100 percent of customers given a proper introduction to service and booked in for their first service?
3. Is this policed and action taken for lack of follow-through?
4. Do we provide a five-year mechanical protection plan to keep the customer tied to the dealership, and are they reminded of its value at each service?
5. Is our CRM centre doing one month, one week and one day follow-ups and are all non-booked customers followed up by service?
6. Have we brought all outsourced work in-house (used car reconditioning, wheel alignments, brakes, tyres) to avoid loss?
7. Do we have timed arrivals and departures to slow things down, reduce congestion and increase up-sell opportunities?
8. Do we target 40 percent ‘wait jobs’ so we can talk about additional work face-to-face?
9. Do we send invoices out via email two hours before pick up to avoid issues and congestion?

Parts

1. Do we pre-pick parts each day to increase labour efficiency and get the techs focused on what’s not there rather than on what is there?
2. Do we greet every customer in the service driveway and make the most of our opportunities whilst they are in the service department?
3. Are all service bookings timed to allow time for proper driveway review?
4. Are all techs and advisors on parts up-sell incentives of some form?
5. Do all internal parts have to be ordered by the parts department (trays, tow bars, etc), rather than sales to ensure we have the chance to match prices and keep the work inhouse?

“In the euphoria of buying a dealership, the purchaser often loses sight of the strategic purpose of the acquisition and focuses on the brand and location, ignoring the importance of the Big 6 to long-term performance,” Mr Bragg says.

He says Dealers need a clear strategy on future acquisitions and what they can do to future-proof their current operations.

Article Based on “KPMG Motor Industry Services Alert – June 2017”
Supplied by: Steven Bragg
Motor Industry Services
Enterprise
KPMG.