WITHUM AND AUTOMOTIVE DOMAIN S CRITICAL PERFORMANCE INDICATORS

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1 WITHUM AND AUTOMOTIVE DOMAIN S CRITICAL PERFORMANCE INDICATORS Knowing your Critical Performance Indicators (CPIs) can help dealers, leaders and managers drive business forward and increase your bottom line. In today s increasingly competitive automotive marketplace, having the latest competitive intelligence data available to make timely informed decisions in every profit center of your dealership is critical. Dealerships draw on the strength of WithumSmith+Brown, PC (Withum) and Automotive Domain s expertise in accounting; consulting; dealer and fixed operations; and performance and profitability training the ability to provide real-time automotive intelligence, decision-supporting tools and growth strategies. Our solutions are based on proven industry success principles and the collection and analysis of transactional data from thousands of new and used automotive dealership franchisees from leading industry resources. Applying these formulas as an added component to your overall business model allows you to evaluate your operations on a regular basis to create products and services that focus on improving specific areas of your business: SO HOW DO YOU COMPARE? Many successful dealerships depend on Withum and Automotive Domain for information they cannot get anywhere else. You can depend on us to show you and your management team how your dealerships compare with similar franchised dealerships of like kind brands and geographical areas. Industry operational guides Performance margins in all areas of dealership operations Critical performance indicators that can influence: Prices Cost Profitability Finance, lease and trade-in values AUTOMOTIVE CONSULTING LEADERSHIP Louis Young Automotive Consultant T (732) lyoung@withum.com Michael Roppo Director of Dealer Fixed Operations T (732) mroppo@withum.com BE IN A POSITION OF STRENGTH SM withum.com

2 AUTOMOTIVE DEALERS Asset Utilization Annualized total dealership sales divided by total assets. Minimum ratio: 7 to 1 LIFO (Last In First Out) A tax deferred strategy of inventory valuation. Cash Days Supply Cash, contracts in transit, marketable securities and vehicle receivables, divided by total dealership expenses (average month) multiplied by 30 days. Guide: minimum 30 days (90 days recommended) Cash In Bank Amount equal to minimum of one month s average. Total dealership expenses plus technician payroll. Guide: minimum one month (three months recommended) Net Profit Return On Sales Total dealership net profit divided by total dealership sales. Guide: 4% (national average approximately 2.6%) Net Profit Return On Assets Return percentage sufficient to justify operation. Annualized profits divided by total assets plus LIFO, if recorded on asset side of the financial statement. Guide: 17% to 25% Current Ratio (Current Assets To Current Liabilities) Total current assets plus LIFO (if included in current assets) divided by total current liabilities. Defined as, The Ability to Pay Bills. Ratio: 1.0 to 1.5 or greater Debt To Equity Total liabilities divided by equity (net worth) plus 60% of LIFO balances. The higher the number, the lower the corporation s borrowing power. Ratio: 3 to 1 or less New Vehicle Department Break Even Point (In Units) Total new vehicle department expenses divided by average gross profit per new vehicle retailed. Net Worth The sum of stock value, additional paid-in capital, retained earnings and year-to-date dealership net profits minus dividends and/or drawings. Note: LIFO dealers add 60% of LIFO reserve Fixed Absorption Total fixed gross profit divided by total dealership expenses, excluding new and used sales commissions, delivery and policy (percentage of expenses absorbed by fixed operations). Guide: 75% MAP Number of Used Vehicles Day s Supply In Units Number of used vehicles in inventory divided by average number of used vehicles sold per month multiplied by number of working days per month. Guide: 30 Days, 12 turns per year Frozen Capital Cash tied up in aged and/or excess receivables and inventories (based on guide) Parts Obsolescence Parts inventory aged over 12 months with no demand. Guide: less than 5% of total inventory Inventory Trust Position Inventory of new vehicles plus demos plus holdback receivable, if applicable, minus notes payable in new and demo units. Positive or zero inventory trust position balance.

3 AUTOMOTIVE DEALERS Return On Equity Measures how effectively a dealership uses its capital to generate profits. Annualized total dealership net profit divided by net worth/owner equity plus 60% LIFO reserve. Guide: 28% to 35% Service Department Proficiency Technician hours produced within the total technician hours available. Formula: hours produced divided by hours available. Example: = 120%. Guide: 120% to 125% MAP = 100% Service Sales Potential and Retention 5, 7 or 10* year owner base (new vehicle units in operations for a given brand and market area of responsibility) multiplied by 7 to 8 hours per year multiplied by O.E.L.R. Guide: 50% minimum (national average is 35%) Total Absorption Total used vehicle, service, parts and body shop gross profit divided by total dealership expenses. This equals the percentage absorbed by these departments. Guide: 100% Units In Operation Number of franchise brand vehicles in operations in a given market area that are 5, 7 or 10* model years or older. Used Vehicles Days Supply In Dollars Used vehicle inventory dollar amount divided by used vehicle cost of sale (average month) multiplied by number of working days per month. Guide: 30 days, 12 turns per year Variable Expense Expenses that change with unit sales volume: sales person commissions, delivery expense, and policy expense. Working Capital Total current assets (plus LIFO reserve, if recorded in asset portion of financial statement) less total current liabilities. *manufacturer specifies number of years

