Every Saturday night, general sales managers in dealerships across the country pick up their phones to see a familiar text from the owner: “How many and how much?”
I can’t blame dealer principals for asking; the business has always been about selling cars and making money.
“How many and how much” has also been about claiming bragging rights within large public auto groups, against cross-town rival dealerships and within 20 Groups.
But the inventory crisis of 2021 suddenly made these two questions less relevant, because everyone looks like a heavy hitter right now when it comes to sales and gross.
New-car dealers are selling every new vehicle they can get and preselling ones that haven’t even rolled off the production line. Average new-car gross is at an all-time high, more than $4,000 per vehicle, based on National Automobile Dealers Association dealer statement data.
But making a lot of money in this environment doesn’t necessarily mean dealers have maximized their financial results. As dealers look toward another successful year ahead, there are three areas of opportunity that deserve more attention than “how many and how much.”
1. Percent of incoming vehicles sold: Dealers need to think about their operation more like an airline. The airlines attempt to presell every available seat; dealers should take that same approach when it comes to retailing incoming inventory. According to Automotive News, factories are producing 65 to 70 percent of their normal production volume. This microchip shortage is likely to remain an issue for the next 18 to 24 months. Knowing automakers award their limited available inventory to dealers with the lowest days to sell plus highest sales volumes, dealers should target preselling at least half of their incoming pipeline each month to keep pace with the dealerships that are earning the biggest monthly allocations.
2. Sales throughput per employee: The 2021 Cox Automotive Dealership Staffing Study noted that 54 percent of dealers are looking to increase their number of employees. This is a bit of a head-scratcher when you consider that the NADA average number of sales per employee is 16, while the top performers in the industry are at 23 to 25 per month. That’s 30 percent more output per employee, which equates to significantly less expense. But there’s another important benefit of having fewer, better people: Fewer salespeople can lead to higher incomes and less turnover during this labor crisis. Dealers should target total sales throughput per employee of 20-plus.
3. Advertising cost per vehicle: The average ad cost per new vehicle sold increased from $591 in 2020 to $601 in 2021, according to NADA data. Why would dealers spend more on demand generation in 2021 when there is massive demand and a shortage of supply?
As dealers increasingly allocate their ad budgets toward digital marketing, it has become essential to understand the difference between fake and authentic audiences. Steve White, CEO of Clarivoy, a sales attribution company, shared with me that one major data marketplace, which sells audience data, identified him as an in-market shopper for every segment in the industry. Guess what? He’s not in-market for a new vehicle, but his Web-browsing cookies and identity are being sold to dealers as though he is.
“Dealers need to rethink how they prioritize their marketing investments and question the in-market audiences they are buying,” White said.