Section: Cover Stories
Chris Leedom - April 2014 - page 20
David Brotherton - September 2013 - page 8
Peter Salinas - September 2013 - page 10
Jessica Sweeney - September 2013 - page 20
David Brotherton - August 2013 - page 6
April 2014 - Leedom Market Report
Chris Leedom - page 20
Dave Anderson - page 18
Jessica Sweeney - page 8
Debra Dawn - page 16
Christine Taylor - page 36
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Leedom Management Group, LLC Available Positions
2014 Leedom Market Report
Appeared April 2014 - volume 14 - issue 4 - page 20
Article has been viewed 146 times.
Heading into the second quarter of 2014, makes now a good time to take a look at the past three months and watch for patterns and trends coming down the road. Good dealers can react quickly to the market when it changes. Better dealers anticipate what will happen and prepare a plan.
Dealer Business Journal sat down with Leedom Group CEO Chris Leedom and asked a few questions about what is in store for the remainder of the year. His answers are insightful and can help you put your road map together in order to reach your goals before year-end.
The first quarter of 2014 is now in the books, how do you think the industry fared compared to this time last year?
We are finalizing our data collection but my initial impression is the overall BHPH market is off four to six percent. Many consumers appear to be migrating to third party special finance programs and buying at franchise dealers. We also saw voluntary repos increase slightly for the first quarter. My biggest concern is many of these national companies are extending contracts to 72 and 84 months on customers that are accustomed to 36 to 42 months. The impact of that remains to be seen.
What does that mean for the rest of the year?
I think the rest of the year should hold up pretty well for dealers. Auto sales volume is picking up and new car volume is increasing. With an increase in new car volume comes more trades and this can favorably impact the wholesale price of used vehicles which should help dealers attract used car, more cost-sensitive buyers. I think overall 2014 will be a good year for new and used car dealers.
What are the biggest challenges facing the industry right now? (i.e., lack of inventory, increased regulation, credit-worthy customers, etc.)
Without a doubt increased regulation. It is creating so much uncertainty and we hear about it every day. I was recently speaking with a dealer that sells about 30 cars per month and an attorney recommend he hire a full time compliance person. This is not an inexpensive new hire.
I think we are also on the front-end of a shift to third-party financing for subprime buyers but I have deep concerns about the terms. Folks are going to have a hard time paying $575 per month for 84 months when they will likely be tired of the car somewhere around 36 to 42 months. It definitely concerns me.
Do you see any opportunities?
I think there are great opportunities. For the dealer that serves a small to midsize community—taking care of your customer has and always will pay big dividends. Metro market dealers have a lot more competition from big box operators but dealers on Main Street USA have great opportunity if they just focus on their niche, serve it better than anyone else in their community, and run a good business. Whether you are in BHPH or traditional retail, that model still works and we see a lot of successful dealers that operate that way.
Twenty Group members consistently say one of the benefits they like the most of their group is receiving quarterly financial reports to compare their performance with other members in the group. Can you give us some benchmarks for first quarter for small, medium and large dealerships?
Probably the most important number right now for any size dealer is total overhead per retail unit sold. We have tracked this number for nearly twenty years. This is essentially what it “costs a dealer to sell a car” in that it expressed as all overhead (payroll, rent, advertising, etc.) divided by number of units sold in a month. That number has gone from around $1,700 to over $2,400 in the past five or so years. That is an increase in operating expense of over 35 percent and is mostly due to insurance, fuel, HR and compliance costs and health care. I see this as a number that dealers will really need to watch in the coming years. The bad news is margins are not growing; they are shrinking so expense management skills are critical. A Twenty Group really gives a dealer an advantage as we show them what should be budgeted line by line on the income statement.
What is your prediction for retail prices for the remainder of the year? (i.e., stay the same, increase, decrease). Does there seem to be more demand for one type of vehicle over another?
I think they will stay about the same. The highest demand right now is for what I call the bread and butter portion of the market, the $9,000 to $14,000 vehicle. Cars are built better than ever and are lasting longer so the average consumer can find a very desirable car in that price range.
What is your best advice for dealers as they move forward in 2014?
Review your financial statement every month, control and monitor expenses and make sure your operation is dialed in.
I think a dealers ability to drive prospective buyers via the internet is also giving some operators an edge as the cost of a prospect is less. We see some great examples of dealers harnessing the web and driving traffic with excellent campaigns. Overall this helps drive down advertising expense.
Also I think it is critical in this environment dealers really train their staff and make sure the performance expectation is set and understood. Training and compliance will remain hot buttons for years to come.
How can dealers stay on top of the trends and spot them as or before they happen?
Attend conventions, participate in a Twenty Group and be part of your state and national associations. The more we network and interact with each other and develop best practices the better our industry becomes across time. I love seeing the benefits of these types of programs impact dealers and drive profitability. It never stops so you have to constantly stay ahead of the curve.