What's New and Different in Fixed Operations

Pay Plans!

With Rob Campbell of The Mironov Group

& Mike Bowers of DealersEdge

 

     

ManageandMotivationWhat'sNewandDifferentinFixedOperationsPayPlans!

DealersEdgeManagementWebinar

RobCampbell,AnalystTheMironovGroup

MikeBowers,EditorialDirectorDealersEdge

 

 

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What'sNewandDifferentinFixedOperationsPayPlans! Welcome!  The three types of pay plans  __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________  Simple truths before you start  Is Money a motivator?  K.I.S.S.  Goals have to be “achievable”  Frequency of change  Do the math and then do it again 

______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________  Plans that work  Pay for the position, not the person  Define the job  Example Questionnaire and Compensation Policy   Adjustments made only when warranted by performance, not by personal need. 

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________  Two most important questions 

1. How much is the job worth? 2. How should the employee earn the $$$? 3.  

“What is the TARGET income of the position?”  Somewhat Useless benchmarks  Svc dept personnel expense 40‐41%  Parts dept personnel expense 29‐32% 

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Creating a pay plan  Target income  Base salary  Incentive component  The “bogey”  Weekly vs. monthly incentives  Do the math, and then do it again 

__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________  How much is enough  Exit interviews – check turnover due to money  Industry benchmarks  Employee opinion surveys 

____________________________________________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________________________________________  Lots of incentives to choose from Start with the objectives of the business to get everyone on the same plan  Sales – Gross or net (CP, WTY, INT) Hours sold – per FRH Hours per R.O / sales per R.O. Effective labor rate Parts sold # of repair orders written Upsales closing ratio / menu sales / maintenance packages CSI Spiffs – flushes, wipers, etc. Incentive modifiers (write‐offs, ELR, open R.O.s) What about outside incentives – oil people providing spiffs ____________________________________________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________________________________________      

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The Myth of the $250,000 Service Advisor  Sounds nice – “The more my employees make, the more I make.”  Reality bites – Staffing templates, operating guides and the job isn’t worth $250K.  Dictates compensation levels and pay plans 

 Staffing Guide Service department Guide: 

One supervisor for every three technicians.  

Service advisors and shop foremen are considered supervisors in this scheme.   

Small shop  6 technicians  1 service advisor  1 service manager 

Medium shop  12 technicians  3 service advisors  1 service manager  

Larger shop  18 technicians  4 service advisors  1 shop foreman 1 service manager 

  Or Gross Profit Production Gross – average month    $185,000 Guide – Gross per employee                    $6,000 Number of employees per guide                    31 ____________________________________________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________________________________________  A service advisor working with 5 technicians will write 20 ‐25 repair orders per day. At 2.0 FRH per RO and a $90 ELR that’s $4,500 in labor sales and $3,600 in parts sales per day.   If we do that every working day 250 days a year, that’s $2,025,000 in revenue from that advisor.  At a standard 5% of sales, that’s $101,250 a year in compensation.  Other thoughts …  Habits of successful dealerships  Work on your weaknesses  Focus on the bottom line – not expense ratios  Calendar utilization  Keep something in reserve 

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Technicians  FRH  Production bonus  Guarantees (and union issues)  Variable 

__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________   Hourly 

o True cost of labor o Production to move into FRH 

The “Hybrid” system – Lloyd Schiller (www.lloydschiller.com)  __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________  Shop Foreman/Dispatch  Hourly  Split   Bonuses 

__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________  

  Parts Counter   Shop counter vs wholesale counter  Other responsibilities 

 __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________________________________________ 

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 Parts Counter (cont.) 

___________________________ ___________________________ ___________________________ ___________________________ ___________________________  

___________________________ ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ ___________________________ ___________________________  

 

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 Service Advisor  The beaten dogs of the dealership 

o Salary vs. hourly for the base o CP, Int, Wty o Percentage of gross vs. net vs. hours sold o Labor vs. Labor & Parts o CSI and other true “bonus” plans o Spiffs (flush, wipers, details, ESC, etc.) 

Pay plan types o Straight‐hourly/salary o Substantial base with some performance objectives 80/20 (or less) o The 40/40/20 plans – base, commission, bonus o The 30/70 plans – most common structure – base, commission and very little 

bonus ____________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________ 

 _______________________________ _______________________________ _______________________________ _______________________________ _______________________________   

______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ 

 __________________________ __________________________ __________________________ __________________________ __________________________ __________________________ __________________________  

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 Service Advisor (Cont.) 

