At MPG, we have a unique window through which we can view the automotive retail world. From our vast database, covering virtually every brand of car and light-duty truck sold in the USA and Canada, we know within a few days of the close of the previous month what's hot...and what's not, as well as the general state of the retail business. Since our dealer and manager Twenty Groups cover the wide spectrum of franchises, our view is probably as good as it gets. Because of our highly selective process of recruiting only the top performers for our group, we are looking at the financial performance of the créme de la créme.
We know what it takes to be a top profile performer in today's market simply because we receive a financial statement monthly from every client and tumble the numbers to provide comparative statistics. We also produce a list of key-critical variables to each of our clients, enabling them to benchmark their performance and determine which dealers in their group have achieved "Best Practices."
In 1988, we established the MPG Index. The index portrays the top twenty percent of our client base based on ROA (Return on Assets), ROI (Return on Investment), ROS (Return on Sales) and Fixed Coverage.
The MPG Index is not a series of guide figures. Similar to the Robert A. Morris statistics your banker uses when assessing your ability to pay back a loan, the MPG Index reports the news as it's happening on a quarterly basis, and unlike the R.A. Morris statistics and other sources, MPG's figures represent the best performers in our industry.
Publisher and Editor Mike Roscoe has been after me to share the MPG Index with you for some time. We will now furnish monthly key statistical data that you can use to benchmark your own performance. Let me reiterate, however, that these are not necessarily guide figures or rules of thumb. They are not always the ideal figure in every instance. They represent WHAT IS HAPPENING!
The Ratio of Used Vehicles Sold Retail to New Vehicles at Retail is an important aspect of Gross Contribution. MPG's 9-Month Index, not including factory program cars, was .95 to 1.
What was yours?
Including program cars, the ratio was 1.06 to 1. Yours?
Why is the balance of Departmental Gross Contribution important?
An automobile retail establishment is a unique business, as you well know, with at least four or five profit engines that need to be churning at maximum speed. It used to be that we had a relatively forgiving business with margins of 15%, and expenses between 60% and 70% of Total Gross. A historical track back now shows us the squeeze we find ourselves in with seriously decreasing margins in every department as competition continues to heat up and expenses as a percent of gross continue to climb in spite of low inflationary pressures. With less Gross Margin available as a percent of sales and expenses using more and more of that gross margin, even healthy dealerships can struggle. Surprisingly, or perhaps not so surprisingly, even the consolidators have not brought the economics of scale to the table to overcome these pressures. Maybe that's the underlying frustration on Wall Street with the sub-par performers in the public sector.
But as a retailer--single store, mega, or public--each profit engine has to run full throttle to achieve acceptable returns, and that's what Gross Contribution Ratios are all about. Is every department carrying its fair share and contributing the maximum potential gross?
For example, if your store doesn't have a high-tech collision repair center, how do you make up the 9.4% of gross it represents plus the resultant loss of potential parts profits?
So, what kind of returns do high profile dealers enjoy? Prepare for a shock! Calculate your Net Profit Return as a percent of your Total Assets at the close of 1998.
Your ROA:
We are just receiving year-end financial statements as I write this, but if you don't show a 20% or better Return on Assets, you are not a profile dealer. But stay tuned--it's a corrective problem through maximizing departmental gross contribution, asset management, and finely tuned expense control. In the future, we will provide you the benchmarks which will lead the way towards Profile Profit Performance.
Robert Dilmore is Chairman and CEO of Management Performance Groups. If you have specific questions or require more information about this subject, please check the appropriate box on the reader response form on page 3. bdilmore@dealeronline.com