There’s not a dealer anywhere who doesn’t constantly keep his or her ear to the ground looking for additional franchise opportunities. It’s not a question of whether or not you’re receiving a good return on your existing brands, but rather the obvious chance to leverage your infrastructure for incremental profit that attracts interest.
There are a limited number of directions this pursuit will take you – a buy/sell with an existing operation, or, for the lucky few, a new point. This can take the form of an additional location for your existing franchise or an entirely new brand.
In either case, a significant investment will be required. With an existing dealership, the cost of parts, tools, furniture, fixtures, vehicle inventories and blue sky can be considerable. Add the cost of real estate, and the numbers rise accordingly. With a new point, these same costs can be incurred (with the exception of blue sky), and in both instances, additional working capital requirements can put a strain on your balance sheet.
Some dealers report that the efficiencies expected through multiple operations don’t always reach the levels predicted, and in the worst-case scenario, net earnings remain flat. Each of these illustrations demonstrates the focus most dealers have on increasing their return on their investment in infrastructure, inventory, personnel and goodwill.
Opportunity can sometimes be found in the strangest places. Sometimes, by investing the same kind of time and energy to acquire an additional brand and redirecting it to your existing operation, it’s possible to achieve a dramatically improved ROI with benefits that far outweigh the alternative.
This premise is based on a number of assumptions. First, the moment the “hunt” begins for a new store or franchise, focus on existing operations can be diminished. While this is certainly a question of degree, arguably it is unlikely that both activities can take place without displacing the diligence required to keep every department operating on plan. Secondly, in many cases, the promise of an additional future revenue stream reduces today’s sense of urgency to meet profit objectives. And, finally, in most dealerships the opportunity for margin improvement exists and presents with it an immediate return.
It just makes sense to look for opportunity at home before looking elsewhere. You may, in fact, already have a “new franchise.”
If this premise is valid, why would such obvious opportunities be overlooked? The reasons aren’t always clear, but they usually fall into the same categories. In some cases, dealers don’t have the data to realize the profit leaks that exist, and in others, management doesn’t have the skill sets to improve upon existing trends. In either situation, the good news is that the resources to bring your performance to the next level are available.
What are the best places to look for hidden income opportunities and quick returns? The answer to this is somewhat subjective as each manager or dealer possesses different competencies. For that reason, it often makes sense to start in the variable operation as significant revenue generation is already occurring and an incremental change can have tremendous yield.
When Pat Ryan formalized the finance and insurance department and process in 1964, a new profit center was created. By adding value to the transaction process, both dealers and customers benefited. With the addition of a commissionable manager, a small amount of office space and hardware, the ability to increase variable gross profit 30-50% was possible.
Since then, F&I has achieved premier status as a profit producer, but the opportunity to realize immediate and significant increases still exist in most stores. Those achieving the highest levels of performance typically report that several critical elements form the foundation of their F&I strategy:
- A top down mandate for a 100% balanced and compliant presentation 100% of the time
- The requirement for ongoing customer-centric training for the entire F&I staff
- Equitable and motivational compensation plans for F&I managers and all those involved in the sales process
It doesn’t take complex math to calculate the amount of available potential with per unit increases of just $50-100 per car in F&I performance. Achieving that type of increase or more can dramatically change your P&L and is usually obtainable by partnering with the right F&I company. A 100 car per month store can generate an additional $120,000 in income. There are no guarantees that an additional franchise can perform at that level – and, with no additional expense.
The dealers who partnered with Pat Ryan almost 40 years ago, have become industry leaders. In fact, his company, now called Resource Automotive and owned by Aon, a global Fortune 500 company, has 8 of the top 10 dealer groups in the country as clients.
The insights gathered from working with America’s top operations are available to every dealer, through a partnership with Resource.
Another key area of “internal franchise” development is variable operations, specifically new and used vehicle inventories. There is no greater concentration of capital deployment in the dealership, with no greater risk of capital dilution as well. With risk, however, comes opportunity.
Today’s publicly owned dealer groups have spent millions developing systems to assure that every dollar invested in inventory is tracked and its return calculated and reviewed with management.
Management has access to reporting systems that look forward as well as backward and provide action plans for vehicle acquisition, pricing, wholesaling and appraising. These traditional functions have become formalized processes, and the returns are significant.
What would it mean to you and your mangers to have these same insights, as well as the ability to maximize floor plan credits and minimize floor plan interest; bring precision to not just model, but color trim and price points for new and used vehicle stocking; systems to identify most profitable, top selling and fastest selling cars and trucks; and, all in an intuitive and easy to understand format?
Getting the full benefit of “recreating” your franchise means managers must have access to the information they need to affect immediate change. Concurrently, dealers must have the same access to performance metrics to coach their managers and get the most out of the entire variable operations team.
Once again, using your current production as a baseline, how much of an impact could having this information have on your current profitability? Would stocking the right vehicles at the right time, and matching appraisals to market demand for your specific customers mean additional sales? How much additional F&I could you produce from these added deliveries?
ResourceVIP from Resource Automotive gives its Variable Income Partners (VIP) clients the same tools and insights that have propelled America’s leading dealers to the highest levels of performance in their new and used vehicle departments, allowing them to create virtual “new franchises” within their existing organizations.
The search for additional profit never ends. The answers, however, are not always where you expect to find them. Take an objective look at your own dealership’s finance and insurance production as well the processes you have in place for vehicle inventory management and acquisition and how they are performing. If you’re like most dealers, you’re likely to conclude that significant improvement opportunity exists.
If you saw an ad for an attractive new franchise requiring no additional capital or facility investment and with no “blue sky”, you would certainly seize the opportunity. Before you get out your checkbook, be certain your “new franchise” doesn’t already exist and is simply awaiting your recognizing its potential.
Rob Mancuso is Senior Vice-President of Marketing Communications for Aon Warranty Group and Resource Automotive.