6 Major Operating Expenses for a Car Dealership

What are the ongoing expenses for a car dealership? How do you reduce your expenses in a car dealership business? Here is everything you need to know.

Running a car dealership is the ideal profession for anyone who is passionate about automobiles. Just like any business venture though, there is a handful of risks involved when deciding to invest in this industry. You can lower that risk by doing your research and knowing the costs involved with this business and how much funding you will need.

It is also imperative to have a solid plan in place that details what kind of dealership you want to invest in, and your plans for how you will acquire financing to cover start-up costs, licensing fees, overhead costs, inventory procurement, space rental, and labor.

In a low margin, high cost-base industry like a car dealership, balancing budgets is always going to be a challenge. A dealer’s profitability is at the mercy of a number of factors from consumer confidence to pre-registration levels, manufacturer demands, and rising costs.

Profit increasingly comes from hitting manufacturer targets but if they miss the mark, dealers can find themselves struggling. The prudent dealer keeps a constant eye on overheads – to survive the bad times and maximize profit in the good.

Note that making sure you’re getting the best deals and that all aspects of the business are running efficiently is necessary, but difficult. In order to successfully start a car dealership, you must plan for a variety of costs. Proper planning and consultation with specialists can help you launch your dealership without unnecessary difficulties and last-minute surprises.

Apart from the most straightforward costs, such as your business registration, your location, and inventory, there are other costs that come quite frequently.

Ongoing Expenses for a Car Dealership

1. Rent and Lease

Prices in this category may vary greatly depending on the type of property, its location, and the state you are in. Monthly costs for a lease can vary between $8,000 and $20,000 with one source citing about $53,000 in annual fees for renting a shop/garage for selling used cars.

Note that finding a good location and negotiating a good lease on commercial property can be a complex process. Make sure to be acquainted with the details or get in touch with a professional who can help.

2. Office and shop supplies

Office supplies are very crucial to the sustenance of any given business. But how can you reduce the cost of supplies if you need them to do business? Two simple ways are to shop around for discounts and keep supplies locked up at all times–appoint specific employees to be key holders.

Employees can sometimes get sticky fingers, especially when it comes to office supplies–“who’s going to miss an envelope?!”–but the costs add up over time and can impact your bottom line.

3. Inventory

Your inventory is the single largest cost you will have when running your dealership. How much your inventory will cost you depends on the type of vehicles you will be selling (new or used) as well as the amount and models of vehicles you intend to offer.

However, starting out small and gradually building up is easier and will cost you less. Based on that logic, your initial investment in inventory will probably be around $100,000 or more. To manage this type of cost you will likely need to get a loan, and a short-term loan may be one possibility.

4. Payroll

Note that your payroll expenses are another important item to consider. Good data on average payroll costs per state can be gathered from the National Automobile Dealers Association yearly report. According to the report, the average weekly earnings of dealership employees in the U.S. are about $1,122.

Monthly expenses will depend on your initial amount of employees as well as the differences in salaries for the various positions.

5. Advertising

Advertising is necessary when you’re running a dealership, but it needs strategic management. You can’t just throw money into commercials, print ads, and pay-per-click ads without also measuring results and ROI. You love producing your TV commercials, but you may find that the numbers aren’t adding up and they simply aren’t bringing in the amount of business they need to.

6. Bonds and Insurance

First, there is no nationwide insurance coverage policy for car dealer insurances. Insurance requirements vary from state to state – both in terms of the coverage amounts as well as in the types of insurance required. Sometimes there are multiple options.

For instance, in Illinois, dealers can either obtain three separate insurance policies that cover bodily injury/death per person, per accident, and for property damage for a total of $350,000 or get a combined single limit coverage for $350,000.

As with surety bonds, premiums on insurances vary widely, so you will need to consult your insurance provider to get an accurate quote.

