automotive financial management
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84 Terms
What can be identified as a “Selling expense” for the dealership service department?
Commissions and incentives paid to service advisors
What is a good benchmark for parts gross to sales retention?
45%
What is a good benchmark for parts gross to sales retention?
45%
Break even point is calculated how?
You need sales, gross profit, expenses
Divide expenses by GP%Sales
The three ways to increase dealership profits?
Increase sales
Reduce cost of sales
Decrease or control expenses
Which of the three is classified as a fixed operation?
Parts and accessories
What are the three types of service work from top to bottom of the pyramid?
Top: repair
Middle: maintenance
Bottom: competitive
Assets equal = ?
Net worth + liabilities
3 ways to acquire assets?
Reduce assets
Increase liabilities
Increase net worth
The seven controllables
% productivity
Expenses
Effective labor rate
Gross profit
Calander utilization
Days worked a month
Clocked hours a day
What are the 5 resources a manager can control?
Materials
Machinery
Money
Methods
Labor
A balance sheet shows _____ . A operating statement shows ____ .
Status
Proccess
What department usually is expected to return the lowest gross profit?
New vehicle sales
What is a current asset?
Assets like cash and bank money thats immediately available.
The new vehicle floorplan payments the dealer must make to the manufacturer would best be described as?
Current liabilities
What is the business life cycle
Cash —> inventory —> sell —> resell/ collect
It cycles back, it repeats
What does a dealership sell?
Time
Whats the cost of sales in the new vehicle department
Invoice minus holdback plus any added accessories.
What department usually returns the highest gross profit retention per sales?
Service
If 75% of the total work is in competitive and maintenance, what does that indicate?
High customer retention
What is the cost of sales in the service department?
Pay of the technician
What is needed for the increase productivity equation
The number of techs
Days worked a week
Effective labor rate
Calander utilization
Gp%Sales
Goal
Parts to labor ratio
Say you are calculating the break even point for a shop and want to see what an additional 10% would be. What do you do?
Subtract 10% from the GP%Sales
What is policy adjustment on a balance sheet usually?
Cost of covering mistakes
Who controls overhead expenses in a dealership?
Everyone
How do you get actual sales for parts?
Total department sales - wholesales and counter sales
How do you get actual sales for service?
Total department - sublet
Parts ratio?
The $ amount a dealer makes with parts based off service
Equation is actual parts sales / actual service sales
Ideally over a dollar
What is the ideal percentage for a tech to reach their goals/ forecast?
80%
What is fixed absorption?
The ability of fixed operation gross to cover dealer expenses. Can be over 100%
What is flat rate/ book time?
The time the tech books with jobs
What is available time?
Amount of time available to work.
What is actual time
The time actually taken to do a job
How is productivity calculated
Actual time divided by available time
How os efficiency calculated?
Flat rate hours divided by actual hours
How is utilization calculated.
Flat rate hours divided by available time
What is through put?
The time it takes a request to get out the door after the request is put in.
Say you have one tech making high hours, one making an average amount of hours and one low on hours. How much do you want the techs to improve?
High = 5%
Middle = 10%
Low = 15%
How much time should be allocated for walk / tow ins?
About 10-15%
Is it possible for other departments to make techs more efficient?
Yes with things like preloading the shop and part delivery. Things like bonuses base on tech performance for other departments is helpful in achieving this.
What is appropriation
Dividing cost based on the department usuage.
Say water cost $100 for the dealer
Service uses 70%
Sales 30%
Therefore service gets charged more
What is the advantage of dividing techs into groups for a single service advisor?
Efficiency and organization. Makes it easier to manage and helps with achieving goals.
What is the advantage of electing team leaders amongst groups of techs?
Helps with managing a distribution of jobs so that every tech is achieving their goals
What is an hourbank?
The amount of hours allocated to jobs. Leave roughly 10-15% for walk-ins and tow-ins. Idealistic in a team bases structure, each team has enough hours in their bank at the start of the day (accounting for walk-ins) to reach their goal
What is a lateral support group?
