For decades, automotive manufacturers have created performance benchmarks by comparing an individual dealer’s performance against that of the “average” performance of a larger group of like-brand dealers. That group can range from a national dealer network down to a small subset of dealers operating in the same section of a metropolitan city. This process is used to compare such things as vehicle sales, financial data, customer satisfaction, warranty costs, parts sales and virtually every other operating performance metric. The average is then considered to be the “standard” for measuring whatever performance metric is being assessed.
Since when is average performance good enough?
It is a good thing if a poor performing dealer improves to an “average” performer; however, is “average” a standard any dealer should aspire to achieve? And, should the national, regional or district “average” of any performance metric really be the standard to which you want your dealers to strive? Why limit your brand and the competitive nature of your dealers to such a low challenge? A question every automaker needs to ask themselves is “which dealers are truly the best performers?”. Is it the dealers with highest profit? Highest ROI? Largest sales volume? Best market share? Highest customer satisfaction? More than likely, it’s a combination of each. Once it’s determined which dealers you consider to be the “best”, the performance of their operations should be the benchmark against which all dealers are compared.
Are manufacturers and dealer priorities aligned?
The next question you have to ask is whether these metrics are consistent with how a dealer measures his own success. The obvious answer you’ll discover is that dealers measure their own performance in terms of ROI, ROS and profit; whereas a manufacturer measures success by achievement of sales volume targets and resulting market share. While both manufacturers and dealers generally make more profit by selling a greater number of vehicles, sometimes the incremental efforts and resources required by a dealer to sell more vehicles results in a negative return, thereby creating conflicting objectives. Intuitively, it makes sense that dealers with the highest market share and top performing customer satisfaction would result in above average ROI or ROS. Historically, however, manufacturers have never measured dealers’ performance using a combination of these mutually beneficial metrics.
An alternative “benchmark”
When a dealer performs above average in both ROI/ROS and expected sales, a true “win-win” scenario exists for both the dealer and the manufacturer. Expected sales is a measure of the units that a dealer would sell to reach a segment-adjusted comparison standard. By comparing actual sales to this standard, we can calculate a better performance measurement than through market share alone. Utilizing this more detailed assessment along with profitability measurements, we can find what is different within the operation of these dealers who in effect have “optimized” their performance, as shown through the comparison to the expected. It’s these “win-win” dealers that should be used as the basis for establishing benchmark dealers.
However, even within this universe of “win-win” dealers, consider further segmentation into like-size, like-geography, like-facility and like-franchised dealers to account for local conditions and similarities. The closer you get to comparing like-dealers to their local market conditions and expected performance, the more buy-in you’ll get from the dealer and (more importantly) enable you to focus your efforts on the markets and dealers with the greatest opportunity for positive ROI.
How can this alternative “benchmark” be utilized?
Manufacturers cannot depend on financial measurements alone and cannot concentrate efforts only on select departments. For a true understanding of dealership operations, there must be a holistic view of the dealership that is reviewed to identify where gains can be realized and provide actionable keys to improvement. To do so, performance and financial measures must be mixed to provide a more thorough understanding of their interdependencies. For instance, the impact that CSI has on both financial and performance measures and on both the sales and service departments must be tracked and analyzed in full. But remember, in order to properly track the impact, we must consider the relationships with performance and financial measures as well as the involvement of various departments of the dealership. We may assume that good CSI is a necessary quality, but to what extent should you invest in improving these scores and what gains can be obtained through these investments? The outcome should result in more refined thinking to pass on to sales and service managers within the dealership to more specifically impact day-to-day operations to see results dealership-wide. Such actions can also inspire different departments of the dealership to compete or work together for the greater success of the overall business.
It is easy to get lost in a sea of numbers, but with the many sources of data available and the greater ease of access of information through the internet, a greater amount of statistics and other information can be gathered and disseminated to the necessary parties to make improvements. By understanding a dealership’s positive and negative areas of performance along with an understanding of which criteria are most vital for performance improvements, faster and better focused efforts can be made to realize increased sales and profits. A great deal of historical and comparative information exists that must be put into action. Let’s spend our time more effectively focused on data that matters by benchmarking the success upon those that have already achieved the goal of “win-win”.
Performance worthy of benchmarking
By combining dealers whose results demonstrate above average performance for both the manufacturer’s expectations and the dealer’s main motivation, manufacturers can create a composite group that truly exemplifies performance worthy of benchmarking. Dealers need insight into where they can make necessary modifications to their business and must utilize the proper comparisons to make their decisions. Today’s methods of comparing to simple averages or those of selected dealers can lead to limited or inadequate comparisons. Instead, a proper approach of assessing all of the data that is available and comparing it to an appropriate set of “win-win” dealers would provide the best information in order to produce positive change.
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