         

____________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________  

 ____________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________  

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______________________________________________________________________________ Service Advisor (cont.)  

 ____________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________  Parts Management  Inventory controls vs. sales  Sales vs. gross 

 ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________    

  ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ 

     

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 Parts Management (Cont.)  

 ____________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________  

  ____________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________  

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Service Management  What is this position responsible for?  The Gross vs. Net problem  Same labor vs. labor and parts question  Other salaries expense 

____________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________  

_______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________   

_______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________    

 ____________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________ ____________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________ 

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Service Management (cont.)  

 ______________________________________________________________________________ ______________________________________________________________________________ ____________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________   

  ______________________________________________________________________________ ____________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________  Final Thoughts ____________________________________________________________________________________________________________________________________________________________ ______________________________________________________________________________  

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Rob Campbell Analyst and Consultant for The Mironov Group

fter twenty years as a dealership consultant and trainer, and twenty-five years in automotive, Rob continues to have a passion for the automotive retail business. That passion is immediately recognized by everyone that works with

him. He currently serves as one of the resident dealer analysts and consultants for The Mironov Group, working with dealerships to improve operations through better planning and financial review. He is nationally known for helping dealers understand and get better results from their fixed operations. He also helps dealership develop better internal controls with his training and experience in fraud investigations. A frequent and popular speaker at industry events, including eight NADA conventions, he is a true professional and a great communicator. The Mironov Group, LLC, Certified Public Accountants and Consultants, has been committed to excellence in client service for 50 years. The firm provides exceptional accounting and tax services along with value-added solutions, profit enhancement and valuation services to retail automotive dealerships and other closely held businesses. Mironov is headquartered in Edison, New Jersey, and has additional locations in New York, Pennsylvania and Florida and is a member of the AutoTeam America group of dealership CPAs. Rob is a Northwood University graduate who has augmented his formal education with much practical experience. For fifteen years, Rob wrote extensively concerning dealership operations, fixed operations management and warranty administration issues. He has conducted training sessions and worked as a consultant to many dealerships around the country. Rob has 17 books or manuals on Fixed Operations management under his belt. He is also an associate member of the Association of Certified Fraud Examiners. In addition to his consulting experiences in serving the dealership community, he has also held positions in the dealership. While at the dealership level, Rob gained experience with 14 different franchises, including domestic, European and Asian brands. He has experience as a manager in all areas of fixed operations, and has retail sales experience. His years of hands-on service drive and unique dealership experiences give him a good knowledge base for dealers to draw on. By having personally taught hundreds of students, and writing to literally thousands more, Rob has proven his value to a significant portion of dealerships.

A

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Sample Dealership Compensation Policy A. Basis for pay increase:

1. Employees of this dealership will receive increases in compensation for the following reasons

only:

a) Promotion

b) Merited increase within the established range

c) Reclassification of position

2. All increases will comply with our established job classifications and pay ranges. All changes

involving increases in compensation will be one of the foregoing reasons and will be so indicated.

All proposed and actual increase will be fully documented and supported by valid reasons.

B. Control of compensation: No promise, commitment, or statement will be made to any employee regarding a change in

compensation or the effective date of any increase until notice has been given by his/her

supervisor that such an increase has been approved and authorized. All increases will be

effective at the beginning of the next pay period.

C. Merit increases 1. A merit increase is an increase in an employee’s base compensation made as a reward for

improved job performance.

2. Merit increases will be granted, when earned, to employees on the basis of formal job

performance reviews. Merit increases shall be given only within the compensation range

established for the job. It is recommended that a minimum and maximum percentage of an

employee’s present compensation be a guide when granting a merit increase.

The dealership pay grade sheet gives the compensation range for all jobs in the dealership.

These ranges were established on the basis of:

a) Evaluation of each job within the plan;

b) Analysis of the dealership’s existing compensation practices;

c) External comparisons with the prevailing average salary practices within the surrounding

area.

3. All personnel decisions must be approved by the supervisor of the individual who is

recommending action involving an employee who is under his/her supervision. Merit increase will

be given only within the compensation range established for the job. The compensation range

establishes the minimum compensation, the rate for 100% adequate performance and the rate for

employees performing at exceptional levels.

