automotive accountants' forum presentation: 22 june 2010

Automotive Accountants’Network Forum

Meeting 2Tuesday 22 June 2010

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This presentation has been prepared by Colledge’s for the general information of its clients and forum attendees. While the information herein has been prepared with all reasonable care and derived from sources believed to be accurate, no responsibility or liability is accepted by Colledge’s or any of its affiliations, for any errors or omissions, including liability to any person of negligence or otherwise.

Recommendations may not be appropriate in all circumstances and clients must consider their own personal objectives and financial advice before acting on recommendations in this presentation.

Colledge’s (ABN 52 439 950 641)

For more information, contact Angelo Sirianni on 03 9851 6500 or email [email protected]

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• Maximise outcomes for Dealership Accountants

• Professional & Personal Development

• Networking

• Keep up-to-date


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Why are we here?

• Ask questions

• Respect for presenters and colleagues

• One discussion at time

• Phones to “silent”

• Have fun!


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House Rules

1. 2010 Federal Budget Review

2. Salary surveys

3. Service Department

4. Best ideas – member presentations

5. Internet marketing


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Agenda

a. Service staff incentive structures Raoul

b. Capricorn Society Ltd Hartley

c. Salary comparisons Antony

d. Consumer Credit Act Colledge’s

Additional items?


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Whiteboard Items

With the start of a new Financial Year...

“Every day is a new beginning. Treat it that way. Stay away from what might have been, and look at what can be.”

Marsha Petrie Sue Keynote Speaker


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Quote for the day

2010’s Budget Review

Federal


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Federal Budget Review (2010)

Individuals

Tax relief: New thresholds from 1 July 2010


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Current % From 1 July 2010 %

0 – 6,000 0 0 – 6,000 0

6,001 – 35,000 15 6,001 – 37,000 15

35,001 – 80,000 30 37,001 – 80,000 30

80,001 – 180,000 38 80,001 – 180,000 37

180,000 + 45 180,000 + 45


Individuals

Standard Tax Deductions

1 July 2010: Optional standard deduction of $500

1 July 2013: Optional standard deduction of $1,000

Includes WRE and cost of managing tax affairs

50% tax discount for interest income under $1,000


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Companies & Businesses

1 July 2012: Company Tax Rate to 28% for eligible small business companies

Small business asset write-off to $5,000 limit

Small companies: $2M test

All other companies: 29% 2013/14

28% 2014/15


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Superannuation

Increase in the SG rate

Concessional contribution caps for over 50s to be extended permanently for those with balances less than $500,000 for 1 July 2012.


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%

2013-14 9.25

2014-15 9.50

2015-16 10.0

2016-17 10.5

2017-18 11.0

2018-19 11.5

2019-20 12


Economics

• Forecast deficit of $40.8b, 2010-11

• Returning to surplus in 3 years

• CPI -2.5%


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2010-11 2011-12 2012-13

Real GDP 3.25% 4.0% 3.0%

Unemployment 5.0% 4.75% 5.0%

CPI 2.5% 2.5% 2.5%


Economics

• Inflation within key RBA target

• Unemployment expected to keep falling from current 5.3%

• Tax revenues from companies and individuals higher than expected increase of 16.2b in 2010-11


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2010’s Victorian StateBudget Review


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Victorian (State) Budget Review (2010)

• Payroll tax rate to 4.9% from 4.95%

• WorkCover premiums down 3.5%

• Motor vehicle duty

Threshold $57,466 up from $57,009

(aligned with Commonwealth Luxury Car Tax Threshold)

Source: Victoria Budget 2010-11 overviewSRO Bulletin June 2010, Gen 1/10


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Salary Surveys

2010


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Salary Surveys 2010

Summary of Findings

• Bias to Salary

• Salary levels in line with expectations

• Car and Petrol main fringe benefit

• How to motivate Staff?


