Dealership profitability is good on average this year despite the pandemic, but this is no time for dealerships to let up on cutting costs, said the president of consulting firm StrategicSource.

 

"Sales are strong in dealerships right now. But will that continue? And if it doesn’t continue, we’re going to need a plan," Doug Austin said in a webinar this month hosted by the American International Automobile Dealers Association.

StrategicSource specializes in working with dealerships to manage their costs, particularly spending on suppliers, such as office and janitorial supplies, uniforms and laundry, waste and recycling, health insurance and more.

Even a relatively small dealership probably spends money in about 100 different categories, potentially as many as 150, Austin said. "Twenty years ago, when I started this business, I thought it might be 30 or 40," he said.

Centralizing procurement at a dealership typically saves about 25% on those costs, compared with decentralized decisions on hiring suppliers and negotiating prices and contracts, according to StrategicSource.

Therefore, for a dealership with annual revenues of $25 million, conservatively assuming 18% savings instead of 25%, centralizing procurement represents a potential annual savings of $180,000, which goes straight to the bottom line, Austin said.

 

"Think how much you’d have to sell to achieve that much net," he said. For a bigger dealership group at $300 million revenue, that could be about $2.2 million in savings. "The numbers can be pretty compelling."

For example, the firm recommends measures such as strictly limiting the number of suppliers for a given category and negotiating longer-term contracts in return for price concessions.

It also may make sense, Austin said, to bring certain services in-house instead of hiring an outside vendor, such as paintless dent repair or auto glass replacement.

"We should have corporate-directed suppliers, not everybody making their own decisions," he said.