Welcome to the 2016 National Automotive Dealers Association (NADA) ReviewEdition 1

March/April 2016

ContentsIntroduction 1

The State of the US Retail Automotive Market 2

Key Performance Indicators for Automotive Retailers around the World 2

The US Retail Automotive Market - Snapshot 3

Tried-and-True: Best Practices from NADA 20 Groups 4

Guided dealership tour – AutoNation Nissan, Las Vegas 8

Firm details 10

IntroductionThe 2016 National Automotive Dealers Association (NADA) conference was hosted in Las Vegas from 31 March to 3 April 2016.This annual event continues to be the largest retail automotive convention in the world with over 25,000 people attending from over 50 different countries.

The theme of the conference was “Connect” – How to connect with your customers, your staff and with business partners.

Showcased around the exposition were the workshops that continue to provide ‘best practice’ with 64 new workshop topics, 120 workshop sessions and 25 dealer/manufacturer franchise meetings, which were held in 2016.

Highlighted in this edition are key takeaways from the conference, and learnings from two of the sessions, Tried-and-True: Best Practices from NADA 20 Groups and a Guided Dealership Tour of AutoNation Nissan, Las Vegas.

Excitement is already building for the 2017 NADA conference, which will be held next year in New Orleans from 29 January to 31 January.

John GavljakPartner – Automotive

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The State of the US Retail Automotive MarketIn 2015, the US achieved a record number of car and light truck sales of 17.4 million units, which was almost 6% higher than 2014.

As noted by NADA chief economist, “The industry growth, combined with low gas prices and interest rates, spurred millennials - especially those starting families to replace ageing vehicles”. The average age of US cars on the road is now 11.5 years.

In 2016, car sales are looking to reach 17.7 million units before levelling off to approximately 17.2 million units in 2017.

Key Performance Indicators for Automotive Retailers around the WorldThe Pitcher Partners’ Automotive Team recently released our 2016 Key Performance Indicators for Australian automotive retailers (non-luxury and luxury editions).

Off the back of our study tour to NADA, below are some international benchmark comparisons.

Key Ratio Australia US UK

Net profit % of sales 3 – 3.5% 4% 3%

Fixed absorption 55% minimum 100% 80%

Used to new retail ratio 0.4 to 1 1.25 to 1 1.5 to 1

Used vehicle inventory 65 – 70 30 45

New vehicle inventory 55 – 60 45 – 60 -*

Labour hours per retail RO 2.0 2.0 – 2.5 2.5

Service gross profit as % of sales 66 – 68% 68% -*

Parts to labour ratio 0.60 1.1 -*

Parts gross profit % 23 – 25% 38% 22%

As we can see across mature markets for automotive retailers, similar results have been achieved. However, in the area of used vehicles it appears that Australia has room for significant improvement.

Source: Pitcher Partners, NADA, ASE*Data not made publicly available.

2

Source: NADA

3

The US Retail Automotive Market - Snapshot

$19,397AVERAGE SELLING PRICEOF USED VEHICLES SOLD

(by new-vehicle dealerships)

$33,419AVERAGE SELLING PRICEOF NEW VEHICLES SOLD

$1,050AVERAGE NEW VEHICLES SOLD PER DEALERSHIP

$16,545TOTAL NEW-CAR

DEALERSHIPSCALIFORNIA

Highest dollar sales for all dealerships $96,189,000,000

TEXASHighest dollar

sales per dealership $74,209,000

TOTAL DEALERSHIP SALES

$862,722,000,000...per dealership $52,143,971

TOTAL NEW VEHICLES SOLD

SOLD

1,632

,172

units Dec

MONTH WITH MOST NEW-VEHICLE SALES

FROM 1 JULY 2017

5.74%from 2014 to 2015

Increase in number of new vehicles sold

NEW-CAR INVENTORY

3,523,175NEW-VEHICLEDAYS’ SUPPLY

65Domestic

55Import

Domestic

2,867,653Import

655,522+

17,380,500

Tried-and-True: Best Practices from NADA 20 Groups

Butch Hollister, Dealership Management Consultant from the NADA 20 Group, conducted a session at the 2016 NADA conference on the best ideas and practices from the top performing automotive retailers with key tips for every automotive retailer - regardless of franchise, market or sales volume. His insights are as follows.Get involvedThe starting point for a Dealer Principal or Manager is to “Get involved”. Paying attention to the little things can be the difference between an automotive dealer’s success or failure. The little things were summarised as;

Walk in a different door every day

Get to know all people in all departments

Manage by walking around (MBWA)

Start every day with a good attitude

Ask questions

Take a genuine interest in your employees, talk about things other than work

Get to work: show your employees you are not afraid to work

Big sales and new advertising ideas are generally just quick, short term fixes. Slower, steady growth of your automotive dealership is sometimes harder, but is typically more sustainable.

