Last year, 16.4 million new cars and light trucks were sold by automotive dealerships across the country. However, according to research conducted by the National Automobile Dealership Association and McKinsey & Company, this increase in sales has not translated to increased profitability.

And that’s a problem. This research seems to indicate that as sales increased, so did cost. We covered in a recent article a number of ways organizations can cut costs (without cutting employees), but there are also a number of proactive ways you can spend that will result in long-term, sustainable profitability.

While every car dealership is different, and while each have their own unique challenges that might need special attention, the following strategies have the potential to improve the profitability of any dealership. So let’s dive in.

Invest in Your Employees

First, high turnover rate is a problem for many car dealerships, as you lose both the time and money initially spent on paying and training these employees. However, according to the NADA/McKinsey research mentioned above, trends show that the most successful dealerships tend to have the lowest turnover rates.

As illustrated by these findings, it’s smart and practical to invest in your employees, to work toward reducing your turnover. There are a number of steps you can take while doing this. For instance, consider implementing more structured talent management practices, like a structured recruiting process with multiple interviews. Though this may take longer and may cost a bit more, it will enable you to find the best candidates for the position and to weed out the rest.

Additionally, after the interview, after you hire the best candidates, you can also consider providing formal training for employees. Again, though this may take a little longer, it will result in more knowledgeable, ready-to-work employees. Long-term incentive programs are also good to keep in mind in order to retain your best performing employees.

Work Toward Customer Loyalty

On average, the cost of acquiring new customers is 4-6x more expensive than retaining current customers, which can really begin to eat into your dealerships profitability. However, while we can’t expect customers to come back every month to buy a new car, the NADA/McKinsey research shows that building customer loyalty and working toward repeat customers in the service department, can build long-term sustainability.

Sometimes it’s just a matter of doing the small things for your customers, like giving tours of your service facilities to car owners, or even prospective buyers. Impress them. You can also try to improve customer loyalty by keeping your customers in the loop.

Use content management tools and a customer relationship management (CRM) system to do some data mining. When was their last service, for example? What were the results? Send them follow-up emails or letters to remind them of their last service, and encourage them to come back. Make working with your service department as customer-friendly and enjoyable as possible.

Plan for the Future

Lastly, the NADA/McKinsey study also found that profitability is correlated with the amount of time staff spends monitoring dealership performance and planning for the future. Active monitoring allows you and your staff to find the inefficiencies in your dealership, while planning ahead allows you to plan for continued improvements—both of which are key to profitability.

One particular way successful dealerships plan for the future is by adapting to new technological trends and to consumer behavior. While dealerships are still the preferred place for consumers to make a final purchase decision, they tend to spend much more time on dealership and third party websites to scope out cars and educate themselves. Because of this shift in behavior, it’s important that your dealership has a functional and up-to-date website, showcasing your inventory and giving your dealership a personal touch.

Additionally, adopting the right technology within your dealership is also critical to both your efficiency and profitability. Things like the CRM system and content management tools mentioned above have a number of benefits that the most successful dealerships are currently reaping. Content management tools, for example, can reduce the time spent looking for the documents you need to close a sale, as all your files are stored in a single web-based storehouse that is fully searchable.

 

Using the right technology, hiring and retaining the right employees, and sending the right message to the right customers are essential to improving profitability.


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