Protecting your EBITDA in 2024.

Background

The last 5 years of trading profitability have been some of the most dramatic in the history of the industry. Here is a run-down of the last 5 years’ EBITDA (which is earnings before depreciation, amortisation and interest and usually the best cash generative indicator for a dealership or group).

• 2019 – EBITDAs generally reflected previous industry run rates.
• 2020 - EBITDAs were higher due to lower costs & good Covid supports.
• 2021 - EBITDAs soared to typically 3 times the run rate, driven by stock appreciation on used cars.
• 2022 - EBITDAs were down slightly on 2021 but the best ever real performance by the industry.
• 2023 – This is generally down on 2022 due to accelerated depreciation on used cars in the second half of the year. Rising costs were a major drag, particularly cost of living & interest rates, protected slightly by increased new car volumes.
• For 2024, we are likely to see a repeat of those 2023 factors with most likely downside risk.

However, there are several things your business can do to protect your EBITDA:

1. New Cars

New car trading is likely to return to 2019 volumes with the return of the push model. In order to be efficient, strategically look at your footprint in the light of future network profiles including weighing up if credible Chinese brands will add to the overall profitability mix.

2. Used Cars

Whilst there is a lot of downsize risk in the market, it is a very nuanced picture so following the data, acting, and not procrastinating on pricing is the key to maintaining profitability.

Buying the right cars at the right price and speeding up the preparation function is the second part of a successful strategy.

3. F&I

Review F&I rates and products for profitability and penetration levels. This will bridge the gap between smaller metal margins and protect your deal profit.

4. Aftersales

The key to driving aftersales profits is actioning Service Retention, full workshop calendars, efficient VHC execution & strategizing and actioning upsells, especially tyres.

5. Management Information

Have a good, actionable Management Information system that shows you all the opportunities in the month at every level of the business. This will help you achieve the consistency that drives EBITDA continuously.

6. People

Establish measurable KPIs, training programs and motivate further with regular league tables and appropriate rewards. This will drive a culture of performance, able to grow year on year to meet ever evolving industry challenges.

Summary

With rising costs & declining margins, efficiency needs to be the underlying theme to all your decisions. That means ensuring property, products, people, working capital are all looked at to ensure that incremental efficiencies are achieved to protect your future EBITDA levels so that they are maintained closer to 2022 levels as opposed to returning to 2019 levels.

John Hogan is the CEO and Chief Data Scientist at Real World Analytics (RWA). RWA helps dealer groups become more efficient with actionable drillable dashboards and reports Visit realworldanaytics.com/automotive/our-solutions for all our solutions, If you want to find out how we can help you drive your dealer business forward, contact us here or email auto@realworldanalytics.com

This article was previously published in Auto Retail Bulletin.