Best practices and tipsEXPENSE CUTS / SAVINGS

Have managers take ownership of their respective profit and loss statements, and let them implement cost saving recommendations. At the next managers meeting, ensure the following two points are prepared and discussed:

List the top five expenses they have cut

List total dollars saved by the cut

Offer reward and recognition to staff for their efforts – i.e. best cut earns one month of the savings as a bonus.

TECHNICIAN TUESDAY

Conduct a monthly luncheon

Entice fixed operations staff

Review goals – award achievement and set new goals, both management and technicians

Suggestion box review – employee and customer

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Tried-and-True: Best Practices from NADA 20 Groups

SERVICE AND PARTS 3:30PM TIME OUT

Ensure right parts are available for following days’ business

Ensure workload and technician time availability for following day

Knowing what is in the shop that is not going to be finished as promised

CELEBRATE YOUR STAFF

Use electronic and traditional media to celebrate:

When you hire a new staff member

When your staff are promoted

Concentrate on their personal and social circles, clubs, schools and churches

INCREASE SALES THROUGH PERSONAL

NETWORKING ON SOCIAL MEDIA

List a sales person’s social media contact details to help form friendships with their customers:

On their business cards

Company website personal information

It is incumbent on the company to train staff on appropriate use of social media and to monitor.

Connect with us

pitcher.com.au

facebook.com/PitcherPartnersPage

linkedin.com/company/pitcher-partners

twitter.com/pitcherpartner

youtube.com/pitcherpartner

$3.8bnBillion worldwide revenue 2015 (USD)

110Partners

1,200+ National staff

Independent member of the Baker Tilly International global network

Connect with us

pitcher.com.au

facebook.com/PitcherPartnersPage

linkedin.com/company/pitcher-partners

twitter.com/pitcherpartner

youtube.com/pitcherpartner

$3.8bnBillion worldwide revenue 2015 (USD)

110Partners

1,200+ National staff

Independent member of the Baker Tilly International global network

Connect with us

pitcher.com.au

facebook.com/PitcherPartnersPage

linkedin.com/company/pitcher-partners

twitter.com/pitcherpartner

youtube.com/pitcherpartner

$3.8bnBillion worldwide revenue 2015 (USD)

110Partners

1,200+ National staff

Independent member of the Baker Tilly International global network

GROW AS A COMPANY

Today it is more important than ever to explicitly define your dealerships’ core values in order to develop your culture, brand and business strategies.

The recommended core values that dealerships should follow include:

Teamwork – The good of the team comes before the personal comfort or agenda of any individual team member

Performance – Hitting expectations and delivering on commitments

Character – Always do what is right, not what is easy, cheap or convenient

Change – Initiate change, fun, spontaneity and creativity in the workplace

Urgency – Serve one another and our guests quickly

Detail – Attention to detail means we will become brilliant with the basics and getting the little things done right the first time

Coach – Coach, train and mentor team members to help them reach their personal potential

Personal growth – Team members are expected to work as hard on themselves as they do on their job

Grace – Provide each other and everyone we serve unmerited favour regardless of situation

Community – To give back because we can, because we care and because we believe that everyone doing a little can accomplish a lot

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Tried-and-True: Best Practices from NADA 20 Groups (cont.)

END OF MONTH CHECKLIST FOR THREE-DAY CLOSE

Day 1

All accounts payable invoices must be turned into the office by noon

New and used vehicle physical inventory turned in by 5:00pm

Reconcile with schedules

Day 2

All car deals turned into the office by noon

F&I logs turned into the office by noon

All repair orders and parts tickets turned into the office by noon

Reconcile work in process inventory, sublet inventory

Balance inventories: petrol, oil and grease

Reconcile car deal accounts: contracts in transit, down payments and lien payoffs for trade-ins

Balance car sales/invoices and wholesales

Reconcile the new and used schedule balances with the car folders

Day 3

Prepare and post commission payroll accrual

Check expenses posted for month and accrue for those not posted

Print reports for management to review

Trial balance

GL history for expense accounts

Expense trend analysis

6

Identify the challenge – in this case, the dealership has an issue with aged used vehicle inventory01

02

03

On the 1st day of the month list your aged inventory1. Oldest2.3.10. Newer

Set a bonus scheme (based on the pyramid)

$150 ea

$300 ea

Extra Credits – The Pyramid Bonus Scheme• The pyramid is a bonus scheme, which has been tested throughout many dealerships in the US.

• From gross to ageing and anything else you can or want to emphasise.

Bonus scheme exampleStep 1: If a salesperson sells the 10th oldest used vehicle, they move into the apex of the pyramid.

Step 2: When a subsequent older vehicle is sold, for instance the 9th oldest vehicle, it replaces the vehicle in the apex of the pyramid and the previous vehicle is downgraded to the 2nd block.

