Why Strategic Planning is Crucial for Your Dealership

Published: Apr 30, 2017
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The tasks and responsibilities that go along with owning an automobile dealership can sometimes be overwhelming. Just keeping up with everything that must be done each day may consume all of your time and energy.

Unfortunately, many owners get so bogged down in their day-to-day management responsibilities that they never take time to step back and perform big-picture, or strategic, planning. This can result in “not seeing the forest for the trees” — and possibly missing out on opportunities to grow and strengthen your dealership.

Where to focus

There are a number of different matters to focus on as you conduct dealership strategic planning. Here are a few areas where you can start:

Inventory management. Strategy should play a crucial role in how you manage both new and used vehicle inventory. On the new vehicle side, you must determine how much and what type of factory inventory to keep on your lot at any given time.

This can be a balancing act. Hold too much inventory and the financing and carrying costs can eat into your profits. Conversely, if you hold too little inventory, you may not have the vehicles your customers want in stock, which can lead to lost sales. One industry benchmark is to maintain between a 45- and 60-day supply of vehicle inventory at all times.

On the used vehicle side, you must pay careful attention to vehicle aging. Cars that have been sitting on your lot for too long are taking up valuable space that more popular models could occupy. Strategically determine the right time to aggressively discount or wholesale aged vehicles to make room for better-selling models.

Your competitive environment. It’s always important to keep a close eye on your competitors and what they’re doing. That’s why your strategic plan should include a detailed competitive analysis that answers such questions as:

What new competitors have entered your market area recently?
What brands are these competitors selling and how do they compare from a price, quality and reliability standpoint to your brands?
How visible are these competitors in the marketplace from an advertising and publicity perspective?

Based on the answers to these and other questions, you can devise strategies for competing successfully in your current environment.

Business succession. Have you given thought to what will happen to your dealership when you’re ready to retire or do something different? Usually, the main succession options are to sell your dealership to an outside buyer, transfer it to employees or managers, or pass it on to family members or heirs. Your succession strategies will be driven largely by which of these options you plan to pursue.

Ideally, you should start succession planning at least three to five years before you want to exit the dealership. This will give you time to explore all your options and begin laying the groundwork for a smooth transition to new ownership.

Growth and expansion. Most owners hope to grow their dealerships, but many haven’t planned strategically for this growth. And growing without a plan can be worse than not growing at all.

Successfully operating a $60-million dealership requires a different level of management sophistication, internal controls, and accounting and financial processes than operating a $20-million dealership does. Thus, your strategic plan should detail not only how you plan to grow your dealership, but also how you’ll manage growth once it’s achieved.

Perform a SWOT analysis

It can be helpful to perform a SWOT analysis as part of your strategic planning process. This exercise will examine your dealership’s unique Strengths, Weaknesses, Opportunities and Threats.

Once you have a firm understanding of your strengths and weaknesses, it will be easier to formulate strategies that capitalize on your strengths and minimize the negative impact of your weaknesses. And when you have a clear picture of the potential opportunities and threats you’re facing, you’ll be better equipped to make tactical decisions based on them.

Set the right course

Resolve now to set aside time with your key managers and executives to conduct strategic planning. Doing so will help you set a deliberate course for your dealership’s long-term direction and future.

Dealer Insights - March/April 2017