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Top Five Ways Auto Dealer GMs Increase Profit Margins

Posted by Tom Lombardo on Tue, May 06, 2014 @ 10:00 AM

New Automobile SalesOn the average nationwide, auto dealerships saw their gross income increase a solid 5.7% between 2012 and 2013. Sales contribute more to profits today than they did two years ago, according to the latest figures from NADA, a trend that should continue through 2014.

Since that trend applies to most dealerships, it’s reasonable to expect most of them to increase sales again this year. So why is it that some dealers will make more money than others?

It’s all about profit margin. Nationwide, the average dealership posts a pretax profit margin of 2.2%. That sounds great -- until you find out that the top dealerships make up to 5%. In other words, if you have two dealerships of the same size and in the same market, and they both make the same number of sales, one might take home more than twice as much as the other.

How?

According to automotive consultant Hans-Werner Kaas, a senior partner McKinsey & Co. in Detroit, if you follow through on "dedicated and committed initiatives, there is no reason why a 4 or 5 percent [return] should not be attainable."

Here are the top five ways stellar dealerships increase their profit margins:

  1. Make it easy for your customer to get funding and to buy service contracts. These two things alone contributed an additional 3% to gross profits industry-wide last year. Many dealerships use CrossCheck’s multiple check service to significantly expand this profit center.
  2. Auto Dealer Service DepartmentGet your services from the best in the business. You sell cars based on quality – so follow your own advice! Dealers who look for margin by opting for the cheapest service provider can end up losing big when they need help or when a problem arises. Look for quality, price and stability.
  3. Make sure you get paid. According to a Federal Reserve study, Americans prefer to make large purchases with checks. A check guarantee service allows you to accept this form of payment while knowing that your account balance will not be affected even if a check bounces.
  4. Employee satisfaction matters – a lot. Pleasant and knowledgeable staff members close more business, make fewer mistakes and generate more referrals. McKinsey & Co. found that a quarter of car buyers are unsatisfied with their dealership experience. Make sure that when they get to your showroom, they stay there and buy.
  5. Try cost-effective creativity. McKinsey found that many customers want a different, more innovative car buying experience. And high on the customer “new experience wish-list” was to have your salesperson visit them at their home, rather like a real estate salesperson, so they can test drive their car on familiar roads.

CrossCheck can help you with one part of your margin-increasing efforts. Our industry-leading C.A.R.S. service provides:

  • Check guarantee that mitigates the risk of accepting checks
  • Payment flexibility with multiple check (hold check), which allows consumers to write 2-4 checks to be deposited over a 30 day period
  • Remote deposit capture which allows you to deposit checks without leaving your office, saving time and money

These apply to the down payment process as well as parts and service. To learn more, download our free guide here:

auto dealer remote deposit capture

Tags: Auto Sales, RDC-Remote Deposit Capture, Check Guarantee, C.A.R.S., Multiple Check, Tom Lombardo, Auto Dealerships

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