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Questionnaire: Non-managers

Statement of Responsibility Name: ____________________________________________________________________________

Title: ______________________________________________________________________________

Company: __________________________________________________________________________

Department: _______________________________ Location: ________________________________

Length of time in present job: _________________ Initial date of employment: ___________________

Supervisor’s Name: ___________________________________________________________________

Supervisor’s Title: ____________________________________________________________________

Instructions: � Read this questionnaire before you begin.

� Describe your job as accurately as possible. Try not to underestimate or inflate your

responsibilities.

� Generally, consider your normal assignments and primary responsibility.

1. Purpose of your position: Briefly state the reason your job exists.

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

2. Describe the duties you personally perform in the course of your work.

a. Daily: ________________________________________________________________________

_____________________________________________________________________________

b. Weekly or monthly: _____________________________________________________________

_____________________________________________________________________________

c. At irregular intervals: ____________________________________________________________

_____________________________________________________________________________

3. Which of your duties do you consider to be the most important?

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

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4. Who assigns work to you? Give title and name.

Name: __________________________________ Title: _______________________________________

5. Does anyone else perform similar or the same duties which are assigned to you? If yes, who?

____________________________________________________________________________________

____________________________________________________________________________________

6. What reports or records do you personally prepare?

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

7a. What percentage of your time is spent operating office or mechanical equipment?

____________________________________________________________________________________

____________________________________________________________________________________

7b. To what extent are you responsible for the maintenance of this equipment?

____________________________________________________________________________________

____________________________________________________________________________________

8. How much education is required for someone filling this job, and are there any specialized courses or

schools which should be required? (This may or may not correspond with your own education.)

____________________________________________________________________________________

____________________________________________________________________________________

9. Are there any special courses necessary to start this position?

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

10. What previous experience is necessary for a person starting in your job?

a. Type: ________________________________________________________________________

b. Time required to obtain it: ________________________________________________________

c. Where obtained: _______________________________________________________________

11. Are there any health or accident hazards connected with your work?

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

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12. Are there any unfavorable working conditions over which you have no control, ex: irregular hours,

noise, weather?

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

13. Are there any physical requirements such as lifting, climbing or reaching which is an essential part of

your job?

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

14. Describe any special features of your work not covered above.

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

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Questionnaire: Managers and Supervisors

Statement of Responsibility Name: ____________________________________________________________________________

Title: ______________________________________________________________________________

Company: __________________________________________________________________________

Department: _______________________________ Location: ________________________________

Length of time in present job:______________ Initial date of employment with company:_____________

Supervisor’s Name: ___________________________________________________________________

Supervisor’s Title: ____________________________________________________________________

Instructions: � Read this questionnaire before you begin.

� Describe your job as accurately as possible. Try not to underestimate or inflate your

responsibilities.

� Consider your most normal assignments and activities.

� If more space is required, additional sheets may be used.

1. Purpose of your position: Briefly state, in your own words, the reason your job exists.

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

____________________________________________________________________________________

2. Principal functions: Carefully think through the activities you regularly perform and those you carry out

on a periodic basis. In order of priority, list the principal activities for which you are primarily accountable.

a. _____________________________________________________________________________

b. _____________________________________________________________________________

c. _____________________________________________________________________________

d. _____________________________________________________________________________

e. _____________________________________________________________________________

f. _____________________________________________________________________________

3. General Position Information:

a. What are the most important aspects of the work you do?

________________________________________________________________________________

________________________________________________________________________________

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b. What is the most time consuming activity of your position?

________________________________________________________________________________

________________________________________________________________________________

4. Organizational Relationships:

a. What positions (by title) report directly to you?

________________________________________________________________________________

________________________________________________________________________________

b. What positions (by title) report indirectly to you?

________________________________________________________________________________

________________________________________________________________________________

c. What positions (by title) report to your supervisor?

________________________________________________________________________________

________________________________________________________________________________

5. Responsibility and Authority:

What is the scope of your responsibility for taking action on the following:

a. Company expenditures

________________________________________________________________________________

b. Personnel Actions (Hiring, Firing, Compensation, etc)

________________________________________________________________________________

c. Changing Company Policy

________________________________________________________________________________

d. Types of Decisions made without reference to higher authority

________________________________________________________________________________

6. Relative Position in Organization:

a. From what positions within the company could employees be promoted to your job?

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

b. For what higher positions should your job prepare you?

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

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7. Education

a. What is the minimal education requirement for this position?

