Professional Community for Automotive Marketers, Car Dealers, OEM and Suppliers
I was CC'd on this email today from the Dealer Principle of a major domestic dealership and I found it thought provoking.
There is not a better strategy we can have to secure future growth as a business than short term trade cycle.
Great job so far this month with +40% penetration and incredible increase YOY. We are currently the #1 volume lease dealer in the (xxxx) Region!
Have you "Chosen" your direction?
I have had some great discussions lately with dealers around the country regarding the value they see in focusing on short term leases and finance contracts. There is a surprisingly wide split on this initiative in the dealer universe, and many very successful roof tops and groups sit squarely on opposites sides of the fence.
How important is shortening the trade cycle to long term profitability? How critical is the "now" income generated from the longer finance options?
I get it that in 08 and 09 most of the dealer body was focused on immediate income as a matter of survival...but as the survivors put those days behind them what is the best direction to take?
This discussion is more about the reasoning so many successful businesses and smart people are not taking the same direction.
With so much focus on compensating for the margin compression and low profitability (some would say none) on the sale of new cars, it is understandable that the income from the finance process is no longer the cream, but may be core to profitability. Yet there is a new wave of focus on the New Car Department's ability to feed both Used Cars and Service where margins and bottom line contribution can be significantly higher.
Would you agree that the tradition has been to advertise and attract customers with the "little or nothing" down message? And that most of us have encouraged our teams to use finance term to help our consumers purchase the products they choose?
In fact, our culture is built around low payments and low down payments, inevitably driving longer terms. And our Finance Department and Management compensation plans create a climate in which we have to swim up river to the short term loans, even if we have decided shortening the terms and accelerating equity is in our best interest.
Would you agree that it is usually a matter of giving up 3 to 5 hundred on the PFU “now” due to less back end income on the lease in favor of the shorter trade cycle? If you finance 70 of 100 sales at a reduced income of even $300 PFU--that's a $21,000 monthly ($252,000 annual) loss of income for every 100 cars you sell...
But what is the value in Customer Retention, and income in cutting the trade cycle in your store and creating equity 50% sooner?
Equity Search has become all the rage, especially when applied to vehicles in service...and it has been a major contributor to finding incremental sales. Add to that the "trifecta" of the New Car Sale, the Trade profit, and the Service income from the get ready.....its very powerful! Would there be huge value in finding that equity sooner and in higher volume?
Hoping to get some responses from folks way smarter than I as to their decisions and experiences when looking into what may be one of the most important directions a dealership can choose.
Is there a Sweet Spot?
I wonder if there are any dealers who have found the magic “Sweet Spot” and have learned to make good income on the short term finance and leases?