Case Study - Auto Dealership

Case Study # ZB04

CLIENT:    
$25,000,000 Auto Dealership – Northeast

SITUATION:     

The second generation of Ownership was struggling with reversing several years of operating losses. As a result the company was short on cash and “Out of Trust” with its Floor Plan financing. The company maintained a full service dealership including a body shop and detailing service, however, only the parts and sales department was showing a profit.

ACTIONS TAKEN: 
The bonus and inventory tracking systems in the new and used car departments were redefined to focus on reducing the age of the inventory and department breakeven. The labor rate in the service department was increased 9% based on a survey of nearby competition. Performance goals were established and Technician bonuses were tied to labor revenue above the hourly billing rate in lieu of a flat rate system, and a breakeven rate per hour was calculated. The cap on the old bonus system was removed and within two months Technician bonuses went from a maximum of $400 per month to over $1,000, and the department’s gross margin increased. Setting appropriate performance goals and controlling labor was critical in the Body Shop as the labor rates are either set by outside entities as with the body shop or more price sensitive as with the detailing shop.  The Gross Margins on parts was analyzed and determined to be lower than standards so pricing changes were implemented.   

RESULTS:     
As a result of the team effort between company employees and Paradigm Management annual cost savings of approximately $775,000 per year were implemented and the Dealership was “In Trust” with its Floor Plan financing.