Years Degree

High School _________________ _____________________________________________

College _________________ _____________________________________________

Graduate School _________________ _____________________________________________

b. What special courses or certifications are required?

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

8. Experience

a. What kind of, and how much, previous experience is required?

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

b. Where can it be obtained?

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

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DEALERSHIP OPERATING BENCHMARKS

OPERATING BENCHMARKS The 50 Operating Benchmarks list the critical items under the direct control and influence of the dealership managers. They can be measured monthly and all will eventually be incorporated into the quarterly budget review process. These benchmarks are established both for the dealership and by department, and will be reviewed on a regular basis to make sure they remain relevant. Dealerships should measure their progress towards these targets. Once a specific target has been met then other areas can be addressed. The controller, comparing actual results to these guides, should investigate and report monthly on significant variances. Department managers, in conjunction with the management staff, should initiate any changes necessary. DEALERSHIP MANAGEMENT BENCHMARKS 2011 2012 Target Actual Actual YTD 1 Cash in bank plus securities 60 days of exp. 2 Return on Controllable Assets 35% 3 Net Profit as a % of Gross Profit 20% 4 Net Profit as a % of Sales 2%+ 5 Fixed Coverage - (From GM Statement) Dealerships w/o Body Shops 70% Dealerships w/ Body Shops 85% 6 Total Gross per employee – Dealership $7,500 DEALERSHIP EXPENSES 7 Variable Expense as a % of Variable G/P 26% 8 Personnel Expense as a % of Total G/P 33% 9 Semi Fixed Expense as a % of Total G/P 20% 10 Fixed Expense as a % of Total G/P 16% NEW & USED VEHICLE 11 Vehicle Sales per salesperson per month 10 12 C.S.I. Scores Eq. to region 13 New Vehicle Inventory Days Supply 45 14 Used Vehicle Inventory Days Supply 45 15 Manager to sales person ratio 1:6 16 Gross Profit per employee – Showroom $8,500 17 Used Cars retailed as a % of total retail sales 50% 18 Used Cars wholesaled as a % of total used car sales (wholesale plus retail) 50%

FINANCE & INSURANCE 2011 2012 YTD Target Actual Actual 19 Gross F&I Income per retail unit sold $600 20 Net F&I Income per retail unit sold $400 21 Finance Reserve $ to Total F & I Inc. as a % 60% 22 Combined Extended Warranty Penetration 60% 23 Retail units sold per F&I Manager 75 SERVICE DEPARTMENT 24 Gross as a % of Labor (Adj. Cost of Lbr) 73% 25 Retained Income after Controllable Expense 45% 26 Service Writer Comp. as a % of Gross Profit less than 10% 27 Support Personnel to Technician Ratio 1:3 28 Technician productivity - Import 120% Domestic 110% 29 C.P. Hours per R.O. 2 30 Service Gross per employee $6,000 31 C.S.I. Scores Eq. Region 32 Policy Expense as a % of Service Gross 2% or less 33 Supply Expense as a % of Service Gross 3% or less

DEALERSHIP OPERATING BENCHMARKS Target Calculation Method 1 Cash In Bank plus Securities 60 days of expenses 1) YTD Expenses. 2) Divide by # of calendar days YTD to get a daily expense rate. 3) Divide cash in bank amount by result of step #2 2 Return on Controllable Assets 35% 1) Total Assets, less Notes Payable-Vehicles, less Other Assets, less Cash and Securities. 2) Annualize Net Income YTD 3) Divide result in step #2 by #1 3 Net Profit as a % of Gross Profit 20% Divide Total Net Profit by Total Gross Profit. 4 Net Profit as a % of Sales 2% Divide Total Net Profit by Total Sales 5 Fixed Coverage - (From GM Statement) Dealerships w/o Body Shops 70% Dealerships w/ Body Shops 85% 6 Total Gross per employee - Dealership $7,500 1) Use YTD Gross Profit. Divide by number of months YTD. 2) Divide by the number of full time (or equivalent) employees in the Dealership. DEALERSHIP EXPENSES 7 Variable Expense as a % of Variable G/P 26% Divide Variable Expenses (w/o F&I). by Variable Gross Profit 8 Personnel Expense as a % of Total G/P 33% Divide Personnel Expense by Total Gross Profit. 9 Semi Fixed Expense as a % of Total G/P 20% Divide Semi Fixed Expense by Total Gross Profit. 10 Fixed Expense as a % of Total G/P 16% Divide Fixed Expense by Total Gross Profit.

