Getting Results: 5 Strategies for Improving Dealership Profitability

To an outsider, it probably seems incredibly lucrative. Keys exchange hands and high-priced vehicles get driven off dealership lots on a daily basis.

But anyone truly familiar with the retail automotive industry knows better, knows that dealership profitability can prove fleeting in the current economic climate.

While dealership revenues continue to rise steadily, so too do expenses. Maintaining facilities that meet automakers’ mandates with regards to offering state-of-the-art showrooms and customer waiting areas proves costly for dealerships, as do payroll obligations. And whenever a new car sits on the lot for more than a few months, it’s nearly impossible to turn a profit from selling that particular vehicle.

In recent years, the new-car dealership profit margin has hovered at just more than 2 percent. It’s a thin-margin industry, to be sure. By comparison, industries like accounting, real estate, and dentistry —to name a few —tend to enjoy profit margins exceeding 15 percent on average.

Sure, the retail automotive landscape has changed drastically during the post-recession era. But dealership profitability doesn’t need to disappear like the new-car smell from a vehicle pulling off the lot. Here are five strategies for making your dealership more profitable in the quarters and years ahead:

1. Focus on Recruiting Top Talent

Talent management and dealership profitability go hand-in-hand. The National Automobile Dealers Association estimates the average dealership employs 64 people. When you have the right team in place, your dealership reaps the benefits of top performers who thrive at sales and skilled technicians renowned for their customer service. Conversely, when your dealership is plagued by high employee turnover, you’re constantly incurring costs associated with hiring new staff.

Develop a strategy enabling you to not only recruit top talent but also retain employees who excel. Incorporate a structured recruiting process that brings in the right people, conduct formalized new-hire onboarding that promotes employee retention and strives to instill a dealership culture that rewards successful team members who stay for the long haul.

2. Bolster Your Online Presence

The consumer retail automotive experience has undergone a paradigm shift in recent years, as prospective car-buyers increasingly replace showroom visits and test drives with online automotive reviews and vehicle history reports. In fact, in many cases nowadays consumers spend such ample time conducting Internet research beforehand that they only need to visit one or two dealerships before confidently securing a vehicle purchase.

Since you can no longer count on would-be car-buyers devoting their spare time to visiting a half dozen or more dealerships, you must instead engage them on their platform of choice. Cater your dealership’s website towards enhancing the online car-shopping experience and interact with prospective customers on your social media sites, answering questions and addressing concerns before they become negative reviews. Achieving a positive online reputation will go a long way with boosting your dealership profitability.

3. Streamline Your Dealership’s Sales Process

Once you’ve established an enhanced online presence to serve as your dealership’s initial touchpoint with prospective customers, you can seek to make your in-dealership sales process more efficient. Whereas before perhaps you had 10 employees working on different components of a vehicle transaction, your online engagement affords you the opportunity to use fewer staff members to secure a sale. When your website serves as an effective front door for your dealership, you also can consider investing less in future facility upgrades. By succeeding in trimming expenses, your dealership profitability stands to gain.

4. Incorporate a Dealer-Owned Complimentary Maintenance Program

Customer loyalty breeds dealership profitability. It’s estimated that 80 percent of a company’s future revenue will originate from its current core customers. Moreover, loyal customers are worth up to 10 times as much as their first purchase. But how can your dealership establish an effective customer retention strategy?

It starts with implementing a dealer-owned complimentary maintenance program. Securing that initial vehicle purchase represents a tremendous feat, but your dealership’s bottom line truly wins when you can incentivize customers back for recurring service needs. When your dealership stays top-of-mind with customers for the duration of their vehicle ownership, you build stronger relationships and increase the likelihood car-buyers return to you for their next purchase.

5. Revamp Your F&I Department

While many departments within an auto dealership endure only modest profit margins, that’s not the case for most Finance & Insurance arms. This highly lucrative department has the capability to make or break overall dealership profitability, particularly when F&I employees are empowered to negotiate with car-buying customers.

Assess your F&I department —is it producing adequate value? Profitable F&I product offerings range from financing loans to extended-service warranties to asset protection in the event a vehicle is stolen or totaled in an accident. In addition to generating added revenue for your dealership, the successful sale of customer-focused F&I products cultivates stronger relationships and more return buyers —much to the benefit of your bottom line.