Several forms of dealership performance data are collected every day. Some of it is used to generate daily, weekly, or monthly reports, but is it really being used to its fullest extent? In many cases a multitude of performance data are collected, transformed into key performance indicators and evaluated by individual departments and dealer contact personnel. Typically, the industry “standard” of measuring an individual dealer’s results is to compare it against a collective dealer group “average” or versus themselves during a prior time period.

This comparison however, may not be the most effective assessment of how well or poorly a dealer is performing. What OEM or dealer really wants to consider them self, or accepts being considered, as “average”? Every dealer will provide you countless reasons why their market, customer base or competitive set is totally unique and anything but “average.” And in many cases, they’re right. Therefore, a more reasonable approach is to take into account each dealer’s “unique” market and to develop a standardized and defendable “expected” objective from which to measure their performance.

Let's begin With sales data

Sales data is the most commonly sought-after and most heavily-reported information. Whether it is related to financial results, throughput volumes, salesperson activity, or overall market share performance, new vehicle sales data is core to the beginning of almost all dealership activities. Since “nothing happens until the car crosses the curb,” inspection of the sales data naturally is the most widely and commonly analyzed data of all. Most OEMs have already realized that examining sales data using the historic methodology of comparing a dealer’s performance against a group average limits insight into how well or poorly the dealership is truly performing. Therefore, the concept of using an “expected opportunity” sales volume based on the relative vehicle segment mix within a local market has become a generally-accepted practice for assessing a dealers’ new vehicle sales performance. Yet, that is where the use of “expected opportunity” volumes typically ends. Diagnostic measurements of sales data still include a comparison to the dealer’s historic and current sales volumes, ranking within a zone or region, or perhaps even an OEM-initiated objective. These measurements are acceptable for some purposes; however, they have the potential for masking the relative cause for poor sales performance by a dealer. A more consistent method for evaluating and diagnosing the causes of a dealer’s performance is to utilize expected opportunity across all departments and as the common denominator for all metrics.

“Expected” applied to other departments

Parts and service departments are becoming increasingly important profit generators for dealerships. But just how well a dealer is capturing retail service opportunity within his/her assigned market area could still be misunderstood. Even though you may be measuring dealers’ performance against the available universe of assigned vehicles in their market area (UIO or car parc), it is also possible to calculate total dollars of expected opportunity for individual dealers by introducing additional criteria. For example, consideration needs to be given to the mix of vehicle age within a dealer’s UIO/car parc since the amount of expected revenue will vary based on the vehicle age mix.

With financial data, we constantly track averages and compare them to composites. Again, comparing expected opportunity instead of using actual sales to calculate averages provides more valuable insight on how the dealership should be performing rather than how it has done. The goals of increased profitability assessment and operational improvements can only be obtained through measurement against a pro forma and not how the dealership has operated in the past. An example of this is demonstrated in the charts below. When assessing the relationship between a dealer’s advertising dollars spent per new vehicle sold (the traditional method) and their resulting market performance our findings indicate a very weak correlation. Not only this, but it encourages or suggests that the dealer will perform the same in the future – whether that performance level is good or bad – since it is based solely on recent sales levels. Conversely, assessing the relationship of market share performance to a dealer’s advertising per expected new vehicle sales we found a very strong correlation. Therefore, using expected sales provides more insight into how the dealership should operate to achieve desired performance levels much more than the traditional use of actual sales – looking forward rather than looking back.

The use of expected opportunity has application across an entire dealership operation and provides much more insight not only into how well it is performing, but also how well it should be performing. Traditional data is very insightful and does provide a great deal of information on how the business is progressing; however, using these conventional methods of comparisons limits your insight and understanding of a dealership’s true performance and potential. By measuring expected opportunity across dealership departments, not only can OEMs uncover masked dealership performance, but they can finally measure individual dealerships with reasonable objectives.

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