By Doug Austin, Founder & President, StrategicSource, Inc.

The economy looks strong, the markets are doing well, unemployment is at the lowest levels in 50 years, and the prospects for another good year look promising.

Even though the economy is doing well, and all the indicators are going in the right direction, proactive leaders will still search for tips and strategies that will help improve operational efficiency, reduce costs, and improve profitability because, at some point, a downturn will occur.

Dealerships are highly complex organizations with thousands of moving parts as we all know. Headcount, facilities, marketing, lending, service, sales, parts all have associated costs that contribute to dealers only realizing a 2.5% average net on their operations. With all of that great complexity and all of those moving pieces comes opportunity as well.

There are countless ways that dealers have to reduce or mitigate those costs with hopes of driving new efficiencies and new profitability into the business.

I’ve outlined 25 cost reduction strategies. If you are targeting greater profitability in 2020, you should take a hard look at the strategies to see which ones might apply to your organization. Most of these strategies are only tweaks to your existing operation, but those tweaks can add up to some serious dollars and new profits.

iThe following best practices can help you to reduce costs, drive new efficiencies and increase profitability across your organization.

Labor and Salaries

1. Develop an organization chart.
– Review all positions for potential overlap and reduce where that occurs
– Review opportunities to combine responsibilities into fewer FTE’s
– Redeploy strong existing talent into key open positions
– Eliminate positions not supporting the core mission.

2. Declare a headcount freeze on non-essential hires.
3. Consider outsourcing non-core functions (HR, compliance, IT, legal, procurement).
4. Revisit bonus, pay, and incentive plans to adjust compensation to KPIs (expense reduction – profitability) and place controls on over-time usage.
5. Centralize services and digitize where possible (payables functions, credit card payments).

Floor Plan Strategies

1. Set new inventory reduction targets at all or selected stores (caution on gross profits).
2. Electronic contracting to reduce interest expenses by reducing in-transit times.
3. Utilize a swap agreement to pay a fixed interest rate rather than a fluctuating interest rate.
4. Get vehicles to market more quickly (reconditioning, transportation, etc.).
5. Shop floorplan with various banks – bundle bank services to reduce floorplan interest.

Marketing Strategies

1. Review supplier spend – reduce redundant and over-lapping marketing spend (some experts suggest 50% of marketing expenses are redundant).
2. Standard – Competitive Pricing – Negotiate supplier pricing for all of their services from a particular supplier, then make those services and pricing available to your locations.
3. Focus limited financial resources on marketing to current customers – less costly than acquiring new customers.
4. Leverage marketing spend with larger advertising buying groups to reduce costs for the same media plan.
5. Performance-based marketing – ensure you can pinpoint an ROI on each service provider, or cut them loose.

Facilities

1. Centralize staff – office functions to reduce real estate footprint and related costs.
2. Lease excess space to selected suppliers who have a constant presence in your dealership(s) (rental cars, parts supplier if partnered).
3. Ensure that all real estate-related expenses (fixed telecom, IT services, etc.) are shut off on unoccupied buildings.
4. Cost segregation study. Complete if acquisition, renovation or construction is greater than $500,000. Designed to shorten the depreciable life of investment, which accelerates your tax deduction for depreciation.
5. Generate revenue – reduce expenses by investigating “energy-producing assets” deployed across your buildings and parking lots (solar solutions).

Supplies and Services

1. Renegotiate pricing. If any of your supplier contracts are more than halfway through the contract period, contact the supplier, and see if they are willing to renegotiate pricing (new lower pricing) with an extended term.
2. Start paying suppliers with a credit card for cash discounts rather than points, as the cashback option can pay you 1.25% to 1.5%.
3. Implement a preferred supplier program.
4. Quote, negotiate, and lock in prices for supplies and services for 12, 24, and/or 36 months to reduce costs today and longer-term.
5. Audit supplier invoices (uniforms, DMS suppliers) for potential over-charges against the original contract or pricing agreement.