Congrats — You Opened a Dealership, Now What?

Congrats You Opened A Dealership Now What?

To be in the automotive retail, training and consulting business for 14+ years one would tend to pick up some important business life lessons. At Dealer eTraining I have always kept an open mind when it comes to seeing how a dealership operates. I was fortunate to sell thousands of vehicles in my day and manage multiple dealerships. I was also very fortunate to work with great Owners/GMs and not so great Owners/GMs. One thing that has always baffled me is seeing the difference between a solid, profitable operation and a failing, money losing operation.

Here are some of the things that I WOULD NOT do if I opened a brand new dealership.

Drop $100,000 foolishly in monthly advertising expense:

I have seen this happen and it is painful to watch. The brand new dealer has relationships with vendors and advertising agencies that have never truly looked after their best interest. However, these agencies have made a ridiculous amount of money from them when they were a GM at other dealerships. How about dropping $35,000 on a radio commercial? Talk about burning through money. You build a very weak website. You start with a weak social media marketing plan. You do not invest in getting quality photographs of inventory. You sign up for TrueCar, Edmunds, CarGurus, AutoTrader, Cars.com, Autobytel and rely on getting 20 leads a month off your website and the scraps that the OEM gives you. Now you wonder why you are not converting. Hmmmm….

You do not need an advertising agency. You need to sit down and create a reasonable budget of $15–20k to start to drive traffic. There are so many great sources out there. Right now you need traffic without putting yourself into a huge financial hole.

Hire too many people:

Let’s hire 2 sales managers, a finance manager, 4–5 sales people, a BDC manager and a GM. Let’s hire a service director with 2 service advisors, a parts manager, parts advisor, 3 techs and a detailer. The dealership is not turning a profit but staff has to get paid so now the payroll is through the roof naturally. Does this make any sense?

No one knows that your dealership exists yet. Your marketing and advertising has not quite stirred a buzz yet. Your traffic is slow. Your product may or may not be hot in the market. Yet you take on this crazy expense. How about managing the people to do their jobs?

Maybe start with 1 sales manager, 1 finance manager, 2–3 sales people, a CRM, no BDC Manager, no GM, 1 service manager, 1 service writer, 1 working parts manager, 2 techs and 1 detailer (or outsource to save money). Imagine how much bleeding you will stop right away.

Buy exotic used cars from OVE that are not selling anywhere else:

Like the song by Prince “Let’s Go Crazy,” you are about to really do something nuts. Take a facility that needs a lot of work with a low line new car franchise and try to cater to upscale clientele by putting 30+ exotic vehicles online. You do not even have Starbucks coffee, a comfortable customer waiting lounge and other amenities.

We are talking $100,000 cars × 30 = $3,000,000 in used car inventory. Call me crazy but think of how much inventory you can have for $3,000,000 that can turn very fast and move a respectable profit of about $2,000–2,500 per unit.

Handle an abundance of new car inventory:

Let’s assume that you have a new car franchise which typically is not very popular. However, the OEM gave you way more new inventory than you should have in the first 30–90 days. What do you do?

You do whatever it takes to advertise these vehicles. Take $10–15k and go heavy on email marketing campaigns with companies like Cactus Sky or City Twist. I would also go heavy with direct mail in some cases. Go hard with social media, blogging, and press releases to promote the dealership and build awareness.

Start an employee pricing sale promotion to all local businesses (Hospitals, Fire Fighters, Police, Schools, Retail, etc.). This creates buzz at very low cost.

Make a plan to sell 20 new cars your first month. Let’s say you sell 20 at $1,500 each, making $30,000. Add that in with the $80,000 you made from used cars, and you’ve sold 60 cars and made $110,000 from sales.

Completely ignore service operations:

You overstaff the department, no one does work, and you have no advertising plan. The number one profit center in the dealership that should cover your expenses is failing you.

Offer aggressive deals on oil changes, wheel & tire work, and basic services. Do direct mail, email, and social media campaigns. Partner with Groupon. Treat customers right and they will come back.

Initially, the service director and one advisor should handle the job. Set a goal for 10 customers a day and $2,000 in daily gross — that’s about $50,000 your first month.

Hire a BDC right away:

Not yet! Leads can be handled by salespeople. Once you’re consistently moving 100 units and service is profitable, then build a BDC (or GRC — Guest Relations Center) to support sales and service.

Let’s talk facts and figures.

Now you have $110,000 + $50,000 = $160,000 profit.

Keep costs low, have proactive staff, invest wisely in advertising, and manage inventory properly. The worst case in your first month should be breaking even. Grow 10–20% each month. In 12 months, you’ll be amazed at the progress.

When you’re doing $150,000 in sales and $200,000 in service — that’s $350,000 per month, allowing expansion for staff, facility improvements, and inventory. That’s the road to a $1M/month dealership.

But beware — I’ve seen dealers sell 30 cars per month, barely cracking $50,000 profit with $200,000 in expenses. How long can you sustain losing $130,000 per month?

The key is patience and smart management. I’ve been part of a new store that hit 250 cars per month within nine months because ownership managed wisely.

I sincerely hope this has been eye-opening and entertaining to read. If you’re interested in discussing this article or seeing how Dealer eTraining can help you, please contact me directly.