4 AUTOMOTIVE DEALERSHIP PRODUCTIVITY GUIDES SALES DEPARTMENT SALES PERSONNEL New and/or Used Vehicle Department Units Per Month Internet Department Units Per Month INVENTORY Used to New Retail Ratio 1.25 to 1 DAYS SUPPLY (UNITS) AND TURN RATES New Vehicle Inventory Used Vehicle Inventory No Used Units Over Days (6-8 Turns Per Year) 30 Days (12 Turns Per Year) 60 Days SERVICE DEPARTMENT SERVICE PERSONNEL Tech To Support Personnel Ratio 2 to 1 SERVICE PRODUCTIVITY Tech Efficiency Factory Manual - Warranty 125% Chilton, Motors, Others 135% Tech Proficiency 120% Tech Productivity 87.5% HOURS PER RO Excluding Quick Lanes and Express Retail Including Quick Lanes and Express Retail Stall Utilization 85% Minimal Acceptable Performance SERVICE GROSS PROFIT Gross Retention Customer Labor 75%+ F-D-H Internal Labor 72%+ F-D-H Warranty Labor 75%+ F-D-H Total Service Gross Percentage of Sales 68% Minimal Acceptable Performance Including Unapplied Time/Adjusted Cost Of Labor (Adjust For Express and Q/L Services)

5 AUTOMOTIVE DEALERSHIP PRODUCTIVITY GUIDES RECEIVABLES AGING SERVICE AND PARTS CUSTOMER RECEIVABLES 0-30 Days 70% Days 30% Days 0% WARRANTY RECEIVABLES 25% Of Current Months Parts and Labor Sales No Used Units Over 60 Days PARTS DEPARTMENT PART PERSONNEL Parts Sales Per Parts Employee Domestic $36,000 MAP+ Import $48,000 MAP+ Highline $49,000 MAP+ Parts Gross Per Parts Employee Domestic $16,000 MAP+ Import $19,000 MAP+ Highline $21,000 MAP+ NOTE: Excessive Staff Reductions Cause Artificially High Performance and Costly Mistakes Parts To Labor Ratio NOTE: Not A Guide Due To Regional Nature Of Labor Rates 1-1 National Average INVENTORY Turnover Inventory (Turn) 8 Times Per Year INVENTORY PROFILE, SALES MOVEMENT RANGE 0-3 Months 75% of Inventory 4-6 Months 23% of Inventory 7-12 Months 2% of Inventory

6 AUTOMOTIVE DEALERSHIP PRODUCTIVITY GUIDES PARTS DEPARTMENT PARTS INVENTORY GUIDES Months Supply 1.5 Fill Rate First Time (Off the Shelf) 90% Same Day (Pick Up) 95% Active/Normal Status 70% NOTE: Based On DMS Summary Not Found On Statement GROSS PROFIT Part Gross Percentage Of Sales 38%+ NOTE: Lower if High Wholesale Volume Is In Effect BODY SHOP BODY SHOP PERSONNEL Technician Efficiency Apprentice 100% Journeyman 150% Master 200% GROSS PROFIT Total Body Shop and Sales 43%-55% Labor 65%+ Parts 30%-55% Paint and Material 40%

