Yes, Saturn dealers were free to establish their own prices, but had to state/offer those prices to EVERY customer that walked through the door. A manufacturer dictating that they sell for ONLY MSRP is against Federal Law.

They upheld that business model until Saturn went away a couple years ago

I think 40 million for a dealership in that demographic may be justified.

I've had direct experience with a small town dealer where there is only one dealer per major manufacturer (if that), middle of the road (where I worked) and very high end (where my in-laws work). There's only so much a small town guy can do and it ain't putting a Starbucks in the lobby.

Meanwhile, down at the Newport Lexus dealer you might find a hair salon.

I was only partially correct. I knew it was $40MM, but that was just the building and improvements. The lot alone was $30MM.
Total real estate investment was reported at $75 Million

http://www.belairpartners.com/news/articles/autonews%20073106.pdf

BTW, I've heard that Lexus store bled nearly a million a month in 2008 and is in the red this year due, in part, to the earthquake disrupting supply

It takes a WHOLE LOT of $2000 gross-profit car sales to pay for a $75MM building and its related costs. Just paying the property taxes would eat most dealer's entire gross profits.

Topless.

Cha-CHING!

Truth be known, the last thing I'd want is a car dealership...it would be a millstone around the neck.

I have no doubt that the mega dealers in Newport are having a struggle. On the property tax thing, so many of these places are in as a result of negotiations on that very thing. Incentives given to businesses are insane from my perspective.

I would recruit the best people I could find, then get them all into a meeting and carefully explain that if they did not treat customers (potential ones too, walk-ins, anyone) EXACTLY how I specify then I would immediately fire them - no excuses at all allowed.


















Then, I would explain EXACTLY how I wanted all customers treated: by saying "I want ALL of you to screw the Hell out of anyone who has ever posted on a Pelican car sales thread."

You need to focus on what people dislike about the car buying experience. The biggest of which is that they don't want to feel that they have been taken advantage of or ripped off.

Here is how I would go about it.

First, you need to define all of your revenue streams. For a car dealership, I believe them to be:

New car sales
Used car sales
Financing (for the new and used cars)
Service
Parts

The next step is to define an acceptable overall gross margin by category and for the operation as a whole. Once I have my cost of the products (pretty much just cost-of-goods plus OPEX since your have removed CAPEX from the equation) and my margin, my selling prices are defined. It is not that simple, you may need to adjust margin on competitive factors and market conditions, but you get the idea.

For sales, you focus on the experience and the customer. I would outfit the showroom with large displays (big screen TVs) that would show the cars that I had in inventory or coming in, and their sales price. There would be no one there to negotiate with. My people on the floor would be either local school teachers working part-time or retired police, firemen or others from the community. They would not be paid a commission, only an hourly wage. Their job would be to make sure the customer finds the right car for them and has a pleasant experience. They would all be trained in the process of completing the paperwork and the sale and be able to perform it quickly without errors. They would also be trained and ranked on customer service skills.

I would take a similar approach for Service.

I would also take a different approach to marketing and advertising. Print and media advertising costs a lot of money. I would enlist, engage and entice my customers to become part of my sales force. For each new customer that they sent me, they would accrue some sort of reward. It could be a discounted or free service, like an oil change. The tracking mechanism would need to be defined/refined, but should not be too difficult.

You have to remember everything needs to be about the customer and their experience. We like to be able to tell our friends about the great treatment that we had at XYZ dealership and be confident that they will be treated the same.

Last, I would post on car-related Internet forums looking for customers. :)

Man. You've got me to a tee..... have you been watching me? ;)

For my part I agree with what most posters here have suggested. When I go into a car deal I know the invoice price (at least as close as the internet will give you) and the incentives and such available on the car. I take the invoice plus whatever fees are not negotiable (such as delivery), minus incentives and then add what I think is a reasonable dealer profit. That's my ending offer. So, why can't a dealership operate like that for everyone? If I knew I was getting a reasonable deal and could just walk in, pick my color and options and not worry about getting screwed over in 100 different ways, I would shop at that dealer.

Oh, and I would do away with all the F&I BS. I mean really, how many people buy friggin LIFE INSURANCE at a car dealer? Extended warranties are fine, I wouldn't have a problem with offering them, but I would charge market prices not 40% above market price.

There's something in that business model, Eric, that is not pointed out.