The idea of making teams based on a single service advisor.
Teams are groups of techs with a single group leader
Teams should be equally skilled
Give bonuses to each group if all groups meet their production objectives (techs for individual objectives and service advisors with team performance)
What is Production towards objective
How much a techs product contributes to their objective.
Operating hours should be what?
Convenient for the customer, NOT the dealer. At a minimum 7:30am - 6pm if not 7am - 6pm
What is the most beneficial day of the week for a dealer to be open
Saturday! (Sunday is also a good day.)
Increases service capacity by 15%-20%
38% of customers prefer Saturday
42% of jobs are from new customers.
Why is CSI bad for service advisors
Putting a chunk of their revenue on customer satisfaction makes them more likely to try and manipulate customers for better scores
What is the max amount of components you should have in a compensation plan
Three max. Even then if you're doing it wrong you can distract the worker. Keep it easy, keep goals obvious.
What is a crucial part of every service job. A requirement that must be done
Multi point vehicle inspections
Performance objectives are what?
Accurate
Fair
Object
Timely
Measurable
If a tech is only hitting their production goals like 60% of the time, what should you do.
Lower their goals so that they can achieve 80% this will help them and the group achieve their goals
How frequently should you be monitoring the production goals of the techs
At least every 3 months. You should be constantly monitoring it. Honestly every month would be better but Grant specified 3 months
Performance objectives should be what?
Accurate
Fair
Objective
Timely
Measurable
Should compensation be tied to gross profit or total net profit/loss
Total bet profit
Encourages the control of expenses
What is the highest expense in a dealership
Personnel
Thats why managing bonuses and pay is crucial
How should you give bonuses
Physically hand the cash to somebody in front of other workers. It makes the idea of bonuses known to other workers and encourages them to work harder
FIRTFT
Stands for “fix it right the first time”
What percentage of gross profit do you want for labor
75%
What area has the most variable effective labor rate?
Customer pay due to the triangle
What is effective labor rate
Labor dollars sold divided by flat rate hours produced
What advantage to you have if you have over 100% fixed absorption
You can lower vehicle sales because you aren't variable dependent meaning you can get MORE cars in labor
What is meant by preloading the shop
Loading vehicles ready for work in the shop the night before
Calendar utilization is best described as
A total number of monthly workdays as compared to the total number of day's a technician worked.
What department is expected to return the highest sales dollars in a dealership
New cars
Their gross is the lowest usually though
What is the best technician pay plan to provide the best standard of performance
Multiple flat rate hour based on individual
All amounts of owed by a business to its creditors, but not its owners is what?
Liabilities
What ELR category will typically have the largest variance from month to month
Customer pay
Sales
The amount charged for products (merchandise or services) sold to customers in the normal course of busines
Cost of sales
The cost associated with products or merchandise as part of normal business operations.
Net worth
The total the business owes its owners and investors
Balance sheet
A snapshot of financial condition
Assets
All items of value, either tangible or intangible, owned by a business
Operating statement
The part of the financial statement that shows the process of the business over a period of time
What could be classified as a overhead expense for the service department
Cost of utilities.
What is a policy expense
Taking money to cover policy such as taking money of a customers bill due to a service delay
Your internal ELR should be equal to what
Customer Pay
What is roll over pricing?
Increase ELR around the average. Keep the low hour jobs competitive and keep the high hour job competitive. If your shop averages around 2 hour jobs then hike that price up a little bit
Skill based pricing strategy
Changing the ELR based on the skill needed to do a job
What is accelerated pricing
Increasing ELR based on the hours the job takes. A flat line up
What is accelerated pricing
Increasing ELR based on the hours the job takes. A flat line up
Having a consistent pricing strategy helps with what?
Consistency
Speed (less calculation, more time actually getting the job done)
Additional revenue for the shop
How do you calculate ELR
Take customer pay and customer hours clocked. Divide the pay by the hours