NEW & USED VEHICLE Target Calculation Method 11 Vehicle sales per sales rep per month 10 Divide Actual Retail units by # of Salespeople on Financial Stmt. 12 CSI scores Equal to regional scores 3 Months Rolling 13 New Veh. Inv. Days Supply 45 1) Number of New Vehicles retailed over the last 3 months 2) Divide by 90, to get an average sale per day. 3) Divided number of Vehicles in inventory by the result of step #2. 14 Used. Veh. Inv Days Supply 45 1) Number of Used Vehicles retailed over the last 3 months 2) Divide by 90, to get an average sale per day. 3) Divided number of Vehicles in inventory by the result of step #2. 15 Manager to sales rep ratio 1:6 16 Gross profit per employee -Showroom $8,500 1) Use YTD Gross Profit. Divide by number of months YTD. 2) Divide by the number of full time (or equivalent) employees in the Sales Department. 17 Used cars retail as % of total retail units 50% 1) Number of Used Vehicles retailed over the last 3 months 2) Divide by Total number of Retail Sales (New & Used) 18 Used cars wholesale % of used car sales 50% 1) Number of Used (wholesale plus retails) Vehicles wholesaled over the last 3 months 2) Divide by Total number of Used Sales (wholesale plus retail)

FINANCE & INSURANCE Target Calculation method 19 Gross F&I Income/retail unit sold $600 All retail units plus leases 20 Net F&I Income per retail unit sold $400 All retail units plus leases 21 Finance Reserve $ as % of F & I Income 60% 22 Combined Extended Warranty Penetration 60% 23 Retail units sold per F&I Manager 75 SERVICE DEPARTMENT 24 Gross profit as a % of Labor 73% After adj. cost of labor 25 Retained Inc. after Controllable Exp. 45% 1) Service gross (with parts transfer) Less: Personnel, Company vehicle exp., other supplies, advertising, policy, data processing, outside services, training, bad debts 26 Service Adv. Comp. as a % of Gross less than 10% Service gross with parts transfer 27 Support Personnel to Technician Ratio 1:3 28 Technician productivity - Import 120% Hours flagged divided by hours available Domestic 110% 29 C.P. Hours per R.O. 2 30 Service Gross per employee $6,000 Use YTD gross pr. (without parts transfer) 31 C.S.I. Scores Equal to region 3 month average 32 Policy Exp. as % of Service Gross 2% or less Without parts transfer 33 Supply Exp. as a % of Service Gross 3% or less Without parts transfer

PARTS DEPARTMENT 34 Parts sales per employee (or equivalent) 1) Use monthly YTD sales w/o wholesale $37,500 2) Divided by # of full time or equivalent Parts w/ wholesale $47,500 employees 35 Parts Gross per employee (or equivalent) $12,500 1) YTD parts gross (no transfer) divide by # months YTD 2) Divide by # parts employees per the financial statement 36 Retained Income after Controllable Exp. w/o wholesale 40% Less: same expenses as service plus freight w/ wholesale 30% 37 Inventory Days Supply less than 45 days Use G.L. inventory for parts compared to 3 months average cost of sales for parts only 38 Six months no sale inventory less than 10% 39 True turns (From Parts Management Rept) 6 BODY SHOP Target Calculation method 40 Gross profit as a % of Labor 65% After adj. cost of labor 41 Net profit as a % of Gross Profit 30% With parts transfer inc. in gross 42 Sales per Support Personnel $25,000 43 Body Shop Gross per employee $5,500 Monthly based on YTD sales 44 Retained Income after Controllable Exp. 35% Less same expenses as parts 45 Technician productivity 185% 46 Paint/Material Sales/Customer Labor 17% 47 Paint/Material Cost plus Splies to Customer Lbr Sales 14% 48 Capture Ratio on estimates written 85% ADMINISTRATIVE 49 Total Gross per employee – Office $50,000 50 Manager to Office Employee Ratio 1:7

