Forecasting 2020 for the Automotive Industry

Although 2019 wasn’t a record sales year for the automotive industry, it was still a solid year, and many dealers were profitable. According to most economists, the 2020 forecast shows we aren’t likely to experience a significant decline in volume, with most showing only a slight decline, for the next several years. Across the industry, the 2020 models hitting showroom floors are certainly good for sales, including model debuts and existing models with high-tech and performance upgrades. Additionally, the proposed United-States-Mexico-Canada Agreement (USMCA), an agreement fully supported by the NADA, would continue tariff-free vehicle and auto part exchanges for dealerships in North America. While the U.S. House is debating and voting on the agreement in January, the USMCA appears to be a definite deal, and a good one for business.

Preparing for 2020

Whether you’re headed warily into a new year or expecting booming success, it’s always good business to look at your forecast. Using your forecast, you can assess opportunities for making successful years more successful, as well as preparing for the lows in those years where expected sales may be down. Forecasting forces you to think about your business strategically, so how do you make the most out of your forecast and avoid hits where you can? It starts with current, accurate financial data.

Generally, the key for budgeting expenses that will be in line with your future realization is to base your calculations on the volume you are currently generating – not the volume you hope to achieve. An initial step may be a review of your accounts, ensuring they are all meaningful and descriptive, and, for multi-dealer groups, standardize the accounts across franchises, especially if you are not operating from a centralized location. As a financial and business practice, make sure you are distributing operational reports appropriately. Information should only be included in your monthly reports if it is current and relevant, and documents should reach anyone on your team who needs the data to improve your business operations. In turn, you are streamlining the compilation process for your historical data needed for budgeting and forecasting.

Build your 2020 forecast around the anticipated volume for new vehicle sales and make a comprehensive, effective plan – before the weather rolls in. As your dealership prepares a 2020 forecast, consider how many used cars you expect to sell, and how much is anticipated for F&I income. What about parts and service? In leaner years, it may be worth looking into beefing up your service and parts capacity. Get customers into your service department now, and build the rapport that keeps them coming back. You want your name remembered when your clients are ready to buy.

Variable Considerations

Fixed costs are not likely to change by a significant amount, but variable costs depend on production output. While planning and creating your forecast, strategic thinking in a number of key areas can help your dealership stay on track for a profitable year.

Staffing Levels – Are there levels of staff that are not essential to your dealerships profitability and function? Restructuring may be a needed course. Take a look at the sales contributions per department. How are your new and used teams performing, and is service hand-off executed effectively? You also want to ensure you are attracting and retaining top talent. Ensuring your employees are properly motivated and incentivized only increases your operations and profitability.

Facility Needs – Once you establish which areas you expect to thrive in the coming years, take a look at your facility needs. Are there areas where expansion may be needed to reach your front-end or back-end demands while increasing your profitability?

Inventory Stocking & Ordering – Look at how you are managing frozen capital. Set new and used inventory days’ supply goals and ensure your inventory managers are set up to effectively buy and sell at auctions. In assessing your needs for the coming year, you may find you need a different or updated plan for placing orders with the manufacturer. Don’t forget to review your website too. Is inventory presented in the best way to ensure sales?

Lead Generation & Advertising – It’s essential for your team to receive effective training for lead generation. A business development center (BDC) may be in order for the coming year, separating your on-site sales personnel from the online lead process. At a minimum, you should review your customer relationship management system (CRM). Are you maximizing its potential? Your dealership can find sales opportunities in properly mining your customer database. Should you plan on additional training in the new year to ensure you are maximizing the investment you’ve already made? And take a look at your advertising strategies. Perhaps advertising should focus more on parts and service in the coming year.  

Getting Started

ARB’s Auto Dealership Services Group has an honest passion for the automotive industry, and we are ready to provide savvy, sensible solutions for your dealership’s plan for 2020. There’s a lot to consider in planning for 2020 automotive sales, and our professionals are dedicated to keeping our clients on the leading edge of industry trends and legislative updates. Contact us to discuss a strategy for getting started, or to discuss your dealership’s other financial and accounting needs.

 

by Barton D. Haag, Principal, CPA