Auto Dealers: Managing Costs for a Better Bottom Line

As vehicle inventory is one of the primary sources of revenue for a dealership, the purchase of those vehicles demands more focus from a financial standpoint. However, there are many other costs, either directly or indirectly, that can affect the bottom line of those vehicle sales.

Most of the related costs like interest expense and advertising may be determined on a unit-by-unit direct cost that fluctuates according to the number of vehicles sold. Some inventory costs might not be as obvious, but no less important, and even harder to control. 

For example, floor plan interest rates should be carefully negotiated with your lender and visited regularly. Ultimately though, maintaining the proper level of inventory can result in added savings, and can give you leverage in availability with the manufacturer for future vehicles ordered.

In addition, advertising can be a significant direct cost for dealerships. Some dealer franchises participate in a co-op or local advertising and marketing agency where costs are shared for related manufacturer-provided advertising. However, there are also other advertising/marketing costs that are dealer-optional. If a dealer enters into a media placement contract, they need to be vigilant about contract terms, renewals and whether the various media included is still viable for the dealership’s current marketing position.

Some costs that may not be individually significant, but collectively can put a dent in your bottom line, are items such as subscription fees, maintenance renewals and automatic online charges. Periodic maintenance agreements for your computer hardware and/or software, IT support and software renewals are crucial for your ongoing business operations. Even renewals like cloud storage fees, dealer tag and license renewals, and credit card membership fees need to be managed. Monitoring these costs may even uncover costs that are being duplicated among departments instead of being shared between those departments.

In addition, it is always ideal to re-evaluate the services you are receiving from these various subscriptions/renewals.  Are they all necessary?  Are you receiving similar services through multiple providers? 

For example, with cloud storage, data management or data security services, you might find that you are being charged for these services within your internet or phone provider, and in a separate app you may have obtained for data security.  Something as innocuous as banking fees can add up, especially if you are still receiving paper statements, have low balance charges, or check fees. Also look into whether any of those necessary fees are negotiable with your vendor(s). Some internet/phone providers will work with you when renewal time comes around, or they might offer you short-term special rates.

Another practical outcome of looking into your subscription type expenses is the opportunity to set-up reminders for when the subscriptions are due for renewal.  Although most vendors send automated reminders, some need to be addressed far ahead of the renewal date(s). This includes equipment rental, leases, or janitorial services, where you need to provide advance notice if you are canceling or modifying.

Managing costs related to your inventory, whether direct or indirect, can contribute to a healthier bottom line and may provide opportunities for long-term cost controls. In the end, these cost savings can significantly help propel long-term business growth.