Cash for Clunkers – thoughts from an auto dealer who was in the trenches!

How a dealership works No Responses »
Oct 202009

I’m sure you all heard about the cash for clunkers program the government approved a few months ago. Now that the dust has settled, here are the thoughts I have.

First of all, the program was approved months before it was able to be implemented and used. The final rules didn’t come out until a few days before the program began.

Second, the website that we dealers were to use was overwhelmed most of the time, but most especially in the beginning. There were also lots of vague and unclear rules as well as rumors. One of those rumors was that only a certain amount of dealers would be allowed in the program. That caused most to be on line at 6am central time on opening day, along with dealers in other parts of the country, as early as 4 am on the west coast. Of course, that overloaded the system, maybe even caused it to melt down…. It never seemed to recover. Then, there was the next big rumor. It was announced, only on some internet news sites, that the program would be shut down at 8 am the following morning. Any sales not in the system by then wouldn’t be honored. There was a concern that no one knew for sure when the money would all be committed, and what would happen to those last rebates if the money was gone. Think what your reaction would be if you’d bought a car from us, got the Cash for Clunkers rebate, only to have us call you back and say that the rebate was not available because we couldn’t get the sale reported or the money ran out? So, my staff was at the dealerships as late as 1:30 am trying to get all of our sales reported. This, all because the website was so slow.

Other reporting problems were: We’d get a sale rejected, but there would be no explanation what was wrong. The response would simply say that there was an error, or multiple errors. We later found that a rejection was caused by there not being a comma after a persons last name, before their first.

Many dealers (not us) had to stop the program because they had so much money outstanding waiting for government payment,  that they couldn’t do any more. Or in some cases they became worried that the government somehow wouldn’t pay.

The requirement that the engine be destroyed in the clunker trade in vehicles was not a good idea at all. It caused vehicles to have to be hauled, rather than driven to the salvage yard at a much larger cost. It will further cause the price for used engines to go up and be in shorter supply. If the goal was to stop the clunker trade in from ever being used on the road again all that would have been needed is the requirement the title be transferred to a junking certificate. There are many folks who can’t afford any option but to fix up their old vehicle, believe me I know as we help many people in this way from our Birdnow Auto Recycling business at Fayette.

In the end, we got all of the money promised, and sales were good for a month….

Posted by admin at 12:45 pm Tagged with: , ,

The Difference

How a dealership works No Responses »
Sep 192009

Smaller dealerships usually are more interested in developing a relationship with their customers. They also normally retain their employees for much longer periods of time. Customers like knowing who they will see when they stop in. Smaller dealerships usually don’t spend the level of money for advertising that bigger dealers do. They spend less advertising per car sold and of course, less total dollars. So our goal is to retain customers by good service, and with a more personal style.

Large dealerships, as well as most smaller dealerships, typically pay their sales staff a percentage of the profit made from each sale. That’s what causes you to have to negotiate with the sales person for your price, it makes you actually an adversary with the sales person. Here’s an example: A few years ago I stopped to visit a local big dealer that I know one evening. While I was in his office one of the salespeople came in, and after a few moments of chit chat, he asked the dealer to say “no way” in a loud voice. I heard the salesperson go back and tell the customer “I told you he wouldn’t do it.” Point is, he never even told the dealer any figures.

Large dealers typically use a lot of advertising to get people from a wide area to come in. They are interested in making the most money possible this time from their customers. They really don’t think in terms of long term relationships with customers. If you shop at a big dealership, at least do this, find a salesperson that’s been there for at least two years. Then you might have a chance at working with someone who’ll be there later on if you need them.

Large dealers have very large costs of operations. They might sell more vehicles, but in most cases a smaller dealers cost of operation per vehicle sold is going to be less. That should save you money.

At the Birdnow Dealerships we have many advantages that are good for you. We pay no commission to our salespeople. They get a salary, plus a flat fee for each vehicle they sell. They have no reason to try to get you to pay more than we can actually take for the vehicle. They’re also happy to help you with the purchase of a $2,500 cheap truck or a $50,000 new Suburban. What you pay, or what you buy, has no affect on their paycheck.

We also save a lot on our overhead expenses. For instance, our insurance costs are much lower because we bundle all of our businesses into one policy. We also spend far less on advertising as much of our advertising is for all of our stores together and the cost divided up. The shirts we wear cost less because of volume buying. Even my salary is split between multiple locations.

Next time I’ll talk about how our management structure works for our customers. I welcome your questions, email me at my personal email address by using the form below (use the form at the bottom of the page to leave a comment on the page)!

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Posted by admin at 2:49 pm Tagged with:

Profit

How a dealership works No Responses »
Sep 102009

Do you ever wonder how much dealers make when they sell a car?

In the dealer business we talk about two kinds of profit, gross profit, and net profit.  They are two very different things.  Gross profit is literally the difference between the actual cost of the vehicle and what we sell it for.  Net profit is what we have remaining after we deduct what we call overhead costs from the gross profit.  In most auto dealerships we monitor on a yearly basis (and update as needed as the months pass) an average flat amount for that overhead cost per vehicle sold.  Overhead costs include such things as employee costs, taxes, utilities, insurance, advertising, computer support and many other things.  So an example might look like this:

$20,000 selling price of vehicle

$18,800 cost of vehicle

$  1,200 gross profit

$  1,050 average overhead cost

$     150 net profit

You might think that looks like a small amount of net profit but when we combine a lot of sales in a month we can be successful with that amount.  The same holds true with our service operations.  We calculate our cost (labor amount paid to the technician, materials & parts) and then add our overhead costs generated by labor hour billed to come up with a actual cost.  We then add a small amount of net profit to the cost.

My next post will tell you what’s really different about small dealerships, big dealerships, and dealerships that are part of a group.

Thanks for joining us!

Mark Birdnow

Posted by admin at 12:51 pm Tagged with:
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