Where are they now. KPI's and why dealership productivity has been stagnant for 20 years.

It is generally the case that over time, a competitive industry gradually improves their processes and input costs to become more productive and efficient – but that has not occurred in the car retailing space.

At drivible, we have spent some time going through the Key Performance Indicators from 2001 and we have found little to no change in the key figures that drive dealer productivity and profitability. As a great comparison, the key indicators that were important to dealers 20 years ago are also considered important today. Most of these KPI’s are measured as output per employee in both a physical measurement or financial comparison. To remove the effect of inflation, we have focused on the physical output of a dealership employee – for example cars sold per salesperson and made use of the industry definition of a benchmark figure – the top 30% of dealers.

In 2001, the best dealers in Australia had a new car sales output of 11 cars per head. This figure has consistently included the sales manager and aftermarket salesperson and today that same measurement is now 12 (a puny increase of 1). The same comparison in used cars has only slightly bettered from 10 to 12 over 20 years. Notwithstanding the current improvement in gross profits caused by stock shortages, this mediocre increase in productivity is not sufficient to alleviate the narrow margins and increased wages in the sales department. The increased use of technology in the top 30% dealers have failed to improve their productivity.

It is a similar story in finance penetration, parts per invoice and RO’s per advisor all have stagnated or improved little. Certainly not enough to outweigh the increased costs and wages that dealers have experienced over the past 20 years.

It is even more concerning when looking at the key workshop productivity metric of chargeable to non-chargeable. In a nutshell, this indicator looks at the productive personnel (workshop technicians) in a service department versus the support staff that are needed to allow them to work on cars. In 20 years, this has dramatically worsened from 1.6 technicians per support staff to 1.1. All else being equal, 45% increase in support staff – with little increase in technician productivity (95%).

Remember, these are the metrics of the best dealers in Australia. What is happening to the typical dealer?

Thankfully, dealers have been in the fortunate position that they have been able to increase their labour rates to compensate for this stagnant productivity (like many other service businesses) – however with capped price service programs now entrenched in the industry – this is highly reliant on the OEM’s.

So why is this happening?       

Like a hairdresser or teacher, most of the front-line employees in a dealership are required to spend more quality time with customers and this is very difficult to scale into more clients per employee and while the use of technology has accelerated, this is primarily from lead generation volume rather than efficient sale fulfilment. This form of customer interaction is very labour intensive and without a dramatic shift in the way people buy cars, it is difficult to see the necessary improvement in sales productivity.  

The other concern is that recent technology solutions provided to car dealers have mostly focused on existing processes and incremental improvements in lead generation, rather than quickly and efficiently processing clients through the sales and service funnels – while also providing a more satisfying experience for their client.