As mentioned in our previous article, 2019 Trends and Insights for Dealers, sales may be off slightly in 2019, but still will be close to record levels. In a strong economy, it is difficult to control expenses. This article summarizes our thoughts on expense trends in 2019.
Labor – January 2019 notched the 100th straight month of increased employment. Dealerships are experiencing five percent or higher growth in wage expenses year over year. Increased labor costs will continue, and the labor supply will shrink. Consider hiring younger staff, with possibly minimal experience, for new or vacated positions. Younger employees can overcome their lack of experience with superior technology skills. The technician shortage is real and will continue to be problematic. Dealers will need to think “out of the box” to recruit and maintain an adequate supply of technicians.
Courtesy Transportation/Loaner Vehicles – Manufacturers will continue to pressure dealers to increase their loaner fleets. Controlling the loaner department expenses is critical. These vehicles will ultimately end up in your used vehicle department. Determining which units to place in the loaner fleet is important. Some models fare much better when they land in the used vehicle inventory and are sold as retail units.
Interest Expense – We all know that this expense has grown, and that pattern will continue. Inventory management is the key to controlling this expense. One of the biggest mistakes that dealers make is not understanding the cost of carrying too much inventory. You need to constantly monitor the days supply of new and used inventory. Sales management believe that they can sell every vehicle that they order, take in trade, or purchase at auctions. The dealer must control their enthusiasm by setting a bench mark on days supply and sticking to it. It is also important to understand which vehicles to order or purchase to reduce the number of aged units.
BDC Department Expenses – All dealers have incurred significant expenses in maintaining a BDC. It is not just the wage expense and employee benefits for BDC personnel. How much office space does your BDC occupy? How much are you spending on BDC software? We all know that a dealership cannot survive without a BDC. In some cases, you will have to operate a BDC just to maintain sales levels of the past. So, how do you cover the costs? You need to change the expectations of the sales staff. If the BDC center is lining up the sales staff with qualified sales leads, and you need to cover the costs of the BDC center, then each sales person needs to sell more vehicles. For example, pre BDC the expectation was a salesperson had a goal to sell ten to twelve vehicles per month. They will now need to sell fifteen to eighteen to cover the expense of the BDC center. This is not unreasonable, as the sales staff is not spending as much time on the phone or internet generating leads. Our observations are that smaller dealerships are struggling mightily with the BDC center. If they don’t adapt soon, they will struggle to compete.
In conclusion, experts predict another strong year for dealers. Expense control is difficult in a robust economy. Hopefully the above comments will assist you in gaining an understanding of the areas to focus on in 2019.
If you have any questions regarding this article, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com or at 800-849-6022.
