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Strategies for Maximizing Profit

Friday, March 29, 2024 9:13 AM | Anonymous member (Administrator)

[From CATA Approved Partner Dynatron] Every dealership has multiple profitability buckets: Sales, F&I, service, parts, etc. There are many levers to pull inside the dealership to maximize profit, but what about the profitability buckets outside the dealership? For instance, profit participation.

Maximizing profit participation programs requires more than a set-it-and-forget-it mentality. Regardless of the program your dealership participates in, managing it is instrumental to boosting profitability. Here are some strategies to help ensure your profits don’t erode over time:

First, make sure you sell products that can be reinsured. Depending on the program you’re in or the F&I provider you work with, some back-end profit programs allow you to reinsure more products than others. Surprisingly, GAP is a product many dealers shy away from reinsuring due to market condition volatility. An excellent portfolio manager/provider anticipates market trends, manages and measures claims and retention, and brings executable solutions to the table to maximize the portfolio's profitability. Remember, don’t “set it and forget it!” Inflation has caused parts pricing to skyrocket, and with labor rates accelerating, have you looked at premium pricing adjustments, or have you accepted the erosion of your favorable tax benefits portfolio?

It is also important to limit chargebacks and cancellations. Training your finance department to sell service contracts to match loan terms and length of anticipated ownership is key to long-term profitability. The exposure to chargeback is so much less than defaulting to selling terms of seven years or longer. Focusing on the customer needs, and not what F&I perceives is easier to sell, is better for everyone.

Accelerated premium products are another great value to the company. They help sell more vehicles with a Why Buy Here differentiator and give customers a reason to shop local. It won’t be long before the Why Buy Here mantra becomes table stakes in the industry, as this not only provides customer value but also drives sales volume and generates a high, ceded premium to your profit participation portfolio. Some products are even non-chargeable.

The only constant in the auto industry is change. Automotive dealers are some of the most resilient and adaptable economic leaders, due to the evolving and ever-changing climate of the auto industry. Your profit participation program should get the same attention as other areas of your business to ensure that it is operating at its fullest potential.

Chicago Automobile Trade Association
18W200 Butterfield Rd.
Oakbrook Terrace, IL 60181 
(630) 495-2282


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