DETERMINE IDEAL STAFFING LEVELS USING GROSS PER EMPLOYEE TARGET STAFFING LEVELS BY DEPARTMENT USING MANAGEMENT GUIDES SHOWROOM GROSS PROFIT - AVERAGE MONTH - NEW $154,000 GROSS PROFIT - AVERAGE MONTH - USED $99,000 GUIDE - GROSS PER EMPLOYEE $8,500 CALCULATION 30 SERVICE DEPARTMENT GROSS PROFIT - AVERAGE MONTH $184,322 GUIDE - GROSS PER EMPLOYEE $6,000 CALCULATION 31 BODY SHOP DEPARTMENT GROSS PROFIT - AVERAGE MONTH $76,274 GUIDE - GROSS PER EMPLOYEE $5,500 CALCULATION 14 PARTS DEPARTMENT GROSS PROFIT - AVERAGE MONTH $61,542 GUIDE - GROSS PER EMPLOYEE $12,500 CALCULATION 5 TOTAL DEALERSHIP GROSS PROFIT - AVERAGE MONTH $605,460 GUIDE - GROSS PER EMPLOYEE $7,500 CALCLULATION 82

Domestic Import Highline Domestic Import Highline

Sales - Merchandising and Staffing Guidelines Dealer Dealer Dealer Sales - Merchandising & Staffing Guidelines Dealer Dealer Dealer

New Vehicle Used Vehicle

New Vehicle Supply in days 109.3 59.1 57.7 Used Vehicle supply (in days) 45.8 53.7 52.0

Number of units older than 90 days 37.5 28.3 26.7 Number of units older than 90 days 18.5 25.0 20.0

Units per salesperson ( New) per month 10.8 10.4 10.3 Units per salesperson ( N&U) per month 14.2 12.5 16.4

Gross Cars - before F&I 1,100$ 1,363$ 2,680$ Gross Cars - Before F&I 1,526$ 1,962$ 2,249$

Gross Trucks - before F&I 1,238$ 1,363$ 2,722$ Gross Trucks - before F&I 1,814$ 1,755$ 2,057$

Sales Ratio: new to used 1.6:1 1:1.7 1:2.1

Gross Productivity Gross Productivity

New Vehicle Used Vehicle

Gross profit as a % of sales 5.6% 7.1% 7.6% Gross profit as a % of sales 9.9% 10.9% 7.2%

Net profit as a % of sales 0.3% 1.7% 1.9% Net profit as a % of sales 2.6% 3.3% 2.1%

F&I penetration Rate% F&I Penetration Rate %

Finance contract (exc retail lease) 68.6% 72.9% 60.7% Finance Income (excl retail lease) 53.4% 51.7% 58.1%

Finance contract (inc retail lease) 72.9% 69.1% 72.5% Insurance 24.5% 21.1% 13.4%

Insurance 23.6% 24.6% 8.0% Extended Service 43.1% 40.6% 30.6%

Extended Service 50.8% 44.6% 16.2% Finance Gross per financed vehicle 626$ 631$ 652$

Finance Gross per financed veh. 697$ 530$ 729$ Insurance Gross per insured vehicle 406$ 333$ 410$

Insurance Gross per insured veh 477$ 330$ 399$ Ext Service Gross per contract 674$ 901$ 780$

Ext Service Gross per contract 821$ 715$ 692$

Expense Control Structure Guidelines Expense Control Structure Guidelines

New Vehicle Used Vehicle

Total expense as a % of vehicle G/P 93.4% 89.0% 88.1% Total Expense as a % of Total G/P 92.3% 84.3% 83.1%

Compensation as a % of veh GP Compensation as a % of veh GP

Salesperson 24.1% 19.8% 17.7% Salesperson 25.1% 20.1% 24.0%

Supervision 21.5% 15.9% 17.0% Supervision 17.9% 14.7% 14.0%

F&I comp as % of F&I income 23.0% 27.5% 22.1% F&I comp as % of F&I income 22.5% 26.6% 22.6%

Personnel Exp as a % of G/P 42.3% 44.4% 39.9% Personel Exp as a % of G/P 38.0% 35.0% 42.2%

Advertising as a % of Veh G/P 19.6% 15.4% 11.4% Advertising as a % of Veh G/P 12.7% 11.6% 15.6%

Advertising per retail unit sold 321$ 277$ 309$ Advertising per retail unit sold 280$ 262$ 327$

Floor plan int as a % of Veh G/P -7.3% -6.9% -6.4% Floor plan int as a % of Veh G/P 1.4% 2.0% 1.2%

Reconditioning - Cars 561$ 682$ 836$

Reconditioning - Trucks 656$ 710$ 725$

Performance Measures Performance Measures

Key Indicator Ratios Key Indicator Ratios

Current Ratio 1.11 1.51 1.44 Return on Equity (ROE) 30.9% 38.6% 36.0%

Debt to Equity Ratio 3.10 1.08 2.74 Return on Assets (ROA) 9.0% 11.8% 10.3%

2012 Automotive Industry Guidelines

Domestic Import Highline Domestic Import Highline

Sales - Merchandising and Staffing Dealer Dealer Dealer Sales - Merchandising and Staffing Guidelines Dealer Dealer Dealer

Service Dept. Parts Dept.

