As we review 2022, most dealer groups will have struggled to match the record EBITDA of 2021 without the used car stock gains from the rising market in the previous year. This will continue to be the case in 2023 with headwinds firstly on costs, continued new car supply issues, an agency model, a move to electric, and adapting to digitisation but offset by exceptional profits on used cars.
These challenges are not trivial but can be tackled from a position of strength with strong cash resources from previous years. Whatever the future may hold in terms of industry consolidation, the objective for 2023 needs to be driving EBITDA & cash generation through strong strategic & operational excellence.
1. Staff Productivity
Building & measuring efficiencies in real-time and rewarding on this basis will be key to driving productivity in a rising cost environment. Electronic wall boards for sales offices and workshops are a very actionable way of driving positive behaviour. Having all the KPIs on one page for your salespeople, technicians, parts & service advisors is essential now to track operational excellence. Finally, freeing up managers from unnecessary collation work is now a necessity, it’s more important that they are proactively managing their actuals, opportunities and exceptions in order to avoid firefighting at all levels of the business.
2. Aftersales
On the aftersales side, it is time to build a strategic model of what the next 10 years are going to look like from a business point of view with the impact of EV penetration. There are enough data points now in terms of EV sales penetration predictions and EV aftersales income to make a very good fist of this, it can be refined in future years. Operationally, in addition to the staff efficiency above, it’s about the service retention campaigns, execution of the upsells such as VHC & the reviewing and elimination of unprofitable work.
3. Used Cars
Used cars should be the primary focus of new cash generation to offset the other industry headwinds. One very permanent trend that has emerged is the use of price algorithms to price cars on the basis of the local desirability of the car. This has been implemented by most proactive dealer groups, indeed, some of our customers achieved 2021 profit levels in 2022 on the back of this. With this pricing model, these dealers are selling consistently above or faster than the market and generating a real bounty. We are also seeing a greater level of sophistication too on how vehicles are sourced & valued, this operational excellence is contributing handsomely to the bottom line.
In summary, it’s necessary to drive staff productivity in a rising cost environment to protect your EBITDA. Whilst the projections on aftersales in the long-term will not look good, there is a prime used car business to be maximised to keep the overall business strong & healthy for the foreseeable future.
John Hogan is the CEO & Chief Data Scientist at Real World Analytics (RWA). RWA helps dealer groups become more efficient with actionable drillable dashboards & reports Visit realworldanalytics.com/automotive/our-solutions for all our solutions, or check out our customer stories. If you want to find out how we can help you drive your dealer business forward, contact us or email auto@realworldanalytics.com
This article is previously published in Auto Retail Bulletin.
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