Improving Gross Profit Part 1

$3,000 average front gross profit. Yep, you can do it.

Achieving $3,000 on the front is easy enough to do. It really is. You can do it overnight. Yes, all of you can. I believe in you and I know you can do it.

When dealers are screaming about low grosses they often point to the fact that their cars are priced too low on the internet and therefore the easiest solution is to increase the prices.

The fact is you can improve your grosses dramatically overnight by increasing your prices. I mean really if you don’t ask for it how do you ever think you will get it? Remember you can always go down but it’s impossible to go up.

Yep, that works for me. Raise your prices, ask for more and you will get more. Gross has always been a state of mind. Whatever mindset you are in then you can achieve it.

So, right now, right this minute, right this second, all of you need to stop giving your cars away, raise your prices and the grosses will go up.

As good as that all sounds there are a number of little problems with raising your prices:

1. Your used car volume is going immediately in the tank.
2. Your total gross is also going so far south you will lose your butt.
3. Your profits are going to be pooh pooh because you have totally cut off the spigot of cars going through service.
4. Stealing trades will become the norm and new car volume will go into the tank because you are reluctant to step up.

Doing used car volume and achieving high used car average gross goes against the laws of nature. I’m not saying you can’t improve your grosses, but the days of doing $3,000, $2,500 and in some cases $2,000 are history.

Your best opportunity to improve your overall business is to improve your volume. Improving volume improves business in all your departments.

You can’t spend average gross profit. You can spend total gross profit. Stay tuned for part 2 next week when I’ll give you some realistic tips for actually improving gross profit. Look for part 2 in 2 weeks.That’s all I’m gonna say. Tommy Gibbs

This Is Difficult

What’s difficult? What I’m about to say is difficult. I don’t like saying it, but it’s the truth. People lie.

When they lie the impact is expensive and painful. What lie am I talking about?

It’s the lie of:

“Yes boss, I’m all in.”
“I’m with you.”
“Let’s rock this thing.”
“I think you’re brilliant.”
“This will take us to the promised land.”

They are looking right at you shaking their head north and south on the outside, but on the inside their head is going east and west and they are thinking, “No way!”

Behind the scenes they are circumventing whatever it is you’re trying to do. They don’t want the change you’re trying to implement and they have convinced themselves that the old way is the best way. They have a hidden posse of followers that they have gathered up to help spread the negative propaganda.

They will act like they are in the boat rowing with you, but at the same time they are drilling holes and letting the water seep in.

They will play along with you for some period of time as if they support the idea, but plant seeds of doubt to convince you that you’ve got it wrong and that we need to go back the other way.

In the end, one of two things will happen. You will listen to them and bail out of the idea. Legacy thinking wins again. Or you figure out what’s going on and send them packing.

Either way it’s going to be expensive and painful for you.

It would be a lot less expensive and painful if you had figured it out sooner.

You’d figure it out a lot sooner if you would just pay attention. That’s all I’m gonna say, Tommy Gibbs

What If This Is You?

One of the more interesting things I’ve discovered over the years is that unless a dealership has a really large body shop or does a big job in wholesale parts, that the difference between the used car inventory and the parts inventory runs about 75%.

In other words, if you have $1,000,000 tied up in used cars you probably have less than $250,000 tied up in parts. Now here’s the most amusing part. Every dealership has a dedicated parts manager. Not every dealership has a dedicated person handling used cars.

It is not unusual for someone to be serving double duty and sort of handling used cars. Sometimes it’s the desk manager. Sometimes it’s the sales manager. Sometimes it’s the general sales manager. Sometimes it’s the general manager.

The conventional skills we once looked for in the person managing our used car inventory have no doubt changed over the years, but what hasn’t changed is that somebody has to “own the department.” Without ownership the department is left to run itself.

Using my example you have a dedicated parts manager managing a $250,000 inventory that actually goes up in value each day.

On the used car side you have $1,000,000 tied up going down in value each day without a dedicated manager.

You might be sitting there saying, “Hey, wait a minute that’s not our dealership.”

Sometimes even when you have a dedicated manager, they aren’t dedicated.

Either way this might be you. That’s all I’m gonna say, Tommy Gibbs

Can You Relate?

The Peter Principle is a management theory that states the selection of a candidate for a position is based on the candidate’s performance in their current role, rather than on abilities relevant to the intended role.

Thus, employees only stop being promoted once they can no longer perform effectively, and “managers rise to the level of their incompetence.”

Promoting people to their level of incompetence is one of the biggest issues facing businesses and is extremely prevalent in the automobile business.

Dealerships spend thousands of dollars in time and money developing staff members’ “managing skills.” We’ve all observed such people. They are wizards at managing things, processes and resources.

Someone may have been an awesome new car inventory manager. They were great with details, data and were as organized as a flight director at NASA. They can organize a herd of cats, but have zero leadership skills.

One day the big opening occurs and they are promoted. Bam!

Hello “Peter Principle.”

All is not lost. People can actually learn leadership skills. Of course the best way to learn is to have great mentors.

Far too often the person that got promoted is more than likely replacing someone with similar managing skills and little or no leadership mentoring has taken place.

If CEOs and owners would spend as much time, money and energy on developing people’s leadership skills as they do on developing management skills we’d have a lot less Peters to deal with.

That’s all I’m gonna say, Tommy Gibbs