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Motor Industry Services Alert – May 2017

Motor Industry Services Alert – May 2017

In this edition, we discuss how to make the most of your free franchise.

Wayne Pearson

Director, Motor Industry Services, KPMG Enterprise

KPMG Australia


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Making the most of your free franchise!

Most dealers have a free franchise, one where you set your own targets, determine your own RRP and set your own standards on customer service.

But for many dealers, this opportunity is not fully maximised and in many cases is allowed to operate at a lower level of performance and customer handling processes than their new car counterparts.

As a nation we still sold almost twice as many used cars, as new, and the stock of used cars running around was a lot higher than the new car stock on the ground, but the dealers have allowed "others" to occupy this space.

In our role we visit a lot of dealerships and in our travels we still continue to see a growing number of new cars on the front line, where the used cars used to be. When we ask the question "why?", the same 3 culprits always raised their head:

  1. The pressure from the factory is so great I can't allow my guys to be distracted from hitting new car target by selling used cars.
  2. The internet has taken away all our business, today I'm competing with dealers a 1000km away, and they steal all my business.
  3. I can't get the stock, everyone else gets the good cars and I'm only left with rubbish trades.

All of this sounds like fairly good reasons to me, but when I had the chance to run my own yards, the opportunity arose to see if I could break the mould and build a larger used car business.

The results

The results were good, not amazing, but I was able to prove to myself that volumes and profits could be lifted in used cars (with the side advantage of pushing up new car volume by being able to buy more trades and the F&I that came with it).

Monthly reconciliations must be up to date and any issues that have been carried forward from month to month need to be dealt with in the April/May month ends.

What did I learn from my used car business

When I first got my hands "dirty" and spent time looking at my own business I found a number of key opportunities:

  1. 50 percent of the cars we traded were "retailable" and the wholesalers were loving it.
  2. Our valuations per sales consultant were not being measured and targeted, so many potential trades were not being taken at the time of doing the new car deal.
  3. We bought what we saw, not what we wanted, no stocking matrix meant we kept making the same retailing mistakes due to personal preference of the used car managers.
  4. We didn't target the stock we wanted to buy in service driveway or from our current owners list and prospect these.
  5. Our reconditioning cycle was too long.
  6. Our 60 day policy was "flexible", "why sell stock you can't replace" was the common argument.
  7. We were reliant on the lead generators to create our traffic, but we hadn't embraced the tools available to track and monitor this traffic, we still waited for the lead to come to us, rather than use the tools to get to them.

Much of this probably sounds familiar, and to say it was an easy fix would be a lie, those that "know the business" don't like change but once you get them on the program the results start to happen.

The one thing I knew was the following:

Actions & Activities = Results

So to improve my results, I had to dramatically change our actions and activities.

So what did we do?

Used car success is in the buying not the selling

The old adage is very true, to make sure we did buy right we did the following:

1. Stopped wholesaling anything over $5k until I had a look at them and with the GM determined whether it fitted our stocking matrix (had an ROI over 100) and was worth a go at retail. Each month I'd review the wholesale reports and question the UCM's on any cars wholesaled that were over $5k that I didn't see.

2. Measured valuations by sales person and set a target for each sales consultant to hit each month, we wanted 70 percent of all trade in's test drives valued, we published the league table of best "converters" and our trade intake to did increased markedly.

3. We used "live market" to work out whether we should take a punt on a car or not, we had the functionality available but the GM's didn't use it to challenge the UCM's on trades because they weren't trained on how to use it effectively.

4. Each month I would do an ROI spreadsheet by UCM and vehicle sold to assess the cars where we had achieved greater than 100 percent ROI and as expected they had 3 things in common:

1. less than 30 days in stock

2. low reconditioning spend

3. less than $15k value.

This would then be circulated as a league table to the GM's and UCM’s to see the best performing stock and teams.

The focus would then be on buying cars that fitted the above profile, fast turn, low reco, less than $15k.

5. We didn't retail anything with more than $2k reconditioning spend, it just took too long in paint and panel.

Keeping the stock coming!

Auctions are no go zones and trades, even with the extra push with valuations, would only generate about 60 percent of our required stock each month and grow our volumes.

The things we did to generate more stock were focused on proactive acquisition as part of our CRM culture.

  1. "We want to buy your car" hangers were put in the window of all cars with more than 30,000km or greater than 3 years ownership in all our workshops. We included our NCM mobile number so the customers could contact them directly.
  2. We noticed that with more and more "in warranty period" services being done, that "wait jobs" were high and customers spent time in our waiting rooms. A daily service target lists of greater than 60,000km vehicles were given to the sales managers and each day a sales consultant would call the customer and line up a time to see them. The goal was just to offer them a valuation of their car whilst it was in for service and things went from there.
  3. "Date of future upgrade" calls – each week our CRM centre would give a list to our GM's of customers who they had previously contacted and had received a rough date in which they were looking to change vehicles. These would be distributed to the sales teams, put into autogate as CRM leads and calls made to see if they wanted to sell their vehicle to us.
  4. Service advisor incentive – we involved our service teams in the used car acquisition discussion and got them involved in referring valuation leads to the sales team where the signals were given by the customer.
  5. Buying privately, not unique but we used the tools available in the internet to use live market to value potential trades, contact watcher functionality to keep track of slow moving stock on other dealers yards and use the tool as a means of buying the cars we needed.

