In January, U.S. auto sales continued to improve, rising 11%, compared to last year. Several auto makers are showing confidence in the rebounding economy by releasing details of planned expansions of their U.S. factories. Also, the average age of vehicles in use (more than 10 years old), is forcing many customers to buy new cars.
Sales are predicted to be up as much as 10% in 2012. Dealers need to maximize sales in periods where the economy is improving and brands are attractive to consumers. These two critical factors will propel most dealers to strong results in 2012. The only negative here is that manufacturers are putting significant pressure on dealers to sell more vehicles. These pressures have led to a continued decline in gross profit per vehicle sold.
Considering all of this it is important for dealers to maximize their profitability on each vehicle sold. One opportunity that you may not be capitalizing on is document preparation fees. In recent months I have visited many dealer clients and have found a wide disparity in the documentation preparation fees charged at each store. A few years ago, I visited a long-standing client and suggested that the dealer increase their “doc fee” by $50. In conducting our review procedures the next year, I inquired as to the reason for the increase of $180,000 in other income. The client explained, “You recommended we increase our document preparation fee by $50 last year.” Customers accepted the increase with almost no objections. Since then, the client has increased the fee by another $50. The dealer expects to generate $400,000 in additional revenue in 2012 as a result of these two increases.
Please note that some states have regulations related to documentation fees. Your state dealer association should be able to provide you with guidance on this issue.
In conclusion, each dealer should review its “doc fee” charges and determine if there is an opportunity to increase the fee. You will be pleasantly surprised with the amount of additional revenue that you will generate with a small increase.
If you have any questions regarding dealership management issues, please contact Paul McGovern at 800-849-6022 or PMcGovern@DowneyCoCPA.com.
