Feb. 9, 2009 – Seminars highlight best practices in key dealer profit centers

ATLANTA — Improving parts department profitability by turning inventory quicker. Ensuring better F&I approval rates. Limiting losses due to employee or consumer theft.
These were just three of the issues tackled during Assurant Solutions’ annual Update 2009, an annual, three-day training event that touched on all dealership profit centers as well as management techniques. The following is a brief look at some of the issues dealt with in the more than 40 seminars that were featured at the Atlanta event.

PG&A turns
Part of improving inventory turn — an absolute key to building profitability — is not to classify each item in the PG&A department under one lump grouping, says Kent Meadows, a regional vice president at Assurant Solutions.
Meadows advised dealers to have different turn expectations for each of the following categories:
Destination parts: those items that are unique to each dealership;
Staple items: commodity, high-turn items that are used frequently in the service department;
Fashion;
And impulse items.
The latter should be closely scrutinized if they are not moving at a very high turn rate. Meadows noted retail-marketing studies show consumers take less than half a second to decide whether to buy an impulse item that is likely sitting near the cash register or at the front of the store.
“If those impulse items are not moving, they’re not the right ones,” Meadows said.
In general, dealers should work toward turning their entire parts inventory at least three times per year but that frequency might be elevated depending on what PG&A category they fit into.
Stocking levels also are crucial to achieving the correct turn ratio. Meadows advised dealers to stock on the low side of an average parts’ month sell through. For example, if a dealer sold a specific part on average of eight times per month, he advised dealers stock six such items. Higher levels are not necessary due to the fact that parts can be restocked at a relatively quick rate without exorbitant shipping charges and this can free up valuable cash reserves. Too many dealers, Meadows notes, stock according to the highest number of parts they have sold in a recent period rather than considering how quickly they can restock at affordable shipping rates.
Another key to improving turn ratios: Don’t use the past as the only indicator of what to stock and how much to stock. Rather than relying strictly on past sales, Meadows suggests also using these future indicators as ways to correctly stock:
New unit sales: PG&A managers should look at what has sold in the past recent months and what new units the dealership is selling to have sufficient stock that could be added to the new units.
Priority maintenance contracts: These can indicate what models are likely to be worked on in the coming weeks;
Market conditions: More lower- or mid-price point products could be considered in a slower economy.
Door swings: Such traffic counts should indicate not only how much product to stock at certain times of the year, but also how much staff to have on hand.

Shrinkage
Policy measures to address in-house shrinkage were outlined as surveys have shown up to 85 percent of such theft is done by employees, says Jim Rasmus, president of Retail Design Associates and a guest speaker at Update 2009.
To shrink shrinkage among employees, Rasmus advised the following:
Create a Big Brother psychology with the use of security equipment or through secret shopper programs;
Be proactive rather than reactive: Have lockers for staff to put their jackets and/or purses in. Establish a policy that requires boxes to be crushed before they’re placed in the garbage can, a practice that will stop employees from hoarding items in boxes and then picking them up after work.
Stop service department employees from being able to take items from the parts department. Rasmus notes service department employees aren’t necessarily trying to steal from their employers but often fail to note the use of smaller, everyday commodity items. These types of small oversights can lead to huge losses after an extended time period.
In regards to consumer shrinkage, Rasmus said retailers “have to set the right environment so consumers will shop from you and not steal from you.” Part of that means acknowledging the consumer as soon as they come in the door. Also, ensure consumers can be seen at all times around the store. Rasmus notes tall retail fixtures can make this an almost impossible task.
Other suggestions included:
Having all receivables be immediately placed in a locked area on arrival from a shipping company rather than somewhere in the store where a consumer can easily walk off with it;
Consider doing at least two inventory audits per year. If the audited inventory is more than 2 percent less than the amount invested in that inventory, then that should be a signal to the dealer that shrinkage is a problem.

Improving F&I approval rates
One of the biggest issues the industry currently has — improving lending approval rates — can be at least partially dealt with by improving inventory, says Tom Gray of Assurant Solutions.
Gray advised dealers to ensure they stock enough preowned and lower-priced units in the new year to deal with the reduction in available financing, not to mention diminished disposable income.
To boost preowned stock, Gray advised dealers to consider providing incentives for staff — sales, parts or service employees — to find used bikes for the store to sell.
Another key: When a consumer is looking for a new unit, make sure they find the right bike, but also plant the seed for a lower-priced model. That way, if they don’t get approved for enough to buy a higher-displacement model, the idea of a smaller-displacement model won’t immediately be frowned upon.
Another sales mindset key to improving lending rates: Don’t shy away from asking for a cash down payment. Gray notes many salespeople simply expect the consumer to turn down such a request, so they don’t even ask the question. For those who do ask the question, Gray cautioned that salespeople shouldn’t tell consumer that lenders “require” cash down payments as that’s not always the case.
Establishing a tie to a local lending institution also was noted as a key to improving lending approval rates. “Local credit unions can do some things that bigger banks won’t do,” Gray said.
He advised dealers invite local credit union managers to the dealership to “let them have a chance to see your dealership, to meet people at your dealership and let them see how your paper is performing.”
Once a relationship is started, he says dealers should use these local lending sources for a spectrum of credit applications, not just those that are turned down by other, more traditional lenders.

How to implement change
As dealers try to implement new processes, they ought to keep in mind a 2001 Harvard Business Review study that found two-thirds of all attempts at making changes in the workplace fail.
The reason? Poor communication and lack of follow through or resolve to see the change through, says John Tabar of Assurant Solutions.
To improve the odds of the change actually succeeding, Tabar advised dealers to consider the following: 1) to acknowledge change is not easy and that it takes commitment from the top down; 2) that it is a process and to expect a staff to change after being told to do something differently once is not realistic; and 3) change comes faster with a team effort.
Tabar also advised dealers to be aware of the four likely emotional stages that come with change: shock, anger, rationalization and acceptance. This process — known as “SARA” — can take staff as long as 90 days to get through as a staff.
To build value in the change, dealers should be sure to demonstrate the value of the change to each of their staff members as well as outline for them what they are expected to do, when will they be expected to do it and what they can expect from their managers.
— Neil Pascale