Speed to lot and presentation

When I first arrived it could take up to 2 weeks to get a car from arrival to lot ready, to pull this back we did the following:

  • centralised all reconditioning in 1 service department, this way they could specialise and focus on it as it had great value
  • took the UCM's out of the loop, no longer were they arranging dent removal and paint in the front yard, it all went to service, service controlled the work, suppliers and quality
  • introduced a fixed reconditioning policy with a maximum of $2,000 spend to avoid wasted time in the cycle
  • all cars were presented with high and consistent quality and had actually been reconditioned and any problems identified early and the car wholesaled
  • post reconditioning, each car was presented with a minimum 20 shots on the internet prior to their arrival on the lot
  • we didn't quite get to 3 days, but we were tracking near 5 days, which really helped stock turns.

Pricing and turning stock fast

One of the cultures we did have to change was the "go for gross" culture that resulted in cars missing their opportunity as we waited for a certain "gross figure" to materialise.

We worked on getting Dynamic Pricing into all our yards with the focus being:

  • First price on the internet is set to sell the car in 7 days, using live market, we could define what the price for this car would be (often it was not the $4000 including load that we would historically want). Being the best price in the market for the newest stock will get your car sold quickly and that's where you need to be.
  • Reprice the car every 7 days at increments 5 percent below the market price.
  • Take the first offer if it gets you a reasonable gross, even if you think it can gross better, your first gross is your best gross.
  • Use the tools online, we found by tracking views and leads closely we were able to tell quickly whether a car was badly priced or something was wrong with the car. Lots of views and no leads was a price issue, lots of leads and no sales was a product problem. Read the signals and take action quickly. Lots of views and no leads we would reprice quickly and see what happens (normally it sold), lots of leads no sales we would wholesale and use the money to buy something saleable.
  • Maximise your vehicle presence online, when a car first came online but it wasn't unique (say Toyota Corolla) rather than be on page 8 of the search we would give it an immediate run on GTS (guaranteed top spot) to make sure it got the profile that it wouldn't normally receive.No Views is the destroyer of ROI, If a car is wallowing well down (more than 16 cars in) reprice it to get it right up the list quickly, as it just won't be viewed. Don't assume your UCM looks at the SEO of your cars daily, they don't. I'd check every 3 days just to make sure we were still on the customers radar.
  • Use Contact Watchers – people are watching your stock and seeing what you will do with it, the functionality does allow you to contact this group and send them a special offer, make sure you use it.

Turn your stock every 30 days, and if a car is in stock more than 30 days, reprice and move it quickly.

You just don't make any money out of cars sold after 30 days, I measured this month after month and it never showed a profit.

Limit your guys to 30 days stock on hand and let them have more when they sell what they have, the fear of not replacing the stock is what impedes your profit, act with no fear and the results will keep going up.

Each month circulate the net profit performance per unit based on the ageing classification, it would look something like this (albeit these aren’t the real numbers).

Days in stock Typical stock structure Ideal stock structure Average holding cost Average gross Net
0 - 30 days 25% 90% $450 $2,000 $1,650
31 - 60 days 20% 10% $1,350 $1,500 ($250)
61 - 90 days 30% 0% $2,250 $1,000 ($1,250)
91 - 180 days 15% 0% $3,600 $500 ($3,100)
Over 180 days 10% 0% $5,400 ($1,000) ($6,400)
Day Typical Ideal
0 - 30 days $413 $1,485
31 - 60 days $(50) $(25)
61 - 90 days $(375) -
91 - 180 days $(465) -
Over 180 days $(640) -
Net profit per unit $(1,117) $1,460

The bottom line

Try to maximise your ROI out of your free franchise.

The keys to success are:

  1. know exactly what you want to buy and gives you over 100 percent ROI per unit
  2. focus on increasing valuations per sales consultant to drive this supply, don't let them walk away from trades
  3. only buy what doesn't need paint and panel, get it on the yard in 3 days
  4. get it "view ready" on Day 1, minimum 20 shots, aggressive pricing, make sure it is on page 1 of a carsales/carsguide search on launch day
  5. look at views and leads daily and work out quickly why someone isn't wanting it, then act to fix this
  6. reprice every 7 days to sell
  7. your first offer is your best offer, get 90 percent of stock sold in 30 days
  8. measure ROI and net profit by unit per week and circulate and trend.

Your goal should be to get 90 percent of our cars sold in the first 30 days and for this you sacrifice short term gross of about $1000 PUR. Once you go beyond the 30 day mark, there just isn't a profit in the stock due to the holding costs of having the funds employed with no return.

© 2020 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Liability limited by a scheme approved under Professional Standards Legislation.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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