Every Saturday night, general sales managers at dealerships across the country pick up their phones to see a familiar text from the owner: “How much and how much?”
I can’t blame the dealer managers for asking; the business has always been about selling cars and making money.
“How much and how much” has also been about asserting bragging rights within large public auto groups, against rival intercity dealerships, and within 20 groups.
But the 2021 inventory crisis has suddenly made both of those questions less relevant, as everyone looks like a juggernaut right now when it comes to sales and gross.
New car dealers sell all the new vehicles they can get and pre-sell the ones that haven’t even rolled off the production line. Average new-car gross is at an all-time high, more than $4,000 per vehicle, according to dealer statement data from the National Automobile Dealers Association.
But making big bucks in this environment doesn’t necessarily mean dealerships have maximized their bottom line. As dealers look to another successful year ahead, there are three areas of opportunity that deserve more attention than “how much and how much”.
1. Percentage of incoming vehicles sold: Dealerships need to think of their operation more like an airline. Airlines try to pre-sell every available seat; dealers should take the same approach when it comes to retailing incoming inventory. According to Automotive News, the factories produce 65 to 70% of their normal production volume. This microchip shortage is expected to remain a problem for the next 18 to 24 months. Knowing that automakers allocate their limited on-hand inventory to dealerships with the lowest days to sell and highest sales volumes, dealerships should target preselling at least half of their inbound pipeline each month to keep up with the pace of dealers earning the biggest monthly allowances.
2. Sales volume per employee: The Cox Automotive Dealership Staffing Study 2021 noted that 54% of dealerships are looking to increase their number of employees. That’s a bit of a headache considering that the average number of sales per NADA employee is 16, while the top performers in the industry are 23-25 per month. This represents 30% more production per employee, which equates to significantly lower expenses. But there’s another big benefit to having fewer, but better people: Fewer salespeople can lead to higher revenue and less turnover during this workforce crisis. Dealerships should aim for a total sales throughput per employee of more than 20 people.
3. Advertising cost per vehicle: The average advertising cost per new vehicle sold fell from $591 in 2020 to $601 in 2021, according to NADA data. Why would dealers spend more to generate demand in 2021 when there is massive demand and a shortage of supply?
As dealerships increasingly allocate their advertising budgets to digital marketing, understanding the difference between fake and genuine audiences has become critical. Steve White, CEO of Clarivoy, a sales attribution company, told me that a major data marketplace, which sells audience data, identified him as a buyer in the marketplace for all industry segment. Guess what? It is do not in the market for a new vehicle, but its web browsing cookies and identity are sold to dealerships as if it were.
“Dealers need to rethink how they prioritize their marketing investments and question the in-market audiences they are buying from,” White said.