3 Steps to Achieve Profitability in 2018

Do you ever wish you had a key to unlock some of the great mysteries of the world? Is there a believable explanation for the five-ton statues that dot the remote Easter Island in the middle of the Pacific Ocean? Does intelligent life exist elsewhere? Why do some people get cancer, but others live well past 100? While those mysteries are still in play, dealers do have the key to one mystery: Profitability can be achieved in this challenging retail automotive market with three relatively simple steps.

Throughout 2017, dealers felt the pinch of a flat unit sale year. Those challenges related to sales volume are extending into 2018. This comes as no surprise for those dealers who’ve been in the industry for awhile. After eight years of sales growth and economic gains, we’ve been expecting a slowdown.

Today’s slowdown comes with higher vehicle prices and deeper manufacturer incentives, resulting in thin front-end margins. But, as we all know, the retail automotive industry is extremely resourceful in navigating economic cycles. For example, many of our clients are encouraged by the back-end profitability growth they’ve developed by focusing their efforts on F&I product sales.

F&I Development

By investing their training dollars into F&I development, dealers have been able to maximize profit per vehicle sold. If you want to be on the path to profitability for 2018, consider implementing these three simple steps:

1. Place a heavier emphasis on the service drive and customer retention. Train your service department to better recognize opportunities for maintenance, and enhance dealership communication.
2. Evaluate your product menu and F&I pay plans based on those products that encourage customers to return for service, and consider selling less expensive consumer protection products from the service drive. Remember, according to NADA, 83% of customers that return to the selling dealership for service will purchase their next vehicle from it.
3. Provide better transparency around the F&I process as a whole by including information online about the consumer protection products you offer. The goal is to streamline the F&I process with more educated consumers, and generate more interest in the benefits provided by F&I products before the customer enters the dealership. This simple step will help increase per retail unit (PRU) and penetration.

Going into 2018, pre-owned inventories are right-sized with the target demographics. This gives dealers the opportunity to focus more on trade-in and off-lease vehicles versus vehicles at auction. Now is also a good time to be more circumspect about the vehicles considered for trade or at auction.

In addition, more dealers are beginning to utilize certified pre-owned (CPO) programs and traffic-driving products to differentiate themselves in the pre-owned market, especially with younger consumers. The millennial consumer is looking for value.

With more out-of-the-box approaches to F&I, consumer protection products can bring extra revenue and make the deal more attractive to lenders. Extending those customer care products into the service drive will be attractive to the younger demographic, and provide dealers with a longer runway for revenue acquisition.

As dealers focus more on increasing their back-end profitability, expect to see them begin to rely more heavily on good partners. This means administrators will need to have additional capabilities to meet dealer demand, including assisting dealers at an even greater level on compliance, reinsurance, service drive development, and dealership process improvements.

The key to profitability is within reach with some slight changes in current dealership processes, a willingness to offer products that are attractive to a changing customer base, and a focus on the relationships that support business growth.

As executive vice president of dealer services at EFG Companies, John Stephens directs the company’s direct sales and service channel, providing EFG’s solutions and engagement to auto dealers. John acts as an extension of his clients’ management teams, and is responsible for leading EFG account service professionals in optimizing the profitability of EFG’s direct dealer partners, and supporting the use of EFG products and services.