July 2, 2007: Focusing on the PG&A and F&I departments

swadminJuly 2, 2007

This series of articles recaps a portion of the opportunities that were uncovered by Gart Sutton & Associates’ powersports specialists during actual consulting visits.
These opportunities are followed by recommended actions that address the issues. The goal of this series is to provide you with ideas to help you improve your dealership.
The focus for this report visit was to determine the cause for the lack of profitability in P&A and create proper categories to monitor the inventory, develop inventory tracking systems and improve efficiency in the P&A department; provide training on the value of offering F&I products to all customers; and install the processes necessary to make these departments into more profitable contributors to the dealership’s bottom line.
This is the last of a four-part series on this dealership. The June 4 edition identified sales and F&I process for the dealership to improve. Following the assessment of the processes and the facility, GSA consultants prepared a list of recommended actions and reviewed them with the dealer principal. The goal of this review was to determine if the dealer principal was willing and capable of accomplishing the action. Once the level of commitment and capability was established, the recommended actions were prioritized. Following this, the recommended actions were reviewed with the affected department managers in order to get them to buy in to the action items.
Dealership Details
This small, multi-line dealership is located in a rural market that is a popular destination for year-round recreation. They recently completed a multi-phase dealership remodeling project. Their volume is under 500 units annually. Though they reported gross sales of nearly $4 million, they ended up losing money. GSA consultants discovered all departments were below recommended benchmarks. The P&A Department was showing a gross profit margin of 25 percent and very few of the profitable F&I products were being offered to the customers. The dealership is carrying a large accounts receivable and interest is not being charged on past-due accounts. No independent audits are being performed to verify the accuracy of financial data.
Issue: Lack of profitability, structure and basic inventory management processes in the P&A department.

None of the profit centers in a dealership can operate properly without structural guidelines and effective written processes.

The performance of the department must be monitored and measured in order to verify improvements in profitability.
Solution: GSA consultants assisted in establishing a flow sequence for repairing the P&A issues. The following priorities were established:

Eliminate discounts to customers;

Begin using price escalators on all P&A;

Establish logical categories for all inventory;

Complete a physical inventory and reconcile the system inventory;

Define the fast-moving parts and relocate them near the parts counter — a computer report was developed to facilitate this;

Create geographical bin locations for parts and categorical bins for accessories with bins sized to be counted in one hour;

Stock parts by size and movement making the best use of the space available;

Track lost sales to determine additional stocking needs;

Decrease the stock of slow-moving inventory;

Utilize OE returns when possible;

Consider selling on the Internet;

Donate to small engine classes or charities.
Training was provided for the parts manager on applying the procedures necessary to make this an efficient and profitable operation. These procedures included:

Departmental budgeting and an Open-to-Buy system;

Creating categorical or geographical bin locations for all parts, clothing and accessories;

Stocking hard parts by size and movement rather than part number sequence;

Eliminating nonmoving inventory and increased stocking of high-turn items;

Cycle counting of all inventory, counting at least one bin per day;

Random part number audits.
Issue: Ineffective, unproductive sales and F&I staff

A properly trained sales staff ensures consistent treatment of every customer and increases sales and profitability. Effective salespeople follow a structured selling process with every customer.

A productive F&I department allows the customer to review all F&I products.
Solution: GSA consultants assisted the sales manager in developing a written procedure for the sales department. This covered their greeting policy, the steps of a sales process, the prospect follow-up process and presenting all F&I products to every customer. Tools and job aids were provided to the sales manager.

Author, speaker and educator, Gart Sutton has been retained by every major powersport manufacturer/distributor. He is a frequent keynote speaker for national motorcycle conventions and state motorcycle dealer association events. Visit www.gartsutton.com.