Driving Dealership Profit

By Mike Finlay

If you have picked up this book to read, it’s likely that you’re a Dealer Principal or senior line manager in a motor dealership. So, straight off, three questions for you: What’s your dealership’s net profitability? How does that compare to other dealerships locally / nationally? Do you want / need to improve your dealership’s overall performance? Whatever your answers to the first two questions, if your answer to the third is “Yes”, then this book is for you. In DRIVING DEALEARSHIP PROFIT, Mike Finlay presents the most important KPIs that he uses to run his business and shows how they can improve your business. He also shares systems, processes and innovations that you can adopt to directly impact those KPIs. These practices have delivered – and continue to deliver – up to three times more profit than the average franchised dealership in Ireland, the UK and mainland Europe.

• Language: English
• Publisher: Oak Tree Press
• Release date: Oct 19, 2019
• ISBN: 9781781194164

Mike Finlay

Mike Finlay is Managing Director and Dealer Principal of Finlay Motor Group in Ireland. Mike, and his brother Gary, are the third generation of this 80-year-old family business. Throughout his 30 years in this business, Mike’s questioning of traditional approaches to running a motor dealership has developed hundreds of processes and systems that consistently deliver some of the highest results in the industry. Mike now spends most of his time in Germany, but he continues his role in Finlay Motor Group. Through Mike Finlay Consulting, he also assists other dealerships and dealership groups to grow their profits.

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If you have picked up this book to read, it’s likely that you’re a Dealer Principal (DP) or senior line manager in a motor dealership. So, straight off, three questions for you:

1. What’s your dealership’s net profitability?

2. How does that compare to other dealerships locally / nationally?

3. Do you want / need to improve your dealership’s overall performance?

Whatever your answers to the first two questions, if your answer to the third is Yes, then this book is for you.

Why?

Together with my brother, I own and manage a third-generation franchised dealership consisting of three franchises. In May 2008, we opened our second dealership, consisting of almost 4,000m² of ultra-modern showrooms, workshop and equipment, at a total cost of €6.5m. That was, literally, on the brink of the worst recession to hit Ireland in living memory. Over the following 12 months, almost 20,000 people lost their jobs in the Irish motor industry and about one-third of all dealerships either closed or got into serious financial difficulty. Despite all this, we are proud to be able to say that we have never returned a trading loss nor made anyone redundant.

For as long as I remember, external experts such as auditors, banks and franchisors have commented that our dealership outperforms almost the whole industry in terms of profitability and other metrics. In recent years, with more statistical information available, we can see that we have achieved more than double the average national dealership profitability. According to Snap-On Business Solutions, the average operating profit of Ford dealerships in 2018 across the EU was just 1% of turnover (UK 0.8% / Ireland 1.5%). Our dealership achieved 3.8% operating profit in 2018 and has not been below 3% in the past six years.

So how have we done this?

The answer, as you would expect, is a combination of processes, disciplines and culture that we have developed over many years.

In this book, I share with you how I believe you can improve the bottom line of your business. I present the most important key performance indicators (KPIs) that I use to run my business and I explain the importance of each and how it can improve your business. Finally, I share systems, processes and innovations that you can adopt to directly impact those KPIs.

What is unique about this book?

What makes this book unique is that it is written by someone who not only has ‘been there, done that’, but is still ‘doing it’.

I am still DP and MD of our dealership and all the concepts within this book are practiced and have been proven within our own business. I am not telling you how you should run your business – rather I am sharing with you my experiences and practices that have delivered – and continue to deliver – up to three times more profit than the average franchised dealership in Ireland, the UK and mainland Europe. I don’t claim to have all the answers or even to be the best at what we do but the combination of everything we do certainly brings us results year after year that are rare in our challenging industry.

Even if you already are achieving great results (congratulations!), there’s probably some new learnings in this book that might result in even better performance. Keep an open mind. Park cynicism in the knowledge that the practices and innovations in this book are based on real life experience and not theory. If you only apply one of these ideas to your business and it results in better returns – well then, it’s been worth it.

How this book is structured

I have set out this book in three main sections:

•PART 1 : Inside a Dealership.

•PART 2 : Key Performance Indicators.

•PART 3 : Systems, Processes & Innovation.

In PART 1, I offer general commentary on the retail motor industry and then more specific overviews of the main operational departments within dealerships.

PART 2 contains the main KPIs that managers and DPs need to monitor on a regular basis. As the saying goes:

You can’t manage what you don’t measure.

However, it is, by no means, an exhaustive list. In his best-seller, The KPI Book, Jeff Smith lists over 200 KPIs that are currently in use in the retail motor industry. I have taken some of the most frequently-used KPIs that have a direct impact on the overall bottom line but, more importantly in the context of this book, can be heavily influenced by the processes and innovations in PART 3, which contains a selection of tried and tested systems that we have fine-tuned over many years. You can pick and choose which of these KPIs and processes may be applicable to your own business.

