Perseverance is a continued effort to do or achieve something despite difficulties, failure or opposition. Each day, RV industry members persevere amid climbing interest rates, increased inflation and high inventory levels.
While the current market is yielding low margins, dealers persist by implementing key practices across departments. John Spader, NCM Associates senior advisor, expanded on RV industry economic realities and ways dealers can thrive in the market from his RVDA Expo presentation.
Spader cited low net profits and high inventory figures as industry headwinds.
As for interest rates, Spader said they operate on a 40-year cycle. He said it seemed the cycle was in an upturn and would likely remain there for the near future.
He said small, single-location dealerships can persist in a challenging market with low margins if they do the right things. He said the top 10 dealers sell about 35% to 40% of all new RVs.
Spader provided tips for dealers to thrive in today’s market. He said, “If dealers do the right things, they have the option to define a different game with different rules…skewed to their favor.”
Spader described six areas dealers can optimize to thrive.
Culture, Brand and Intrinsic Value
In a world populated with uncontrollable variables, business owners can dial in on what they can control. Spader said leaders can control culture. He said dealer principals should focus on internal issues and opportunities before handling external issues.
According to Spader, when businesses recruit suitable employees, the right processes and strategies follow. By hiring employees who are passionate and aligned with a company’s values, a business can flourish.
Spader also said leaders’ pace influences the team’s pace. He said although the pack sometimes can carry leaders, leaders’ actions and mindsets trickle down to the whole team.
Maximizing the Last Margins
Dealers can increase their sales margins two to five points through key implementations.
Spader said the sales department’s positive attitude is crucial. He recalled a time while begrudgingly suit shopping when a salesman’s single question changed the situation.
Spader said he initially declined help because he knew what he wanted to buy. The salesman asked him, “Are you shopping for business or pleasure?”
Spader said he paused, turned—and bought a completely different suit than he expected because the salesman’s question caused him to rethink his purchase.
He said dealership sales departments should have the same interest and dedication to consumers as the suit salesman he encountered.
To keep sales morale high and attitude positive, Spader said leaders need to update compensation plans.
Spader recommended documenting every sales process step. The department’s customer relationship management (CRM) system use and digital lead processes must be logged and managed.
F&I and New Benchmarks
To optimize the F&I department, Spader proposed building F&I operations into the sales process to convey a consistent message to consumers. He said F&I managers and sales departments can work side by side to deliver a balanced experience.
He also recommended hiring individuals with a “we can” attitude. Such employees believe in what they are doing and can drive sales.
Fixed Operations as a Business or Support?
Spader said businesses must decide whether their fixed operations are a support function or a “true” retail business. He said either option can be highly profitable.
If the fixed-operations department acts as its own business, Spader suggested adopting a sales approach in the service and parts department.
To sell items efficiently, he said fixed-operation employees must understand the difference between accessories and parts. Accessories are what the consumer wants, while parts are items they need. Accessories are sold; parts orders are fulfilled.
After establishing fixed operations’ purpose, leaders can make a plan to hire and train employees to drive a 20% to 30% net profit. According to Spader, dealers should monitor and manage their true effective labor rate and flat-rate billing.
Inventory Management
To manage inventory, dealers can focus on the interest expense ratio. The figure calculates the percent of every dollar of gross margin spent on floorplan interest. According to Spader, an ideal number is under 13% of the sales departments margin.
An interest expense ratio around 17% to 18% signals floorplan interest is too high and aged inventory must be moved. When floorplan interest is too high, sales and cash flow are affected. When interest rates rise, Spader said margins or turnover rates—or a combination of both—should be adjusted.
To counteract high interest expense ratios, Spader suggested reviewing stocking to include more top-selling RVs.
Spader advised creating a month-by-month, brand-by-brand inventory management plan. He said the plan should be in writing and adjusted often.
Driving Additional Revenue
Dealers can drive additional revenue in multiple areas.
Spader suggested dealers rely on their aftermarket department to increase gross margins by $1,500-$2,500 per RV.
He also recommended maximizing documentation fees to drive margins. While each state’s document fee regulations vary, Spader said including doc fees is important.
He emphasized using customer service to grow revenue. One example is scheduling consumers’ first appointments before they leave the dealership to increase service sales.
Spader’s actionable steps provide dealers pathways to persevere through today’s low-margin environment.
