At the conclusion of the NCMi webinar on “Finding the Missing Pieces to Improve Service and Parts Gross Profit,” one of the attendees questioned our recommendation as to the necessity for sub-accounting for automotive dealerships. Robin Cunningham, the NCM Institute faculty member who presented the webinar, suggested that our next Up To Speedarticle attempt to clarify this recommendation. So, here we go!

A meaningful sub-accounting process is a primary ingredient of Measure What You Need to Manage, one of the “6 Elements of Effective Accountability Management.” Although there are additional analysis benefits to be derived from sub-accounting, the benefit discussed in the NCMi webinar related strictly to Gross Profit Margin (GPM) measurement and management. As the primary example, let’s look at Customer-Paid Parts Sales on R.O.s.

What we need to be able to do is measure our actual business mix and margins against our targets or guides for each individual sales element.  In a perfect world, our financial statement would provide separately defined line-item reporting for sales, gross, and GPM in the Parts Department section for the following:

1. C-P Parts Sales – R.O. – Repair
2. C-P Parts Sales – R.O. – Maintenance and Competitive
3. C-P Parts Sales – R.O. – 3^rd Party ESA
4. C-P Parts Sales – R.O. – Accessories
5. C-P Parts Sales – R.O. – Tires
6. C-P Parts Sales – R.O. – Fluids (Gas, Oil, Grease, ATF, etc.)
7. C-P Parts Sales – R.O. – Customer Discounts

Unfortunately, most dealers don’t live in this perfect world. With many franchise financial statements, the reporting is limited to one line-item, typically defined as simply C-P Parts Sales – R.O.; and without meaningful sub-accounting, there is no way to determine the business mix or margin for each sales element. With a good sub-accounting process, the detailed information we need to measure can be accurately reported within the DMS, even though only the aggregate sales and gross totals and average GPM is reported on the financial statement.

What else should be sub-accounted? Any other element of sales, gross, GPM, $PVR, or expense which needs to be measured and managed and does not have a dedicated line item designated on the franchise financial statement! As examples, depending on the detail of your franchise financial statement, here are a few additional suggestions you may wish to consider for sub-accounting:

• Warranty Parts – Elements with significantly different margins, such as normal repair parts, assemblies (on which the manufacturer pays only “flats”), parts used on factory-paid maintenance, and possible factory ESA parts.
• Internal Parts – Accessories, reconditioning “repair” parts, reconditioning “competitive” parts, tires, fluids, etc.
• Customer-Paid Labor – Repair labor, maintenance (menu) labor, competitive labor, customer discounts, etc.
• Internal Labor – Accessories installation labor, UV inspection labor, UV reconditioning labor, detail labor, lot maintenance labor, etc.  

Dealers and managers who truly understand (and believe in) measuring what they need to manage, utilize detailed sub-accounting extensively in their reporting process. And Controllers (who are actively partnered with the dealership operating managers) willingly and aggressively support these sub-accounting processes.  What’s happening with sub-accounting at your dealership?

The webinar mentioned above was recorded and will soon be available FREE for viewing. Instructions for accessing this webinar will be announced in Up to Speed as soon as the recording is made available. “Measure What You Need to Manage” is a topic consistently discussed during all courses taught at the NCM Institute Center for Retail Automotive Excellence. For more information on the training offered by NCMi, please go to www.ncmInstitute.com,