| Don't let unprofitable deals damage your business |
|
Managing Director
Mikael Teerilahti, Grey-Hen Oy There is no point messing about with profit. However, it seems that dealerships accept unprofitable deals as something natural. This can be very damaging, as sales at a loss can eat up as much as half of the entire sales margin. 
An example of a typical list of sold cars.
Sales margin does not equal profit. After you deduct all the expenses from the margin you are left with the profit. The profit from the selling price is nowadays only parts of a percent. This emphasises the importance of the right pricing, whether you are buying or selling to a private person or another dealership. Good result from profiling and optimising By changing the average purchase price or the average sales price to the correct direction by one percent you can double your net profit. So profiling and optimising can easily provide notable results. Some of the realised sales create loss and the effect of these sales to the net profit is often considerable. The unprofitable sales can take a third, or even half of the entire sales margin. It has a multiple effect on the net profit. It seems as though dealerships have accepted unprofitable deals as something natural in the trade. However, the number of unprofitable sales varies from one dealership to the next. By observing the methods of the better dealerships, we can learn to decrease the number of sales that create loss. It is common that the sales include a bunch of unprofitable deals. The attached chart has the margins in red. Under the list you have a graph of the profits and losses. The sales margins are here cumulatively starting from the best and ending with the biggest loss. The maximum profit is received with a fraction of sales. When the main task is to sell new cars, it’s understandable that some of the deals are made with a low margin. However, unprofitable sales are nothing but downright mistakes. Notable differences between dealerships There are clear differences between dealerships. It’s efficient to transport know-how from the better dealerships to the ones that are not doing as well within the same chain. Separate dealerships receive different sales prices for the same models in the same market area, even on the same street. It can be that one dealership sells Opel with a good price and profit, whereas the other is not as successful and the price level is several percents lower than the neighbours. Even the dealerships of the same chain can have differences in purchase and selling prices in the same town. The differences in price level – sales margin and net profit – are first and foremost dependant on the management and control systems of the dealership, as well as the skills and the will of the sales team. A high number of old stock cars is often thought to be a sign of trouble in the business. It's not as commonly known, however, that almost all cars with long selling times have been bought in with a price that is too high. The asking prices are persistently kept too high, and when these cars are finally sold, it’s at a loss. 
The maximum profit is received with a fraction of sales.
No one notices the cars sold too cheaply A phenomenon that is more difficult to notice is trade-in cars that are sold too cheaply. Most of used cars are sold quickly. On average, two thirds of all cars are sold in less than a month. Some of these cars have been bought in cheaply compared to market prices, but they are also sold with a small price. After you become aware of this phenomenon, it’s easy with management and control to noticeably improve the sales margin in this car group. The price level in wholesaling is 10-15% lower than consumer sales prices. Thus, the best alternative for a dealership chain is to move own vehicles between dealers and even out the stock cars to correspond with the demand. For the sales margins, it’s important that the cars for wholesaling are selected carefully and not just to control stock sizes. It’s also a misconception that wholesale dealers buy cars that are difficult to sell. They are offered lots of good vehicles and the difficult vehicles will stay in your own stock. Mistakenly offering a customer a trade-in price that is considerably lower than the market price is an efficient way to prevent a sale. But a good sales person can justify a reasonable price difference and make a sale even though the price offered isn’t the best price. It’s not just a question of price for the customer. However, if the price is considerably different from a competing offer, the risk of losing the deal grows drastically. All sales cannot be made, but a good or a bad sales performance has an impact on the probability of making a sale. A good performance consists of many things. Generally, they can be divided into three main categories: activity, commercialism and adaptiveness. A salesperson should be good in all three. Even if you have faults in just one category, the chances of making a sale are diminished.  This article was published in Suomen Autolehti magazine. 
There are notable differences in the profit profiles of different dealerships.
|
|
