Comment

Comment by Stanley Esposito on March 16, 2011 at 8:41pm

I am a volume guy.

Comment by Geoffrey Veit on March 10, 2011 at 11:40am

My experience has taught me that volume or gross, one or the other, isn’t the thinking you need. Obviously volume without gross and gross without volume are not what any dealer wants, you need both.
I think it’s a total picture attitude that makes the difference..  Getting good grosses while producing good volume requires a plan that includes being effective in a number of areas.
If the entire sales department is taught how to “sell” and they sell the unit and the store, that helps.
If the method used for desking the customer proposal is the most palatable for the prospect, that helps. 
If the advertising and prospecting methods are effective, that helps. 
If your sales managers are trained to spend 90% of their time with a salesperson or a prospect, that helps.
If the inventory is balanced and has a good mix, that helps
If the morale at your store is good, that helps 
If your service department has a good reputation, that helps
If you give the prospect real reasons to buy, other then price, they will.

Every sales department wants to get gross and volume but it's the willingness to prepare that makes the difference.    

Comment by Ted Lancaster on March 9, 2011 at 12:30am

This is, and always will be one of the great debates of the auto business. It is also one of the most common discussions between dealer and manufacturer. Ideally, as many have said "get the best of both and the dealership will be in good shape". I have always believed in the 1/3 philosophy in order to get the most of the deals by month end. That being if you plan on 1/3 of deals being low GP, 1/3 being average GP and 1/3 being above average GP then you will have a good average GP and good volume.

 

The other part of the debate is the back end business. While having 10 deals at $3500 GP is great and better initally than 15 deals at $2000, what about business office GP, accessory averages, and the future service business for the dealership if your customer retention is strong. You then get the additional dollars on the 5 additional units and 5 more service customers and that is the one aspect of this arguement that is often forgotten.

 

Good question and a great debate that will carry on in the industry for years to come.

 

Comment by Roger Conant on March 8, 2011 at 11:41am

I'd say neither.  Let's add "relationship" to the choices...cause if the front end doesn't build the "relationship"(after the sale)...there will be less and less gross and volume.  Good post!

Comment by Jae Chang on March 3, 2011 at 5:38pm

Jasen, excellent post!  ROI !!  ROI !!  much like the Finance Dept"s ROI !!

Comment by Jasen Rice on March 3, 2011 at 2:53pm

Here are two problems that we run into with this question, just focusing on average gross per deal and pay plans. 

Lets look at two deals, one car is $20,000 and front gross is $2400, the other car is a $8,000 and front gross is a $1600 deal. Looking at just front end gross, the first deal is better and looking at pay plans for sales people, the sales person wants the first deal also.

But if you are the dealer investing the money, the second deal is the best and here is why. Just looking at the dollars, the first deal generated a 12% return on the money but the second generated a 20% return. Increase that($10K and $20K car deal) to a $1,000,000 inventory investment, would you rather make $120,000 (12%) return on the investment or a $200,000 (20%) return. A lot of managers and sales people will work both investment dollars (deals) trying to make $2-$4k on each deal no matter what the investment dollars are, but to maximize gross you want to maximize your return on investment and do it as fast as possible because we are dealing with depreciating assets. So if you have to price a car aggressive to generate volume, look at the the ROI on the deal and if it is low, get off the car as soon as possible and reinvest those dollars into an investment that will give you a better return.

Comment by William Demaree on March 3, 2011 at 2:10pm

Well, I say you are entitled to as much Gross as you can get and then go after volume. It amazes me to see so many people afreaid to offer the sale to a customer at the same time keeping Gross. I have learned if you Offer a product to a customer they will BUY it. Dont try to SELL it. I might be willing to buy something I am interested in but do not try to sell me that same thing.

Comment by Tom Wiegand on March 2, 2011 at 3:05pm

Can we get some GP examples on February volumes?  What was front-end GPVR on New, and Used on 1st number deals, 2nd number deals and total?  Does it matter the brands?  When value is purchased, does gross improve on less #'d penciled deals?  What is your typical 1st number gross profit?  Do you measure 1st and 2nd number sales against the rest to coach both the selling process and the managing process?  Excellent blog!

Comment by George Toth on March 2, 2011 at 12:35pm

The question kind of reminds me of a NADA seminar in the lte 80's. The presenter said and I am trying to quote, "mr.dealer I can show you all the low gross deals you wrote last week, just meet me in your service department between 8:00 and 10:00 and they will all be there complaining".  Point is many low gross deals are headaches, but we do need to take some of them. Unfortunately the automakers stuff too many vehicles into an already overcrowded market and expect them to be sold quickly. Most automakers have CSI standards, if you keep taking the low gross deals more often than not your CSI takes a hit. There is a fine line you need to walk here as many automakers have financial incentives for sales goals, CSI, and other pet projects. Being short of the goal can devastate your store financially. There is no one size fits all answer as each market is different, but falling into the redlining gross or taking anything that comes through the can play havoc. It takes careful evaluation on a constant basis to have a successful balance.

One item to watch, ups to write ups and ups to closes. This might expose your hotshot salesperson as taking twice the ups of the other sales people making his closing ratio dismal. He usually will talk to a customer and if he figures it is a mini he kicks them to the curb so to speak and grabs another. Some low gross customers are great for business, I had a friend that always beat me up and shopped like crazy to get the cheapest deal out of me, but the number of people that I sold as a result of him made him one of my most valued customers. By the way his wife refused to go to a dealership with him because she was embarrassed by the way he acted.

In my retail experience most repeat customers are high gross customers and are very loyal to the dealership and the service departments. The low gross deals seem to be the "fix it if it is free" crowd that has there vehicle maintained by the lowest bidder. One way to be able to take those low gross deals is to cultivate and stay in contact with your old buyers, something most dealers have not done well.

 

 

Comment by MANNY LUNA on March 2, 2011 at 12:17am

High Gross, Happy Owner — Low Gross, Give them the Service Manager’s number and your 1-800 Hotline because they will use them both.

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