Flat Hrs/RO 1.5 1.8 1.9 Level of Service 87.4% 90.7% 89.7%

Technician efficiency 89.7% 98.8% 97.4% Stock Order Performance 82.4% 91.4% 88.7%

RO's/Day/Svc Advisor - Cust Pay, Warr, Int 14.0 15.1 14.9 Parts $ sold per Labor $ sold

Technicians per Service Advisor 4.3 4.1 4.3 Cust Repair 1.0$ 0.8$ 0.8$

Labor Gross per Tech (per month) 8,952$ 11,683$ 14,282$ Warranty 1.5$ 1.4$ 1.4$

Labor Gross per Advisor (per month) 36,067$ 40,802$ 59,657$ Internal 1.0$ 0.8$ 1.0$

Dept Gross per Employee (per month) 14,696$ 17,191$ 26,101$

Gross Productivity

Service Dept. Gross Productivity

G/P as a % of sales Parts Dept.

Customer Pay 72.6% 75.4% 78.1% G/P as a % of Sales

Warranty 71.3% 78.4% 80.2% Customer Pay 37.4% 39.4% 42.2%

Internal 71.3% 72.4% 75.5% Warranty 33.3% 31.9% 35.1%

Sublet Repairs 8.1% 14.1% 17.9% Internal 26.9% 30.2% 29.4%

Total Department 66.7% 69.5% 71.5% Counter Retail 34.3% 33.4% 36.9%

Wholesale 19.0% 21.1% 25.2%

Net Profit as a % of Sales 17.4% 19.5% 19.2% Customer Pay - Body Shop 32.3% N/A 32.4%

Warranty - Body Shop 30.8% N/A N/A

Total Dept GP% 32.6% 32.5% 34.0%

Expense Control Structure Guidelines Net profit as a % of Sales 11.4% 12.7% 13.7%

Service Dept.

Total expense as a % of Total GP 79.8% 82.1% 77.9% Expense Control Structure Guidelines

Parts Dept.

Personnel Exp as a % of G/P 41.9% 40.2% 40.9% Total Exp as % of Total G/P 51.9% 66.2% 59.3%

Adv & Training as a % of G/P 7.2% 3.6% 3.8%

Tools, Supp, Freight as a % of G/P 1.5% 0.9% 1.2% Personnel Exp as a % of G/P 32.3% 33.2% 28.8%

Advertising & Training as a % of G/P 3.0% 1.9% 1.5%

Tools, Supp, Freight as a % of G/P 1.1% 1.1% 1.1%

Domestic Import Highline

Fixed Expenses - Percent of Total Gross Dealer Dealer Dealer Domestic Import Highline

Office Staff to Total Dealership 1:10 1:10 1:12 Fixed Expenses - Percent of Total Gross Dealer Dealer Dealer

Absorption % 78.4% 81.7% 90.7%

Total Expenses as a % of Total Gross 92.0% 84.1% 81.6%

Payroll Taxes as a % of Total Gross 4.8% 4.4% 4.2% Net Earnings

% of Total Sales 3.1% 3.5% 4.1%

Owners Compensation as a % of Sales 0.7% 0.7% 0.8% % of Total Gross 28.3% 24.9% 31.8%

Rent Factor Personnel Expense as a % of Gross profit 44.2% 42.9% 40.9%

Percent of Total Gross 7.7% 8.4% 10.0% Office Compensation as a % of Total Gross 4.2% 4.4% 3.5%

2012 Automotive Industry Guidelines

What's New and Different in Fixed Operations Pay Plans!

Rob Campbell, The Mironov GroupMike Bowers, DealersEdge

“Only the Master shall praise and only the Master shall blame; And no one shall work for the money and no one shall work for fame; But each for the joy of the working.”