7 TRUCK DEALERS Asset Utilization Annualized total dealership sales divided by total assets. Minimum ratio: 7 to 1 LIFO (Last In First Out) A tax deferred strategy of inventory valuation. Cash Days Supply Cash, contracts in transit, marketable securities and vehicle receivables, divided by total dealership expenses (average month) multiplied by 30 days. Guide: minimum 30 days (90 days recommended) Net Profit Return On Assets Return percentage sufficient to justify operations. Annualized profits divided by total assets plus LIFO, if recorded on asset side of the financial statement. Guide: 17% to 25% Cash In Bank Amount equal to a minimum of one month s total dealership expenses (average) plus technician payroll. Guide: minimum one month (three months recommended) Current Ratio (Current Assets To Current Liabilities) Total current assets plus LIFO (if included in current assets) divided by total current liabilities. Defined as, The Ability to Pay Bills. Ratio: 1.5 to 2.0 or greater Debt To Equity Total liabilities divided by equity (net worth) plus 60% of LIFO balances. The higher the number, the lower the corporation s borrowing power. Ratio: 3 to 1 or less Fixed Absorption Total fixed gross profit less total dealership expenses, excluding new and used sales commissions, delivery and policy (percent of expenses absorbed by fixed operations). Guide: 115% MAP Net Profit Return On Sales Total dealership net profit divided by total dealership sales. Guide: 4% Net Worth The sum of stock value, additional paid-in capital, retained earnings and year-to-date dealership net profits minus dividends and/or drawings. Note: LIFO dealers add 60% of LIFO reserve. Open Repair Orders A mechanical or body shop repair order not yet closed in service. Guide: Less than two days after work is completed Parts Inventory Months Supply Reconciled inventory amount divided by the average month cost of sales. Parts Obsolescence Parts inventory aged over 12 months with no demand. Guide: less than 5% of total inventory Frozen Capital Cash tied up in aged and/or excess receivables and inventories based on guide. Inventory Trust Position Inventory of new trucks plus holdback receivable less notes on new trucks. If this number is negative, it should not exceed the total contracts in transit and vehicle receivable balance. Positive or zero inventory trust position balance. Policy As A Percent Of Gross Good will granted to the service department customer divided by service department gross profit. Guide: 5% of service department gross profit

8 TRUCK DEALERS Return On Equity Measures how effectively a dealership uses its capital to generate profits. Annualized total dealership net profit divided by net worth/owner equity plus 60% LIFO reserve. Guide: 28% to 35% Used Truck Days Supply In Units Number of used trucks inventory value divided by used trucks sold per month multiplied by number of working days per month. Guide: 60 days, six turns per year Service Department Proficiency Technician hours produced within the total technician hours available. Formula: hours produced divided by hours available. Example: = 100%. Guide: 100% to 125% of available technician hours Total Absorption Total used truck, service, parts and body shop gross profit divided by total dealership expenses, excluding new truck sales commissions, policy and delivery expense. Guide: 130% (percentage of expense absorbed by these departments) Variable Expense Expenses that change with unit sales volume: sales person commissions, delivery expense, and policy expense Working Capital Total current assets (plus LIFO reserve, if recorded in asset portion of financial statement) less total current liabilities. Used Truck Days Supply In Dollars Used truck inventory dollar value divided by used-truck cost of sale (average month) multiplied by number of working days per month. Guide: 60 days, six turns per year

9 TRUCK DEALERSHIP PRODUCTIVITY GUIDES SALES DEPARTMENT SALES PERSONNEL NON FLEET New Vehicle Department 5-7 Units Per Month Used Vehicle Department 4-5 Units Per Month INVENTORY Days Supply (Units) New Truck Inventory 60 Units Used Truck Inventory 60 Units TURN RATE New Truck Inventory 6 Times Per Year Used Truck Inventory 6 Times Per Year GROSS PROFIT New Truck Gross Percentage of Sales 5% Used Truck Gross Percentage of Sales 10% SERVICE DEPARTMENT SERVICE PERSONNEL Tech To Support Personnel Ratio 2 to 1 SERVICE PRODUCTIVITY One Shift Service Department 80% Two Shift Service Department 65% 24 Hours/7 Days A Week Service Department 45% SERVICE GROSS PROFIT Gross Retention Customer Labor 73%+ Internal Labor 73%+ Warranty Labor 73%+ Total Percentage of Sales Labor 73%+ Total Percentage of Sales Parts 30%+

10 TRUCK DEALERSHIP PRODUCTIVITY GUIDES RECEIVABLES AGING SERVICE AND PARTS CUSTOMER RECEIVABLES 0-30 Days 85% Days 15% Days 0% WARRANTY RECEIVABLES 100% Of Current Months Parts and Labor Sales PARTS DEPARTMENT PART PERSONNEL Parts Sales Per Parts Employee $50,000 MAP+ Parts Gross Per Parts Employee $16,000 MAP+ NOTE: Excessive Staff Reductions Cause Artificially High Performance and Costly Mistakes Parts To Labor Ratio 1 to 1 National Average INVENTORY Turnover Inventory (Turn) 6-8 Times Per Year INVENTORY PROFILE, SALES MOVEMENT RANGE 0-3 Months 75% of Inventory 4-6 Months 23% of Inventory 7-12 Months 2% of Inventory PARTS INVENTORY GUIDES Months Supply 1.5 Fill Rate First Time (Off the Shelf) 90% Same Day (Pick Up) 95% Active /Normal Status 70% Pricing Policy Matrix NOTE: (By Individual Part Number Cost When Possible)

11 TRUCK DEALERSHIP PRODUCTIVITY GUIDES BODY SHOP BODY SHOP PERSONNEL Technician Efficiency Metal 140% Paint 170% Overall 160% GROSS PROFIT Total Body Shop and Sales 60%-65% Labor 70%+ Parts 30%+ Paint And Material 40%