Salesperson knowledge. These people need training. They need to know and understand their product thoroughly. I do not want a clueless salesman who was working selling pizza last week. What do I need them for? To fetch the keys?

This is often overlooked. They bring in the brand and all the whiz-bang golly-gee cool stuff and the salesman doesn't even know if the model is FWD or RWD...

Oh and one more thing? If you are going to demo a car to me that is a stick, please learn to DRIVE a stick. I can drive one in 4" heels, it's not that hard.

angela

Putting non car sales people in the showroom may not be a good idea. Not very many carreer auto salespersons know enough about the product, much less a part timer writing out paperwork. Remember, not all sales are new cars and the real money is in used cars.

Case in point: I had a guy walk in wanting a used Blazer for right around a certain price. In fact, he wanted a "certain" Blazer, a model with a big gas tank, which was an option available.

Short of crawling under the car, I asked around at the dealer how I could determine what tank was in the Blazer we had on the lot. The guys told me to look at the options sticker in the glove box. I was green, didn't think of it.

Went to the parts dept and got a manual and read the code. It had the big tank. The guy bought the car on the spot and it was the biggest gross of my short career.

The other sales guys just said that I went over and above on that one.

Really? Well, then look at this $350 commission check for ONE car.

People come in with all kinds of questions and you can't be caught looking stupid or you won't get a sale. Unfortunately, that's why a lot of salespeople flat out lie.

Pics or ban ;)

Actually the real money is in service, but that's another discussion...

Mega money in service...

Then, watch people point to your window sticker and say you are lying and you're hiding thousands of dollars of hidden profit.
Most dealers would think they died and went to Heaven if they could make 5% profit. People will think you should make $50 or $100 even on your limited availability/high demand models. Sadly, too many people are CHEAP. (Don't believe me? Talk to waiters who slave over a table for an hour and get a dollar tip). Besides, you're still hiding profit in kickbacks or incentives (at least so says many folks on another recent thread).
Finally, you'd be cursed out when you tell people what their trade-in is really worth.

My perspective is pretty interesting since after being a derivatives trader on several exchanges for 20 years I sold that business and walked away. I sat around for about 8 months trying to figure out what I wanted to do and eventually ended up selling new Porsche. Now I am working wholesale for the same company.

Other then being a professional athlete I dont know a business which is more competitive then being on an active trading floor.

I hate to say it but bringing in "the best people in the business" as sales is a nearly impossible task. Good luck trying to pry the best of the best away from their current gig. If you can you can also be sure they are mercenaries and they will always be one more buck away from jumping to the next dealer.

IMO selling new cars is a tough racket with thin margins and lots of overhead. The life blood of your XYZ dealership better be something other then new car sales.

You are trying to reinvent the wheel here and the people in the business have been at it a lot longer then a neophyte.

No, it's not another discussion. It's included in Kaisen's question. And it's an important aspect of running a dealership.

How many times have we heard about the incompetence of "techs" in the service bays? And the fact that they don't want older cars in there. "Warranty work" is where the big money is and all that.

There are a lot things to fix in a typical dealership's service dept.

I have a relative who works as a "service adviser" for a Mercedes dealer. He can sell oil changes for your leather seats. He makes 100K/yr every year. Never could even hold a job before he got into a Bimmer dealer a few years back as a service assistant.

What's wrong with this picture is that the service manger is pimping these guys on the kiosk line to sell, sell, sell. If you don't buy, buy, buy, they throw you car out back and get to it when they can.

Chum the live ones.

Plus 1

The dealership itself should act as almost a " lost leader " to develop the service and parts business.

All true. I was the one that said recruit the best. Yeah, it's a continuing process. But, some aren't the mercenary type and after jumping around they might like to land a home. Give them some equity and if they still leave, you didn't want them.

You know, I was at the top of the board my first month in sales. One day my manager calls in the "team" (about 5 of us) and reads the riot act. A couple of the guys deserved it as they were just taking up space anyway.

But not me. I did all that I was told to do and was succeeding. So, who do you suppose quit on the spot. Yeah, me. I'm not motivated by some 65 YO guy who never made it beyond working nights and weekends in the hot and cold who stands there and calls me dirty names.

I knew at that point I could be better in a better place and I have. No more cars.

My point is that they could have kept me if they would have used positive reinforcement and not schoolyard scolding. Laced with plenty of F words.