10 Ways to Reduce Ongoing Expenses for a Car Dealership

A major aspect of managing a car dealership is regulating business expenses – definitely not a detail to be overlooked. While it may seem almost impossible to keep within your budget at the moment, here are steps to minimize expenses and cut costs for your car dealership.

1. Leverage Social Media

To effectively reduce the cost of traditional advertising (i.e. radio ads, TV commercials, etc.), you can create and utilize various social media platforms, such as Facebook, Twitter, and Instagram. Posting about different specials the dealership has going on at the time can be used as a form of free advertising, because it is getting the word out about your promotion to your target audience.

To further enhance social media potential, encourage your employees to share posts on their profiles as well, so that all of their friends/followers can see. Social media can be a great method to cut costs for car dealerships as well as many other industries.

2. Use Cloud-based Software

Instead of leveraging traditional computer software services, you should consider having your management team switch to cloud-based software, such as SalesForce and OpenStack. Using cloud computing software will significantly reduce costs on purchasing rather expensive software that serves the same purpose/

3. Buy in Bulk

Although you may have learned this tip in business 101, buying in bulk an easy process to do that will save your car dealership a lot of money in the long run. Everything from printer paper to pens can be bought in bulk, and will most likely be used immediately.

Nonetheless, make sure you are not overbuying. Take into consideration the number of employees at your dealership and how often they use office necessities when purchasing to get the most benefit in cutting costs as a car dealership.

4. Install LED Lighting

Another wonderful way to bring in traffic to your car dealership is to enhance your curb side appeal, or how your dealership looks from the road. To show off your cars and your dealership, you will need adequate parking lot lighting, especially at dusk.

If you currently have incandescent light fixtures installed in your parking lot, consider making the switch to LED lighting. Compared to traditional lighting, LED light fixtures to use up to 90 percent less energy, reducing energy costs by at least 60 percent for your car dealership.

5. Use Laptops

Notably, laptops use 90 percent less energy than regular desktop computers. Coupled with installing LED lighting to help the energy efficiency of your car dealership, providing employees with laptops instead of desktop computers will greatly reduce your monthly energy bill.

If employees are in need of more visual space than a typical laptop offers, consider buying an additional monitor to hook up to the laptop for double screen space.

7. Reduce Meetings

Although employee alignment and communication is imperative to any business, reducing the amount of time spent in meetings is necessary for maximizing productivity in the dealership. If your business runs weekly catch-up meetings with all employees, focus on shaving off valuable minutes that could be spent selling and promoting your cars.

8. Use Check Guarantee Services

Check payments are more or less the easiest method of payment for customers, because cars are a high-ticket item. Using a check guarantee service such as CrossCheck or Payment Solutions, you will be able to eliminate the risk of fraudulent checks and the nuisance of check collections.

Using a check guaranteed service can also help cut costs for car dealerships by allowing you to deposit checks right from the dealership, without having to make multiple trips to the bank.

9. Buy Second-hand Furniture

You should also keep an eye out for liquidation sales or second-hand furniture stores that sell name brand furniture for half the price. Even though you’re still spending money, the new furniture will most likely be within a reasonable budget, and still be the same quality as regular brand name furniture.

10. Set up Automatic Electricity Timers

Making use of automatic electricity timers can significantly reduce the cost of your energy bills by automatically shutting off appliances and irrigation systems when not in use.

Instead of unplugging all computers and appliances, just set a time on your automatic timer when no one is in the dealership, and have the timer automatically shut everything off, then back on in the morning before employees come in.

Coupled with the installation of LED lighting throughout the dealership, saving money on energy usage is an easy way to cut down business expense costs.

Conclusion

Starting a car dealership is a costly venture that requires a significant amount of funding. The cost of running the dealership over the course of a year includes paying land leases, paying personnel and staff, buying advertising space, and ensuring the business is in compliance with various regulations.

Dealer costs vary a lot by the type of dealership and the specific bonds and insurances needed. A dealership can run for several thousand dollars per year in operating costs or $15 million for a franchise operation.