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In auto dealerships when managers hear the question "How's your week going?" they know it's not always a personal question. Someone--usually the General Manager--wants to know whether they're on track to hit goals.
The most reliable source to find out how it's going is to drill down into Key Performance Indicators (KPIs). We all know the usual; gross profit, retail unit gross profit, service gross profit, new car inventory, receivables, etc. These are all good to check on a daily or weekly basis to see how you're trending.
But knowing how you are trending isn't always enough. A General Manager also wants to know if there are potential problems looming on the horizon. That's why it's good to look at these two KPIs every Wednesday: Contracts in Transit and Open Repair Orders. These two "cause and effect" KPIs can help spot problems before they happen, leading to additional gross profit.
Why Wednesday? It's not too late to correct and early enough to have a positive effect on the weekend.
Contracts In Transit
It's Wednesday and you have CITs over five days. Most likely you're running into a potential cash flow problem. Today's lenders will fund clean deals within 48 hours, so a CIT over five days means it's still on someone's desk or you've sold a car that was never approved. Either way you've got a car on the street and you haven't been paid.
Deal Type. Was it a retail or cash deal? If it's a cash deal it may not have cleared yet and it's a simple matter of checking with the customer's financial institution. Or you may have a contract that was not properly signed or agreed upon by all parties.
Finance Manager. Is there someone who is holding deals? Or perhaps the customer's information was not verified before entering it into the DMS, or a finance manager submitted the deal without the necessary supporting documentation.
A best practice is to have your finance managers review CITs every day and expalin why the contract hasn't been sent to accounting or hasn't been funded by a bank. Have them note explanations in either the finance portal or dealership dashboard.
Lender. Are they slow walking your funding? A phone call may correct the problem.
As every GM knows, cash flow is king and CIT represent cash in hand. Keeping a close eye on this KPI ensures you won't run into any problems.
Open Repair Orders (ROs)
Open ROs happen. It's inevitable to have a few ROs that have been open more than three days. The key word there is few. Every dealership's threshold is different, but generally no more than 10 to 15 percent of ROs should be open more than three days. If it's Wednesday and 20 to 40 percent of your open ROs are over three days, alert Houston because you've got a problem.
Bad CSI, bad tech productivity, bad service writer productivity, bad factory relations, increased unapplied time and increased rental car expense are just a few of aging open RO ‘side effects.'
Service Advisor. You'll know there's a problem if you see a person who has more open ROs over three days than they can potentially write in one day. For example, if an advisor typically writes 20 ROs in a day, and they've got more than 20 ROs that have been open more than three days, it's time to start asking questions. Is there a dispatching problem, a booking problem or an upsell problem? Consider removing them from the drive until the situation is resolved.
RO Type. Internal, customer pay or warranty? Internal ROs could signal that inventory isn’t ‘ready for retail’ fast enough, too many customer pay ROs leads to CSI or Lemon Law issues, and excess warranty ROs may be due to lack of training or skill, ‘back burner’ dispatching, or poor communication within the team.
Send the service manager a ‘Top Ten’ list. Ask them to comment on why the ROs are aging and when they will close. Note the response in your internal comments section.
Checking these two KPIs and drilling down into the reasons behind the number helps to identify a number of opportunities in the dealership that have a wide systemic effect on the dealership's overall performance. Conversely, when these two KPIs are in line, your dealership runs more efficiently.
Creating this habit every Wednesday allows you to take corrective action, turning a potentially bad week into a good week.