The Value of Trend Analysis for BHPH & LHPH Dealers
We’ve often heard the phrases “Don’t expect what you can't inspect”, and “Knowledge is power.” These could not be more true than they are today in the Dealer Controlled Financing industry (Buy Here-Pay Here, Lease Here-Pay Here and Rent-to-Own). Knowing how well your dealership and portfolio are performing compared to industry standards and compared to your own historical performance is invaluable. If you don't inspect it, you can't track it. If you can't track it, there is no accountability. If there is no accountability, there is no motivation for change.
As a consultant and trainer to DCF dealers across the nation, I am often amazed when talking with prospective clients about their business results. It is surprising to see how many dealers do not track their own dealership’s key figures - figures that are very relevant at determining the overall health of the lot. The figures these dealers did know were typically as of the previous month’s end-of-the-month reports. They knew that last month, or maybe even last year, they collected X amount in payments or booked X amount of profit or sold X number of units. But, they don’t know how that truly compares to previous months, years or even industry standards.
Most DMS computer systems provide adequate reports which would enable a dealer to see their static results; how many units sold and average deal structure; current inventory totals and averages; current delinquency and accounts receivable totals, etc. However, very few, if any, of these systems provide any type of trend analysis reports. It is up to the dealer to record key figures on a monthly and even weekly basis in order to perform any meaningful analysis. The term "trend analysis" refers to the concept of collecting information and attempting to spot a pattern, or trend, in the information.
Having the ability to spot trends can be invaluable to a DCF dealer where many collect payments on a weekly basis. Spotting a dangerous trend early enough allows dealers to take corrective action prior to having a major issue. The trick is to know what to look for.
We have seen dramatic reductions in the average reconditioning expenses at a lot where, it turns out, the manager had been planning to quit and open his own lot. Had this trend not been spotted, the results could have been catastrophic leaving the new management to deal with a poor performing portfolio with lots of mechanical issues. This dealer was able to set new policies for vehicle inspections quick enough to contain any major issues.
At another location, a dealer was enjoying what appear to be his lot’s typical low delinquency rates; however, because this dealer was also monitoring the staff’s collection effectiveness, he spotted a trend that indicated there was a strong possibility of fraud. With some further investigating this dealer was able to obtain proof of employee theft within just a few weeks. Putting an end to what most certainly could have lasted months had he not been tracking weekly performance.
The first step to take to have the ability to spot these types of trends is to record data. Determine which key figures you want to track and enter those across the top of your page as the column headers. The first column should be for the date and each line or row will start with the date the data is recorded. If you are recording weekly data, pick one day of the week (Friday, Saturday, etc) and record data as of that day each week. As you continue to enter your information it won’t take long before you have mounds of valuable data, data that you can now use to spot trends and to aide with forecasting.
You can use a simple ledger card, but this is the 21st century and a spreadsheet will allow for much more flexibility. There are several free options available today on the World Wide Web; Google Docs (www.docs.google.com), Microsoft Excel Online (www.OfficeLive.com) and Open Office (www.OpenOffice.org). Google and Microsoft each offer a decent basic spreadsheet that can be accessed online and Open Office has a complete one that can be installed on your computer.
Webster defines data as “factual information used as a basis for reasoning, discussion, or calculation.” Data mining has been defined as "the extraction of implicit, previously unknown, and potentially useful information from data". Don’t expect what you can't inspect. Your data is like gold - mine it often.
As published in Used Car Dealer magazine
Don Miller currently supervises Constellation’s DCF Consulting Group and, as a Senior DCF Consultant, Don works with BHPH and LHPH dealers across the country on ways they can improve their operations. Don has appeared as a speaker at NIADA and has published articles in numerous industry magazines.
Mr. Miller has been in the automotive industry since 1987. Prior to joining Constellation, he spent 8 years as a consultant for CarBiz USA, Inc., supervising the consulting operation for the last 5 years. Previously, Don had a successful career in automotive management, both in the sales and finance departments.