4 Ways Car Dealerships are Actively Preparing for a Looming Recession

Southern California Business Leaders Share What Keeps Them Up at Night

After a devastating financial crisis in 2007 and 2008, not many investors could have predicted the rewards that came this decade. U.S. stocks are now on record as experiencing the longest bull market ever, and according to Bloomberg Businessweek, “gains in the S&P 500 index since Dec. 31, 2009, are poised to be the highest of any decade since at least the 1950s.”

Despite a 10-year run, however, history indicates a bear market is looming. When and how a recession will occur is up for debate, but theorists agree it will happen at some point. The best bet for investors and businesses is to prepare for that recession now.

In the automotive industry, car dealerships are going about that several different ways. Here are four specific strategies owners are using to keep a tight hold on profits and prevent overextending themselves:



Automotive manufacturers get their money by selling models to dealerships as they come off the factory floor. Their goal is to get dealerships to accept as many vehicles as they can, oftentimes regardless of whether it’s the best move for the dealership. According to Frank Alvarez, operating partner for Premier Chrysler Dodge Jeep Ram of Buena Park, Calif., “we have to make sure we’re ordering a responsible amount of new vehicles versus the substantially irresponsible amount the manufacturer is trying to make us order. … Our goal is to keep a 90-day supply on the lot, so if I sell 100 new cars a month then I don’t want to have any more than 300 cars on the ground. They want me to have 400-500 on the ground.” Dealerships that rely solely on manufacturer recommendations often get stuck “holding the purse,” Alvarez said. “When that happens, all of a sudden you’re selling out of desperation, a place you don’t want to be.”



While trade-ins often account for a percentage of pre-owned vehicles on the lot, for most dealers, that inventory comes from auction houses that often tack on fees related to operations and transportation. The emergence of CarMax and other retailers that specialize in buying cars direct from consumer has led to a market of pre-owned vehicles that don’t have those fees built into the price. “In order to avoid high margins, which can be anywhere from $300-500 per car – not including transportation, which can be up to $1,000 in fees when you buy a car from an auction – we’ve had to embrace a direct-from-consumer model when it comes to pre-owned vehicles,” Alvarez said. That means offering instant cash to customers trying to sell their vehicles – even if they’re not in the market to buy from the dealership – and using valuable physical real estate, both online and at brick-and-mortar locations, to advertise that service.



The best recession strategy, according to Gary Fenelli, president of Frank Motors Group in San Diego, is the team itself. From service departments to service providers, the most significant contributor to the success of a dealership – or any business – is the people and how they treat the customers. “You have to absolutely provide the highest level of service to your customers, which they’re often not getting in our industry, and to do that you have to hire the right people,” Fenelli said. “You don’t want to hire people to fill a slot because you need a body. The wrong person on a team, just to fill a void, can be very destructive.” You want people who take pride in their work; people who equip themselves with product knowledge, position themselves as transportation experts, keep customers returning over and over again, and attract new people.



When cars are consistently moved around the lot to make room for new vehicles, dings will happen. When sales representatives aren’t meeting quotas, profits decrease. According to Alvarez, the trick is to minimize those occurrences. “There are so many opportunities for profit leaks,” he said. “We try very hard every day to avoid waste.” That means everyone in the business must hold to their job responsibilities, damage to vehicles must be held to a minimum, equipment in the service department must be maintained and more. One tangible way to address those concerns is to open regular lines of communication, Fenelli said. “We meet once a month with our group of managers and each department will talk about the goals they’ll achieve in the next three months,” he said. “You have to look at your strengths, your weaknesses, opportunities – your SWOT. Everyone has to be laser focused.”


Contact an SCL Consultant today

In a wide range of automotive, industrial and commercial sectors, SCL remains steadfast on its commitment to product and industry knowledge, performance satisfaction and superior logistics. We protect and optimize the machines that keep our country moving. For more information on how we help can help with services including bulk purchasing or managing inventory, contact an SCL expert today.


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