28th March 2018
By Paul Muers
For franchised dealers, making a sound profit year-on-year is always going to be a challenge, perhaps more so than in any other industry. Profitability in the automotive sector is heavily dictated by a number of external factors, from consumer confidence to pre-registration levels, manufacturer targets and rising overheads.
Recently, the UK has experienced a ‘perfect storm’ of declining sales and a hike in business rates, which looks set to push much of the dealer network into survival mode. According to reports, registrations of new vehicles fell for the tenth consecutive month in January, while dealers’ bills rose to £559.9 million in April last year, up from £496.9 million in 2010. As one ratings advisory representative warned, dealerships must adapt to the changing face of the motor industry if they are to survive.
So how do businesses within the sector adapt? Financial savings are understandably a priority, with many dealers now on a drive to see how and where cuts can be made. As staffing constitutes one of the largest overheads for dealers (up to 60% of running costs in some cases), it comes as no surprise that a reduction in employee numbers is usually mooted as a first step to securing the financial future of a business. Indeed, this was precisely the move favoured by the Volkswagen Group towards the end of 2017 when, in addition to closing several showrooms, the decision was made to “trim dealership staff down to optimal levels”.
But when profitability takes a hit, is cutting the workforce really the best solution? As is often said, it’s people that make a business. Although reducing staff numbers can help to balance the budget in the short term, it’s important to consider the overall effects this may have on business performance. For remaining employees, having sufficient resources to ensure ‘business as usual’ may become more of a challenge. With this comes the temptation to cut corners and neglect the ‘minor’ processes; before long the dealership finds itself struggling to maintain positive relationships with customers. Essentially, what starts out as a quick fix can potentially cause irreparable damage further down the line.
Cost-savings as an ongoing process
There are alternative (and more effective) ways for franchised dealers to ‘tighten their belts’ during times of economic strain, without having to resort to staff cuts. In a recent article from AM Online, Perry’s Chairman, Ken Savage, offered some good tips on key areas where, potentially, savings can be made. He suggests dealers should get into the habit of frequently reviewing larger overheads, such as valeting, energy, IT and consumables, and making sure that they are getting the best deals from suppliers. Using consistent suppliers across dealer groups may also help to ensure that dealers are netting the best savings.
Viewing the dealership’s workforce as an asset
Going back to the issue of staff cuts, as counterintuitive as it may seem, harsh periods are actually the time for dealers to invest in their staff. As Louise Wallace, head of business management for the National Franchised Dealers Association has said, profitability often comes down to “how you use the staff you have, making sure they are properly trained and working efficiently”.
For a dealership’s aftersales department, this is particularly relevant. If a dealer is faced with a dip in car sales or other negative factors, it’s important to ensure that servicing teams are able to give a strong output.
It can be hugely beneficial to invest in and equip the workshop with a robust eVHC system. An integrated solution, such as autoVHC, is also more cost-effective than using a series of disparate systems from different suppliers. Add-on features, such as image capturing capabilities and reporting analytics, further boost the health check process and deliver a more enriched service for both the dealer and the customer.
By giving the staff the tools to work more efficiently, overall productivity increases which can help to boost aftersales profits. This in turn can help to offset any losses accrued as a result of other external factors… all without the need to lose valuable team members.