Here are the highlights of what is included in this edition. Please click here for the full version.
Refresher on Fixed Operations Success
Over the last couple of years, dealerships have generally experienced record sales and volume growth. Unfortunately, with higher-than-ever inflation, coupled with increased interest rates, economists and other experts are predicting a marked decrease in demand for both new- and used-vehicle sales in the upcoming year. Dealers need to concentrate on what should already be their main profit centers: parts and service operations. Here are some “back to basic” suggestions for monitoring and increasing the profitability in fixed operations:
– Focus on customer experience: Consider increasing the use of the service scheduling system and monitor peak times. For the convenience of the customers, ensure transportation options such as rental/loaner vehicles or even a shuttle van are available if applicable. Before any work commences in the repair order stage, have the technician(s) video and send their findings/diagnostics and suggestions to the customer for approval before any additional, needed work is performed.
– Traffic Counts and Advertising: Ensure maxi-mum usage of the customer relationship management (CRM) tools and software. Concentrate on “lost souls”–customers who have not been in for service for over a period of specified time, or have gone to competitors–and tailor advertising and discount campaigns around them. Review advertising expenditures and constantly check what is working, i.e., where are service lane customers coming from, whether it be email or text campaigns, internally from the Business Development Center (BDC) or service writer efforts, or on website specials. Adjust accordingly and consistently update.
– Track Gross Profitability: Frequently monitor work in process and open repair order (and parts ticket) reports to ensure ROs are being timely completed, and customer time promises have been met. Analyze stall utilization on all service bays, and track labor technician efficiency. In the parts department, consider taking deposits on all special-order parts, and follow-up with customers to get them back into the dealership for service work.
Where Did The Cash Go?
Where did the cash go? That is a question often asked by dealership owners. The answer often lies in analyzing various parts of the dealership to determine what the cash has been spent on. In a perfect world, the net income of a dealership would flow directly into cash in the bank, but several factors impact whether that is the case. Many items impact cash flow in a dealership, but a few of the biggest are the collection of contracts in transit, collection of receivables, amounts of new- and used-parts inventory, as well as investments made in fixed assets and facilities.
Applying Available Cash Flow — Fixed Assets
The past few years, post-pandemic, have seen sometimes unprecedented profits for many dealerships, which translates into a strong uptick in available cash. Many dealers who have been contemplating fixed asset additions or facility upgrades now feel that the climate is right for them to get it done. Fortunately, along with increased cash flow, current tax provisions smooth the path to creating opportunities to replace aging furniture and equipment, renovate and expand.
– Section 179 expense election: The expensing limit for 2023 is $1,160,000, with a $2,890,000 investment limit phaseout. Section 179 allows businesses to expense the cost of fixed assets such as service department equipment, furniture, computers and qualified leasehold property.
– Bonus depreciation: For 2023, bonus depreciation allows for 80% of the cost of qualifying property to be deducted in the year it is placed in service.
– Cost segregation analysis: This can be used to apply to dealer facility upgrades or renovations. The benefit is to reclassify costs into shorter life categories, moving costs into 5-, 7-, 15- and 20-year depreciation periods, which opens up either of the Section 179 and bonus depreciation options.