THE MYTH ABOUT 20 GROUPS
Having been a part of the automotive industry for about 40 years, I am always cautious and respectful for every individual and business that contributes to this industry. However I do have bones to pick with certain concepts that have disillusioned car dealers for a long time while making a good pocket change. I must admit that there are several benefits for dealers to be a part of 20 groups. I think that getting together with your peers with golf games, sharing information and ideas, helping each other are all positives of belonging to a 20 group.
My contention is however the data that they provide for the most part is inaccurate and therefore useless. The way all 20 groups work is that once you are signed up, they gain access to your DMS with a protocol to pull financial statement information to populate their relevant composites. Then throughout the meeting their facilitator will talk about the unit gross profits, sales volume for new and used vehicles, fixed operations margins, retention and loyalty statistics, all expense line items and so on.
It all sounds like this information would be very valuable for you to compare your operational stats to that of the so called relevant composite that they provide. Their process is nothing more than feeding your financial information into their database along with all the others in your group. Then they take an average of all of your numbers and create a composite column. In doing so no one ever sets foot at your individual store, talk to anyone in your business office or to any of the decision makers about the specifics of your dealership. For that matter in most cases they probably don’t even know where your dealership is other than its physical address.
There are many variables and different practices at retail stores when it comes to recording data and aligning cost of products and services. For instance, some dealers will have accrual accounts to offset expenses; others will take manufacturer credits for advertising, flooring, PDI and gas into other income or gross profit. Holdback and various other dealer reserve credits from the manufacturer may also be taken as gross profit or other income. New and used vehicle packs vary from one dealer to another and they may be recorded either as gross profit or other income. One would have no idea about these specific practices by each member of the 20 group unless they have done extensive inquiries for each of the members. Instead, they simply dump the financial statement information into their data base and spit out a so called “comparative composite” that has no relevance to each individual dealer’s specific financial statement and you are paying for this.
This is the reason why we call our reports “Custom Composites”. Operational review process that we offer to our clients allows us to conduct an extensive interview with the controllers/business managers, Owners, general managers and each of the department managers and even the sales and service staff. Through these interviews, we learn about the recording practices of the retailer, their cost structure, pay plans and marketing strategies. We identified the head count by department and job description as well as the allocation of all the employees to various departments and expense lines on the statement. We also identify the distribution of shared expenses as a percentage between the departments. We find out if there are dealer specific unusual discretionary charges on the statement. The rest is pretty straight forward. Our data base is built based on a uniform GAAP practice therefore all of the line items are always directed to go to the same accounts and regardless of how the income is recorded we always combine all the revenue into one account whether it is gross profit or other income. This allows us to eliminate the variation of recording practices from dealer to dealer. Since the income is combined and all of the expenses are directed to the same line in our reports, the percentage of each line item of expenses to the total income is now comparable and so are the unit gross profits and all the other fixed operations revenue. In doing so, we have not suggested to change anything in anyone of our client’s recording practices to match our report format. We simply redirected their financial statement data to match our reporting template. Over the years, needless to say we have developed a sizeable database with relevant information regarding dealer financial statements. We only provide composites for our clients for whom we have performed an operational review which is extremely integral to providing accurate and relevant information that is usable as a tool to make improvements; we call this proprietary process “Paint by Numbers”. This powerful process has allowed us to build a client base that has 3.3% average ROS compared to a NADA national average of 2.2%.
While I encourage you to continue your get togethers with your peers either for fun or exchange of information, I believe that paying a handful of companies across the U.S. for it only to receive reports that does not reflect reality about your individual dealerships accomplishes nothing other than making them rich. If you want to know more about our process or subscribe to our monthly newsletter please contact me either directly by phone or e-mail for a complimentary discussion regarding your specific needs. Look forward to hearing from you.