CrossCheck Blog

It’s Saturday morning on Memorial Day weekend. The inflatable tube man is in perpetual motion, burgers are sizzling on the outdoor grill, and the television ads have been running for days. Your auto dealership is ready for its big, big marathon holiday sales event. You close out the preparations with a sales meeting. It’s “all hands on deck.” There are boxes of gooey donuts, pots of hot coffee, and a cadre of sharp-dressed sales people with their chins up. Your general manager delivers a pep-talk that would make the legendary Knute Rockne take notice.

Brandes Elitch is the director of Partner Acquisitions here at CrossCheck, Inc. Apart from that, he has years of experience being involved with the payments and automotive industries. Elitch (on the right in the above photo) worked in cash management for a Fortune 500 company, consulted for bankcard acquirers, and has sold cash management services for major banks. He was the also the first cash manager at Charles Schwab and directed middle-market sales group at Wells Fargo. His automotive experience includes being the owner of numerous collectible cars; attending well-known collectible car shows (e.g. Pebble Beach and Concorso Italiano); and authoring Lancia Loraymo and the Loewy Logic of Industrial Design, a comprehensive history of Raymond Loewy’s specially designed car.

Over the last few years, an interesting development has occurred in the business of selling new cars — a glut of off-lease vehicles has hit the market. Let’s take a look at what this means to dealers and consumers. During the new vehicle sales bonanza of 2014 – 2016, records were set for annual sales, and surprisingly, about a third of those sales ended up as leases. By the end of 2019, an estimated 12 million low-mileage cars were coming off lease to create the glut of off-lease vehicles. First, a recap of how leasing works. There is an up-front cash payment, and then you make a monthly payment for typically 24 or 36 months, with an option to do a buyout at the end of the lease. In theory, you are just paying for the depreciation during that time.

Owning a car is expensive. The American Automobile Association (AAA) says it costs about $8,469 if you drive an average of 15,000 miles a year. But Nerdwallet gets more granular and they calculate a typical monthly cost as follows:

Consumers think that selling new vehicles is the most important and profitable part of running a new car franchise and that dealers make a lot of money on each unit sold. Yes, it is important, but there is another part of the business that really pays the bills and keeps the lights on: the parts and service operation. This now comprises 49% of a dealership’s gross profit, up from 45% in 2012. You will hear this referred to as “fixed ops.” That’s a strange term; what does it mean? Car dealers have historically called one part of the business variable and one part fixed.

A current study by the National Automobile Dealers Association (NADA) found that there is a serious shortage of car mechanics at dealerships, somewhere around 20,000 – 25,000 people. The trade group predicts that dealers will need another 46,000 more people by 2026. If you own or manage a dealership, this will keep you up at night, because today the parts and service area (aka “fixed ops”) comprises fully 49% of the dealership’s gross profit. It’s what keeps the lights on and pays the bills!

Here at CrossCheck, I am fortunate to attend a variety of payments industry events, such as the CardNotPresent Expo (CNP) last month, and two previous conferences by the Information Security Media Group, the world’s largest media organization devoted solely to information security and risk management. Seminar sessions are offered at most of these events, and the informational sharing is invaluable. I thought I had a good understanding of the perils involved in accepting payments, but I was very surprised to learn at the CNP Expo that fraud is now increasing auto dealership risk. If your dealership has not experienced a recent uptick in consumer fraud, you are about to, so you might want to read this.

Cox Automotive’s “Dealership Staffing Study” addresses the dealership staffing challenges that plague auto dealers every day. This study randomly sampled 50 dealerships executives (owners, principals, and GMs), 343 dealership employees, and 834 people from the general U.S. population. Below is a synopsis of the challenges and solutions presented.

In our last column, we talked about the challenges and intricacies of being a car dealer, and along those lines, why a car dealer would need a reliable and robust Dealer Management System (DMS). The car retailing business is unique. It has a lot of moving parts and there is a lot of money flowing through it every week. The owners and managers need to stay on top of the numbers that drive the business every day, not once a month. The DMS is a kind of supercharged general ledger accounting system that addresses the unique needs of a car dealer. Consequently, you do not want to change DMS or providers lightly; it is a big commitment to learn how to use a DMS and is usually a long-term commitment.

Today I heard another comment about the future of automotive retailing from someone who is not in the industry, but considers themselves fully qualified to predict the future. Predicting is a tricky business, particularly about the future. In this case, his prediction was that new car dealers would go away, and be replaced by “test drive centers” where you can take a test drive after doing all your research online.