Step 3: Now let’s say the 8th oldest vehicle is sold, it goes to the apex of the pyramid, the 9th oldest vehicle is downgraded to the 2nd block and the 10th oldest used vehicle now moves to the 3rd block, and so on.

For a vehicle in the apex of the pyramid, the salesperson receives a bonus of $500.

This can be used to calculate ‘bonus’ gross profit per vehicle, ageing or anything else you want to focus on. Importantly, you do not pay any ‘bonuses’ until all the blocks are filled.

ConclusionThe Tried-and-True: Best Practices from NADA 20 Groups is one of the best attended sessions of the conference. Many of the ideas are not new, but as a minimum they are a reminder of good ideas that can improve your business.

$75 ea

1010

$5009

9

8

10

Key:Grey = step 1

Orange = step 2

Light green = step 37

AutoNation is America’s largest automotive retailer. It is a listed company and is a component of the S&P 500 Index. AutoNation owns and operates over 340 new vehicle franchises in 15 US states and has sold over 10 million vehicles.

Driven to be the Best

As part of the AutoNation group of dealerships the following customer focused values are marketed:

AutoNation pricing

Customers will see a low price, upfront, on every car, truck, and sport utility, saving them time and money.

Worry free pre-owned vehicles

Every pre-owned car AutoNation sells is Recall Free and comes with a Worry-Free folder that includes a money-back guarantee, limited warranty, even a CARFAXTM Vehicle History Report.

Money-back guarantee

AutoNation back their pre-owned vehicles with a no questions asked, 3 day, 150-mile money-back guarantee.

Manufacturer certified

Many pre-owned vehicles come with a manufacturer backed limited warranty.

Mega selection

With over 100,000 vehicles from coast to coast, chances are AutoNation have the exact vehicle customers are looking for.

AutoNation certified

Pre-owned vehicles with a 125-point mechanical inspection and a Worry-Free folder.

We’ll buy your car

AutoNation provide a Guaranteed Trade-In Offer honoured for 7 days or 500 miles at any of their locations.

$Special value vehicles

These vehicles are generally a little older and have higher mileage, but most are priced under $9,995.

No-hassle financing

AutoNation offer a wide range of finance and lease programs with a menu that clearly presents all the options and prices.

125-Point inspection

Pre-Owned cars and trucks that have been checked and inspected in 125 different places.

Guided dealership tour – AutoNation Nissan, Las Vegas

Customer Focus

Information and e-Technology

Experience ScaleProductivity Brand

Operational Excellence

Operational excellence and a focus on the customer shape AutoNation’s driven to be the best vision

$

Source: AutoNation

8

Service and PartsTouring the dealership with the Dealer Principal, a couple of things struck us:

FinancingWe then walked the new and used car lot and spoke about ‘financing’. Personal credit scores are important in the US. It is the lender who determines the rate largely based on the customers’ credit score, which is a number assigned by credit bureaus based on the customers’ debt levels, and how good they have been at paying bills on time, etc. The maximum score is 900 but credit scores of 720 and above get the best loan rates.

Used vehiclesUsed or pre-owned vehicles are ‘market priced’ with full transparency. They build the value up-front by having in each vehicle:

• Kelley blue book value (red book value)

• RO outlining the level of reconditioning performed

• RO outlining the cost of 125 point safety inspection

• Price to market check.

Used vehicles in general are negotiated in a price range of $250 from the window price. At AutoNation they are focused on ‘dynamic’ pricing with dealers continually updating their pricing in a minimum 5 day cycle and referencing this pricing to the internet.

New vehicles• The new car show room had a round table system –

looked like a ‘café’

• 11% conversion rate for internet enquiries, AutoNation benchmark is 10%

What really struck me was that the guided tour by the Dealer Principal took us through the dealership by profit centres - service, parts, finance, used and then new vehicle department.

The Dealer Principal didn’t start the tour in the new car showroom, instead it was the service department explaining that there is a ‘walk around’ each vehicle with a potential customer

‘Don’t commit if you cannot deliver’ – it is important that any commitments made to customers are met, that is, do not promise a vehicle will be ready if they know they cannot meet that commitment

Tyres are used as a retention tool

Technicians order parts from the bay (via computer)

The 180 point preventative maintenance inspection checklist is used to assist in an upsell

They aim for $150 upsell per RO

5 day reconditioning goal for used vehicles

In our next edition, we will cover the following topics:

• #50 Dumb: 30 Social Media Mistakes Dealers Make

• Learn to Leverage the Power of Group Operations

• Create a Blueprint: Thrive in Today’s Digital World

• The New Internet Dealership• Conquering Customer Retention Forever• Beyond BDC – The Business Development

Dealership

Guided dealership tour – AutoNation Nissan, Las Vegas

9

About Pitcher Partners

Pitcher Partners is an accounting, auditing and business advisory firm providing personal service and quality advice to high wealth individuals, small to medium public companies, large proprietary companies, local government and privately owned businesses.An association of firms located in Melbourne, Sydney, Perth, Adelaide, Brisbane and Newcastle, Pitcher Partners is purpose-built for the middle market. We have a strong reputation for providing personal service and quality commercial advice to our clients across a broad range of industries.

