4 Ways to Control Dealership Expenses

September 06, 2019

It’s always a good idea to keep your dealership’s expenses under control. But there are times when this becomes even more important. The next year may be one of those occasions, as many economists are predicting economic decline. According to the June 2019 Wall Street Journal Economic Forecast Survey, for example, nearly half of the economists polled, 48.8%, expect the next recession in 2020. That was up from just over a third in the May survey. 

Here are four suggestions for cutting expenses at your dealership.

1. Prioritize expenditures. Create a list of all expenses over the course of a year and separate them into three categories: “must-have,” “nice-to-have” and “don’t need.” Let your department managers provide input on which expenses should fall under each category. The general manager or owner should then make the final call on the categories.

Another technique: Have a check-signing “party” in which department managers are brought together and quizzed about necessity while the owner or general manager signs vendor checks. This puts managers on notice that their spending decisions are being scrutinized. And it may encourage them to use more discretion when making purchases.

2. Review compensation. Dealerships must walk a fine line between paying employees too little, and thus being unable to hire and retain quality workers, and overpaying. To find the right balance, first determine what similar dealerships are paying for various positions in your area. Doing so will give you a benchmark for setting compensation. NADA conducts the annual Dealership Workforce Study to collect useful data. Dealer 20 groups are also a good source for this kind of information.

Next, in a compensation review, analyze the total amount of salary, wages and benefits allocated to each employee. Compare this to your benchmarks and to each employee’s most recent performance review. Then consider adjusting as necessary to bring compensation in line with benchmarks and performance.

3. Scrutinize advertising. Advertising can be a “black hole” into which some dealerships pour tens of thousands of dollars each year, but have little idea of their return on investment (ROI). Work with your advertising agency to measure the effectiveness of your advertising. Eliminate ineffective strategies and devote these funds to more successful campaigns that generate positive ROI.

If you haven’t bid out your advertising lately, consider doing so. Over time, your ad agency could raise your rates 5% to 10% a year without a correlating increase in effectiveness. However, you might not realize this unless you perform a cost-benefit analysis. Let your current agency know you’re soliciting bids, and ask them and potential new agencies for some fresh new ideas.

4. Walk through floor plan interest. The key to reducing floor plan interest expense is managing your vehicle inventory judiciously. Interest costs can spike dramatically when vehicles are at your dealership for longer than 45 to 60 days.

Another way to lower the interest is to take advantage of cash management deposit accounts offered by some manufacturers’ finance companies. These accounts enable you to earn a credit on deposited funds that can help offset your interest expense. Also, if you haven’t recently, shop your floor plan line of credit. Competition has increased among banks and finance companies, which you may be able to use to your advantage.

© 2019