3 Approaches to Combatting Margin Compression

Running a business is all about finding solutions. Campaigns losing steam? Call in a marketing team. Sales staff struggling? Kick off some team building and new sales approaches. Computers on the fritz? Get IT involved. Problem? Solution.

Until you start thinking about margin compression.

It's an issue every dealer has to face and the truth is there' no fix. That doesn't mean you can't mitigate it, though. Dealing with margin compression comes down to looking at your current processes and finding ways to tighten, streamline and improve.

Margin compression begins the moment you buy inventory and it doesn't stop squeezing until the car is sold. There was a time when dealers enjoyed weeks - months even - of time before they really started to feel the squeeze. Those days are over, though. Today the turn around time is less than 3 weeks and even that is a bit of a stretch.

In a recent piece by Dale Pollak on the vAuto blog he offers some ideas for how to deal with margin compression without losing your mind or going in for 'quick fixes' that will just leave you worse off. They are summarized below as:

• Efficiency – Since margin compression runs on a ticking clock, improving efficiency is the best way to deliver the best push back. Streamline the process of acquisition and preparation. The average vehicle racks up $32 a day in expenses from the day a dealership buys a car until the day it's sold. Tighten up that time frame and you'll improve your bottom line.
• Know Your Customers – You can pick up the best cars in the country but if they don't fit with what your customers want you'll end up eating the cost. Couple community involvement with historical sales data to determine your best picks.
• Diversify – It's time to break free from those traditional ways of thinking once and for all. Branch out when it comes to vehicle acquisition, marketing and sales. That means investing in private acquisition processes and engaging more online. It also means offering options for sales online. Whether it's the ability to find, confirm and purchase a vehicle online, book a test drive or simply browse real time stock, customers expect online options.

The bottom is that you will never be rid of margin compression - it's a part of the automotive landscape. The trick is learning how to use it to guide your strategy and keep your dealership growing and thriving.

On a related note, here is a video we released that offers up one way to combat margin compression by optimizing your time-to-line.