Return on investment is what any business strives for, but with dealership ROI falling to as low as 0.4 percent in the second half of 2018 dealerships are facing tough times.
The expert panel, hosted by Dale McCauley, Partner, Deloitte Motor Industry Services, at the AADA 2019 Convention & Expo in September, discussed the issues.
Mr McCauley said he believed profitability was the number one issue Dealers should be talking about. He asked the panel members how their businesses’ ROI had changed over the last 12 months and what they thought was causing it.
Mark Woelders, Managing Director, Motorama Group, said dealership ROI had been the victim of ‘a perfect storm’ combination of the ASIC inquiry into finance and insurance, the Banking Royal Commission and a lack of consumer confidence.
“And then I think Dealers and OEMs have been caught short, with an overstock situation,” Mr Woelders said.
“The market’s come back quicker than what we anticipated, and the more stock, the less gross as we push it out the door. But it’s also an opportunity for OEMs and Dealers to work better together in partnership to get it right for the future and deal with the current problems as one, rather than moving from one problem to the next.”
Wade von Bibra, Managing Director, von Bibra Motor Group, said ROI had been declining for the past two or three years.
“We’re desperate at the moment so, right, we’ve been doing this, let’s make sure, so we’re here right now and we can start the trend of increasing ROI,” he said.
“The market’s back 10 percent in new car sales, financial regulations have made it really difficult. It’s tough to get a deal, and then a lot of the time we can’t get that deal approved, so we’re handing back deposits and walking away from business. It’s a real challenge but in these tough times you’d like to think, as Dealers and as OEMs, as financiers, that we all really bind together and say, ‘look, we’re all a part of this problem, we all need to be part of the solution and work together to try and improve the current situation.”
Mr von Bibra said the industry needed to address the ‘pre-report, tremendous volume-push’ trend that saw Dealers reporting cars as sold in order to trigger income from OEMs.
“This situation that we’re in, where Dealers have a two- or three-thousand-dollar price advantage over the Dealer up the road or down the road because they’ve pre-reported cars and demo’d cars, is just not healthy. Unless we can fix that, that’s going to undermine a lot of the good work the Dealers are doing.”
Graeme Stewart, Director, Gasmak Motor Group, challenged Dealers to examine their methods. “ROI is not just monetary,” he said.
“ROI is about reward for effort. Everything we do, everything we focus on in our business in the supply chain, if we focus on the process – and stripping things out of the process – we can improve the indicator, which is the monetary value at the end of that activity.
“When you look at why Toyota is a standout among the OEMs, they have a direct relationship and a direct conversation with the Dealers on everything they do. Many of the OEMs do not. Some go out with their own opinion of how things are sold, how things are done, to their own detriment, actually. And, unfortunately, the detriment, whatever they do, that becomes the market leveller.
“If you’re putting effort into anything – if you’re not getting the reward you want out of it – then change. Do something different, look at it from a different angle, approach the subject differently. That’s what we need to focus on as Dealers, I think, in the current market going forward. The game plan is going to be this way for a little while.”
Debbie Clark, Director & Dealer Principal, Nepean Motor Group, urged Dealers to look beyond just sales for their income.
“The biggest challenge we have today is…we’re up to about 72 brands and we compete for a maybe one million market. You’ve got the rats – with all due respect – at the top, and you’ve got the mice, and we’re all fighting for that one customer that walks into our dealership,” she said.
“Some positives have come out of that. We used to focus very heavily on the front end of our business, and the back end used to just rattle along. Now, it should be forcing us as a network to focus on the back end of our business strongly as well – our service department and our parts – because that’s where we’re going to get our next customer from.”