You can ‘dip in and out’ of PARTS 2 and 3 as you find topics of interest. My only wish is that you will learn something that will deliver better results and a better business. Enjoy!

PART 1

INSIDE A DEALERSHIP

A few years ago, a friend of mine from the IT industry made this observation to me:

Your business is crazy. You require millions of Euros of capital and readily available cash. You must build palaces in which to display your products at ridiculously high standards set by the manufacturers, completely at your own cost. The same manufacturers set you targets which, if you don’t hit, they penalise you by withholding vital margin and bonuses. Meanwhile the manufacturers, despite your huge infrastructure investment, can fire you at any time. You stock millions of Euros of used vehicles which depreciate on a monthly basis and which cost you high interest in stocking charges while you try to sell them in a highly competitive market. So, as the value of this stock is reducing, your cost is increasing. And you do all of this for a net profit of 1.5%.

He’s right, of course!

But, now, in addition to his comments, there is the added risk of volatility. In the last 20 years, Ireland has seen fluctuations in annual new car registrations from a high of 211,000 to a low of only 55,000 units. It is truly a remarkable achievement that so many dealers survived the recession.

These challenges did not stop, however, when the recession ended. In the three years to 2019, the new car industry is again experiencing another decline in volumes. At the time of writing, it looks like we could be heading for new car registrations this year of less than 100,000 units for the first time since the recession. This is putting all DPs under pressure again to manage our dealerships in the most efficient and effective way to survive and be viable.

In my 33 years or so working in the motor industry, the franchised dealership has gone through phenomenal changes. Most people outside the industry have no idea about the complexity of a modern dealership. I have seen first-hand where job applicants from other industries, IT providers and even auditors have significantly underestimated the sheer sophistication and resources required to operate in this business today.

First, there is the requirement for enormous volumes of working capital. A dealership must have access to millions of Euros, with the added complication of seasonality, leading to highly-variable cashflow requirements. Cashflow management is an expertise in itself: get it wrong and a dealership could easily run out of the necessary cash to trade at critical times of the year. An oversupply of cash at other times of the year can be very expensive and have significant consequences on the net operating margin. Since it has been cashflow, above everything else, that has caused the closure of most dealerships, its management must be one of the key priorities of all DPs and their chief financial officers (CFOs).

The complexity of the modern dealership is such that, other than the basic principles of commerce that existed in my parents’ time, our businesses now bear little resemblance to those of 30 years ago. The IT infrastructure alone – complete with firewalls, GDPR protection, secure servers, wireless routers, remote access, cloud backups and dealer management systems (DMS) – requires a level of investment and understanding that way exceeds what one might expect in a business that just sells and repairs vehicles. CRM and electronic vehicle health check (eVHC) systems, composite management accounts, digital service reminders and online banking and foreign exchange (FX) are all now essential tools in our business. Some of the vehicles we sell now even have direct connections to our systems so that we are immediately and automatically notified of faults or services due.

Marketing has probably seen more changes than most other aspects of our business. Print marketing for new and used vehicles is all but dead, as infinitely more sophisticated and targeted mediums are now required to attract our customers. Terms like search engine optimisation (SEO) are almost old hat, while we are expected to know the click-through rate (CTR) of our Facebook and Google ad campaigns on a weekly basis so that we can adjust our marketing strategies to target an exact category of potential buyer. In practice, the public have their decision made before they visit our dealerships now – the average number of visits to different dealerships by customers 10 years ago was over 4; today, it is somewhere in the region of 1.5. The best dealerships embrace technology to market their goods in the most efficient, measurable and cost-effective ways.

The good news is that you don’t have to understand how to do all of this, provided you have people around you who can. Put into the context of the last paragraph, on average, you now have over a 70% chance of selling to someone who visits your showroom whereas a few years ago that chance was only 25%. The big difference is getting them to step inside. Most of the hard work is done before they visit. The most successful dealerships get this right.

Many components contribute to achieving great results in a motor dealership. But the primary ingredients for real success, I believe, are the following:

1. People.

2. Culture.

3. Processes.

4. Innovation.

5. Controls.

6. Diversification.

In fact, arguably, these six key components are the backbone of success in any business.

What do I mean by ‘success’, though? Many believe that the main purpose of business is to increase shareholder value. Although I don’t disagree, this is not accurate enough for me as it doesn’t distinguish between short-term and long-term value nor does it clarify exactly what ‘value’ means to each shareholder. It would be naive of me not to interpret value as financial and, primarily, that is what the goal is. However, as business owners and managers, we also want to deliver profit as sustainably and frequently as possible.

People

In Good to Great, Jim Collins creates a lasting and memorable metaphor