On 1 November 2015 Moore Stephens Sydney and Pitcher Partners Sydney merged to become a new Pitcher Partners Sydney practice. The combined expertise and resources means that clients will benefit from greater infrastructure support both locally and nationally through the Pitcher Partners association.

Our commercial services to dynamic businesses

Financial essentials• Accounting and Business

Advisory Services• Audit, Risk Management

and Assurance• Internal Audit• Recovery, Turnarounds

and Insolvency• Tax advice and Compliance

Planning and growth• Business Consulting

and Commercial Advice• Business Performance Improvement• Business Structuring• Corporate Finance• Corporate Governance• International Business Advisory• Investment Advisory Services• Succession Planning• Superannuation Services• Tax Consulting• Technology and IT Consulting• Valuations

Our private wealth services• Estate Planning• Family Office Management• Investment Advisory Services• Philanthropy Services• Succession Planning• Superannuation Strategies• Tax Advice and Compliance

Industry specialisations• Automotive• Retail• Professional services• Health and aged care• Manufacturing• Not for profit• Property and construction• Government and the public sector• Agriculture• Food and beverage• Hospitality

$3.8bnWorldwide revenue 2015 (USD)

141Countries

28,000+Partners and staff globally

100+Partners nationwide

1,200+People nationally

Pitcher Partners is a national association of independent firms.Liability limited by a scheme approved under Professional Standards Legislation.

Sydney

240+Total Sydney staff

26Sydney partners

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Firm locations

MELBOURNE

John Brazzale | Managing Partner +61 3 8610 5000 partners@pitcher.com.au

ADELAIDE

Tom Verco | Principal +61 8 8179 2800 partners@pitcher-sa.com.au

SYDNEY

Rob Southwell | Managing Partner +61 2 9221 2099 sydneypartners@pitcher.com.au

BRISBANE

Ross Walker | Managing Partner +61 7 3222 8444 partners@pitcherpartners.com.au

PERTH

Bryan Hughes | Managing Partner +61 8 9322 2022 partners@pitcher-wa.com.au

NEWCASTLE

Michael Minter | Managing Partner +61 2 4911 2000 newcastle@pitcher.com.au

Pitcher Partners has the resources and depth of expertise of a major firm, but with a smaller firm feel. We give our clients the highest level of personal service and attention. That’s the difference.

Pitcher Partners is a national association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation.

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Key

24Asia Paci�c Firms

28North America

Firms

62European Firms

36Middle East and

African Firms

15Latin America

Firms

Baker Tilly International is one of the world’s leading networks of independently owned and managed accountancy and business advisory fi rms united by a commitment to provide exceptional client service.

Every day, 27,000 people in 133 countries share experiences and expertise to help privately held businesses and public interest entities meet challenges and proactively respond to opportunities. International capability and global consistency of service are central to the way we work.

Our globalreach

GlobalExperts across a wide range of industry and business sectors, each Baker Tilly International member fi rm combines high quality services and in-depth local knowledge.

154 independent fi rms come together across four geographic areas. Sharing knowledge and resources, our business approach brings together the power of the global network to deliver exceptional results to clients globally.

12

Key

24Asia Paci�c Firms

28North America

Firms

62European Firms

36Middle East and

African Firms

15Latin America

Firms

LocalPitcher Partners is an independent member of Baker Tilly International. Our strong relationship with other Baker Tilly International member fi rms, particularly in Asia Pacifi c, has allowed us to open many doors across borders for our clients.

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NADA Report 2016 Series 1_050516

MELBOURNE

+61 3 8610 5000 partners@pitcher.com.au

ADELAIDE

+61 8 8179 2800 partners@pitcher-sa.com.au

SYDNEY

+61 2 9221 2099 sydneypartners@pitcher.com.au

BRISBANE

+61 7 3222 8444 partners@pitcherpartners.com.au

PERTH

+61 8 9322 2022 partners@pitcher-wa.com.au

PITCHER.COM.AU

NEWCASTLE

+61 2 4911 2000 newcastle@pitcher.com.au

Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation.

Get in touch...

John GavljakPartner – Automotive

+61 2 8236 7759john.gavljak@pitcher.com.au

John TaouilManager – Automotive

+61 2 8236 7739john.taouil@pitcher.com.au