As dealers prepare for a year of narrowing margins and declining sales, cost scrutiny comes down to rethinking expenses as basic as bottled water.
Rick Ricart, president of Ricart Automotive Group in Columbus, Ohio, stopped buying bottled water for his stores, and the relatively small change saves the company $6,000 a year.
"We have water fountains. And we can provide paper cups if we need to because those are 1 cent each, and the bottles of water were 39 cents," said Ricart.
As interest rates rise and expenses escalate, dealers are poring over their balance sheets to determine where they can cut costs. Dealer after dealer at last month's NADA Show in San Francisco talked about buckling down on the basics in light of economic headwinds they see coming their way. While U.S. light-vehicle sales have been historically strong — 17.3 million vehicles in 2018, the industry's fourth-best year ever — demand is expected to dip in 2019, with sales forecast in the high 16 million-vehicle range. During the first 11 months of 2018, expenses for the average dealership grew 5.2 percent, while total operating profit declined 74 percent, according to NADA.
John Davis, a partner in accounting firm DHG's dealership practice, suggests dealers look at every line of the balance sheet and ask themselves, "Is there some fat?"
"You can't cut your way to a profit, but you can certainly help in a declining market by having a really close eye on your expenses," Davis said.
The country's two largest dealership groups, AutoNation and Penske Automotive Group, have outlined strategies to reduce costs. AutoNation last month said 2019 would be "challenging" as it announced a $50 million restructuring plan that included the departures of four executives, including its COO, and the elimination of its central region.
Penske also has worked to consolidate offices in large markets such as Phoenix. Last year, Penske cut its traditional advertising spending by 25 percent and is investing some of that back into digital advertising. The group also will assign multiple mechanics to service jobs to speed up the process and cut costs on loaners.
Many dealers are in survival mode, Ricart said.
"They're going back to the mindset of 2008 when we did those lifeboat exercises," he said.
Expenses have begun to catch up with gross profit. Some dealers failed to keep up with some of the cost challenges last year, Ricart said, admitting that his group was one of them. In the fourth quarter, "we didn't make money," he said. "There wasn't any money to be made."
While eliminating bottled water doesn't save a huge amount, every dollar counts. For the most part, dealers are tackling some of their heftiest expenses: employee turnover, floorplan interest and dealership renovations.