THE SHOP

February '20

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48 THE SHOP FEBRUARY 2020 Helping Dealers Grow Their Margins Aftermarket accessories can help dealerships increase profits in today's challenging new-car market. W hy are profits shrinking for car dealers, even in what's considered a strong economy? It's a combina- tion of many things that is creating a chal- lenging market. First, because of internet pricing being so competitive, people are able to search prices on vehicles from across the country with no intention of buying. This hurts what we call P.V.R. (Per-Vehicle Revenue), because the margin on the price of a new vehicle is very, very slim. It isn't like the old days for dealerships, where there might have been a healthy markup. These days many new vehicles have less than a 3% markup, and it's the first thing to go when negotiating a car deal. That means some dealers are running at either a $0.00 P.V.R., or even a negative. They do this to get the buyer to the second part of the car deal—the financing. The F&I office is where dealerships can usually make a profit, even if they are selling the vehicle at little or no markup. Finance products such as service contracts and war- ranties, Gap Insurance and interest rates can all be sold at a profit for the dealership. However, these have all started to trend down as well. For instance, service contracts are now sometimes being dictated by the OEMs as to what is covered and what the warranty can be sold for. Meanwhile, federal regula- tions have limited the size of interest rates. So, very quickly, a car deal that used to be very lucrative has now turned into a low-profit transaction. Another reason for dealers losing profits involves the way vehicles are sold and by whom. In today's economy, many busi- nesses are looking for motivated, skilled people, and car dealers are no different. A shortage of workers can lead to fewer skilled employees at the dealership, which hurts the bottom line. A dealer that may have had 10 to 15 highly skilled sales- people a decade ago may now be down to a handful. These and other factors have made it harder for car dealers to make a profit when selling cars, prompting them to be constantly looking for other ways to add to the bottom line. THE ACCESSORIES ANSWER One way that is becoming very popular for dealers to quickly raise their profits is by offering accessories, including OEM and aftermarket options. Dealers know that people are buying vehicles and then taking them to shops to have billions of dollars' worth of work done. So, they ask themselves, why not try to capture as much of that business while selling the vehicle as possible? This is what forward-thinking dealer- ships have been doing and will continue to do more of in the years to come. They are able to not only offer more products Ways to accelerate sales & profits in a challenging market. By Josh Poulson

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