Consulting firm Alexander Proudfoot has published their latest survey of automotive industry CEOs.
The global survey summarizes the top five concerns these auto industry leaders have:
- Cost structure
- Low performance
- Employee turnover and skill level
A similar survey of the franchised dealership base might result in the following five concerns at the dealer level:
Narrow margins. NADA reports that new car dealership net profit before tax (as a percentage of total sales) has held steady at 2.2% over the past three years. Operating on such narrow margins leaves very little room for error. If a dealer’s inventory doesn’t turn fast enough, if employee compensation is out of line with revenue or if they’re not hitting their sales volume targets, this small amount of profit can evaporate very quickly.
Strained relationships with their OEM. Auto manufacturers have a love-hate relationship with dealers. On one hand, the manufacturers value their dealers for selling all the cars they make, even when they overproduce certain models or configurations. On the other, manufacturers get annoyed at dealers who can’t deliver good customer service, or can’t (or won’t) invest in their facilities. As a result, there’s constant tension between the dealer and their manufacturer. The recent increased reliance on OEM sales-based “stair step” incentives hasn’t helped.
A rapidly evolving marketplace. Very quickly, any given model (new or used) can go from “hot” to sitting unsold on dealer lots. A new sports car might only be hot for a few months before consumers start craving a different, competing car. A larger than expected seasonal increase in gas prices can kill the market for large SUVs, while a couple of severe winter storms can be a boon for large SUV sales. New car demand can dry up after a manufacturer changes incentive programs or releases a newly designed body style. Dealers have to keep track of a lot of moving parts, including knowing how the new product is performing, what their competitors are up to, and keeping an eye on their local used car market.
High employee turnover. NADA’s 2016 Dealership Workforce Study reports that total dealership employee turnover for 2015 was relatively unchanged at 39.6 percent compared with 39.3 percent in 2014. Sales consultant turnover at new-car dealerships (both luxury and non-luxury combined) for 2015 dropped five points to 67 percent, compared with 72 percent in 2014. Sales staff turnover at non-luxury stores dropped to 72 percent for 2015 from almost 80 percent in 2014. Service advisor turnover for 2015 dropped two points year-over-year to 39 percent for 2015.
Threat of increased regulation. A 2015 survey of dealers by eLEND Solutions found that eighty percent of dealers expect that CFPB (Consumer Financial Protection Bureau) regulations will be implemented at their store in the near future. The survey also revealed that less than half of dealers have plans in place to meet these new regulations, which has threatened to replace dealer participation with mark-up thresholds or a flat-fee model.
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