Car dealership is a retail business that offers new and used cars for sale. It also provides financing options, auto insurance, service and parts, and administrative services.
A well-run car dealership can elicit an emotional reaction from customers. They are able to capture the beauty and sleekness of a new vehicle, along with that fresh smell.
Car dealerships are primarily sales businesses, selling vehicles to consumers and generating revenue through commissions on each vehicle sold. Some dealers also sell spare automobile parts and provide maintenance services for customers. They may also operate auto F&I departments, where staff members help customers purchase add-ons such as rust-proofing, extended warranties and paint protection coatings.
Sales employees – known as salespeople – greet arriving customers and make themselves available to answer questions about any vehicle in the showroom. They explain the features of each model and help customers decide which car is right for them. Salespeople may take customers on test drives to allow them to see how a vehicle performs in different driving conditions. They are skilled in assessing the needs and vulnerabilities of potential buyers and use scripted questions to guide their sales pitch.
A car dealership manager oversees the entire operation and is responsible for ensuring that customer satisfaction levels are high and sales goals are met. This is a demanding job that requires strong leadership skills and the ability to motivate a sales team. The general manager also develops marketing strategies and ensures that the dealership complies with state regulations.
Auto dealerships often make more money on financing and insurance than they do from the actual sale of a vehicle. They also have the opportunity to profit from selling extras, like extended warranties and protection plans. Finance departments are responsible for preparing the sales and financing paperwork and negotiating terms with customers.
Dealerships can offer in-house financing, which allows them to sell vehicles more quickly than if they wait for buyers to arrange their own financing. They may also offer special programs for borrowers with specific credit profiles. These programs may require a larger down payment or shorter contract term than other financing options.
When a car dealership offers in-house financing, it may mark up the interest rate it charges its customers by an amount called a “spread,” or profit margin. This markup is often hidden in fine print on the finance contract. Dealers can reduce this markup by negotiating with banks or finance companies that they work with to get the best available rates.
Some dealerships prey on borrowers with poor credit records, particularly if they have the vehicle in stock and want to move it from the lot quickly. They may charge high interest rates, impose harsh penalties for late payments, and even install tracking devices or other technologies that can disable the car remotely.
Car dealers rely on their service departments for repeat business, which is a significant contributor to dealership revenues. Unlike independent mechanics, factory-trained service technicians have a unique understanding of the make and model they’re working on. They are also trained to diagnose issues quickly and accurately, which can result in more efficient repairs and fewer trips back to the shop. Additionally, dealership service departments are equipped to handle complex jobs that cannot be easily or inexpensively performed by non-dealership mechanics, such as engine rebuilds and body work.
Customers who visit the dealer for service are more likely to purchase their next vehicle from that same dealership, according to Mastermind research. Increasing service market share is therefore critical for dealers looking to boost revenue and build loyalty.
Despite the importance of customer satisfaction, many car dealerships struggle to deliver fast, convenient service. The key to improving service is investing in technology that allows employees to respond to customers’ requests and questions immediately, whether through a managed chat solution like ours or by sending an email.
Another area of improvement for many dealerships is reducing their wait times. Consumers report that one of their biggest frustrations with service is waiting more than 2.5 hours. To decrease wait time, many dealerships offer loaner vehicles, shuttle services, and ride-hailing partnerships. They may also provide snacks, drinks and television in their waiting rooms.
Parts department sales play a significant role in dealership revenue and profit. They may also impact levels of customer satisfaction and retention, so it is important to focus on the success of this department. Parts professionals often have extensive knowledge of automobile components, but they can sometimes lack sales skills. Using the right strategies, parts departments can grow their sales revenues and squeeze more profit into the dealership each month.
The first thing a parts department can do to increase its sales is create a personalized connection with customers. Customers will want to return to a store that knows them and that can provide a customized experience. Parts department employees can do this by creating a social media presence that is specific to the dealership. They can also post installation guides and other automotive topics that help build customer loyalty.
Having a well-stocked inventory is important to parts department performance. Many people are able to find the parts they need online before visiting a dealership, so it is important for a store to have a competitive selection. In addition to standard parts, stores can also try stocking fun novelty items that customers will be attracted to.
To improve gross profit, it is a good idea for controllers and dealer principals to review parts department inventory reports on a regular basis. These reports usually show the number and dollar amounts of parts that have not sold within certain ranges, such as zero to three months, three to six months, and seven to 12 months. This is an effective way to identify parts that are deteriorating and will eventually become obsolete.