Rudyard Kipling

Simple truths before you start

• Is Money a motivator?• K.I.S.S.• Goals have to be “achievable”• Frequency of change• Do the math and then do it again

Plans that work

• Pay for the position, not the person• Define the job• Example Questionnaire and

Compensation Policy – Adjustments made only when warranted by performance, not by personal need.

Target Income Level

No matter what they say, most dealers have some target income in mind when they

develop a pay plan

Somewhat useless benchmarks

• Svc dept personnel expense 40-41%• Parts dept personnel expense 29-32%• Service has remained fairly flat while

parts department expense has been dropping.

Creating a pay plan

• Target income• Base salary• Incentive component• The “bogey”• Weekly vs. monthly incentives• Do the math, and then do it again

How much is enough

• Exit interviews – check turnover due to money

• Industry benchmarks• Employee opinion surveys

Lots of incentives to choose from•Start with the objectives of the business to get everyone on the same plan•Sales – Gross or net (CP, WTY, INT)•Hours sold – per FRH•Hours per R.O / sales per R.O.•Effective labor rate•Parts sold•# of repair orders written•Upsales closing ratio / menu sales / maintenance packages•CSI•Spiffs – flushes, wipers, etc.•Incentive modifiers (write-offs, ELR, open R.O.s)•What about outside incentives – oil people providing spiffs

Myth of the $250,000 Service Advisor

Sounds nice – “The more my employees make, the more I make.”

Reality bites – Staffing templates, operating guides and the job isn’t worth $250K.

Dictates compensation levels and pay plans

Staffing Guide

Service department Guide:One supervisor for every three technicians. Service advisors and shop foremen are considered supervisors in this scheme.

Small shop6 technicians 1 service advisor 1 service manager

Medium shop 12 technicians 3 service advisors 1 service manager

Larger shop 18 technicians 4 service advisors 1 shop foreman1 service manager

Or Gross Profit Production

Gross – average month $185,000

Guide – Gross per employee $6,000

Number of employees per guide 31

So…A service advisor working with 5 technicians will write 20 -25 repair orders per day.At 2.0 FRH per RO and a $90 ELR that’s $4,500 in labor sales and $3,600 in parts sales per day. If we do that every working day 250 days a year, that’s $2,025,000 in revenue from that advisor.At a standard 5% of sales, that’s $101,250 a year in compensation. A long way from $250,000

Other thoughts …

• Habits of successful dealerships• Work on your weaknesses• Focus on the bottom line – not expense

ratios• Calendar utilization• Keep something in reserve

Technicians

• FRH– Production bonus– Guarantees (and union issues)– Variable

• Hourly– True cost of labor– Production to move into FRH

Technicians

From Lloyd Schiller:

•Hybrid system

•For larger shops, domestic and European

•Taking a cue from the Body Shop

•Matching work to skill level, ideally

•Technician groups with a mix of skills

•Pay is based on what the job is worth

•Key is squeezing out wasted time and boosting volume/throughput

Shop Foreman/Dispatch

• Hourly• Split • Bonuses

Parts Counter

• Shop counter vs wholesale counter• Other responsibilities

Parts Counter

Parts Counter

Parts Counter

Parts Counter

Service Advisor

• The beaten dogs of the dealership– Salary vs. hourly for the base– CP, Int, Wty– Percentage of gross vs. net vs. hours sold– Labor vs. Labor & Parts– CSI and other true “bonus” plans– Spiffs (flush, wipers, details, ESC, etc.)

• Pay plan types– Straight-hourly/salary– Substantial base with some performance

objectives 80/20 (or less)– The 40/40/20 plans – base, commission,

bonus– The 30/70 plans – most common structure –

base, commission and very little bonus

Service Advisor

Service Advisor

Service Advisor

Service Advisor

Service Advisor

Service Advisor

Service Advisor

Service Advisor

Service Advisor• Also from Lloyd Schiller• 100% commission• Pay based on FRH billed not flagged• No raise for price increase• 60% to 70% based on FRH Billed• 10% to 15% based on parts sales• 20% based on CSI – up to $1.50 per FRH billed• Advisors grouped/paid by skill level so pay can rise

as performance improves • ½ for individual performance; ½ for department

Parts Management

• Inventory controls vs. sales• Sales vs. gross

Parts Management

Parts Management

Parts Management

Parts Management

Parts Management

Service Management

• What is this position responsible for?• The Gross vs. Net problem• Same labor vs. labor and parts question• Other salaries expense

Service Management

Service Management

Service Management

Service Management

Service Management