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Salary Surveys 2010

• Front end: Skewed to Commission

• Bank end: Skewed to Salary

• Administration: Salary bias


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Salary Surveys 2010

Front end

• Management: Bias to Commission 57-67%

• Salespeople: Even split

• F&I / Business Manager: Bias to Commissions

• Aftermarket: Bias to Commissions


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Salary Surveys 2010

Back end

• Fixed Operations Manager: Commission based

• Service Manager: Even split between Salary & Commission

• Parts Manager: In favour of Commission


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Salary Surveys 2010

Administration

• Bias to Salary

• Senior positions with Commissions


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Salary Surveys 2010

For more detailed information regarding our survey results, please contact Angelo on 03 9851 6500.


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Service Department


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Service Department


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Questions

1. What do you see as the issues facing the Service department?

2. What is the role of the Financial Controller within the Service department environment?

Service Department


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Jan 2010 Apr 2009

Ratio Chargeable : Non-chargeable 1.5 : 1 1.5 : 1

Percent of available hours sold 97.5% 97.5%

Labour sales per chargeable employee $14,000 $13,500

Ratio customer parts to labour sales 0.75 0.75

Labour gross per chargeable employee $10,500 $10,000

Salaries and payroll on costs % of gross fixed 40% 40%

Total direct expenses % of gross 50% 55%

Selling gross per chargeable employee $6,000 $6,000

Selling gross per department employee $3,000 $3,000

Service benchmarks: 2010 vs 2009

Service Department


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Jan 2010 Survey

Ratio Chargeable : Non-chargeable 1.5 : 1 1.6 : 1

Percent of available hours sold 97.5% 105.0%

Labour sales per chargeable employee $14,000 $14,145

Ratio customer parts to labour sales 0.75 N/A

Labour gross per chargeable employee $10,500 $10,525

Salaries and payroll on costs % of gross fixed 40% 34%

Total direct expenses % of gross 50% 62%

Selling gross per chargeable employee $6,000 $4,756

Selling gross per department employee $3,000 $2,906

Service benchmarks: June 2010AutoTeam Australia vs Accountants’ Group

Service Department


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Jan 2010 Survey

Productivity 95% 84.1%

Efficiency 110% 124.9%

Labour Hours Sold per RO 1.9 2.3

Labour Hours Clocked per RO 1.8 1.9

Customer RO % of Total RO 65%+ 60%

Average Prime Cost Labour Rate $18-$25 $22

Average Customer Labour Rate $100 $105

Break Even Labour Rate $60 $53

RO per Advisor Per Day 10-15 8.8

Service benchmarks: June 2010AutoTeam Australia vs Accountants’ Group

Service Department


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Service benchmarks

Ratio Chargeable : Non-Chargeable

Productive Staff

Non Productive Staff

Percent of Available Hours Sold(AKA: Proficiency rate or Performance Index)

Hours Sold

Hours Available

Service Department


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Service benchmarks

Ratio of Customer Parts to Labour Sales

Customer Parts $

Customer Labour Sales $

Labour Sales per Chargeable Employee

Total Labour Sale $

Chargeable Employee

Service Department


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Service benchmarks

Labour Gross per Chargeable Employee

Total Labour Gross $

Customer Employee

Salary & Payroll on cost % of Gross

Salary & Payroll on Costs(non productive staff)

Gross $

Service Department


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Service benchmarks

Total Direct Expenses % of Gross

Total Direct Expense $

Gross

Selling Gross per Chargeable Employee

Gross $ less Direct Expenses

Chargeable Employee

Service Department


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Service benchmarks

Selling Gross per Department Employee

Gross $ less Direct Expense $

Gross $

Service Department


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Refer to this presentation’s Appendix for more Service department information, as originally presented on 19 June 2008.

Now, it’s your turn:

“Best Ideas”


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Internet & Websites

Being used effectively?


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Internet and Websites

• No longer good enough to have a static website

• Your website needs to be interactive and regularly updated

Dealership news

Automotive news

Car/model news

Newsletter / BLOG

• Content is king


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Social Media

• Twitter

• Facebook

• LinkedIn

• Blogger.com

• Slideshare


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Online Directory Listings

• Yellow Pages

• White Pages

• True Local

• Hotfrog

• Bigroo

Increase exposure, search engine optimisation and customer leads to your website with free internet sites.


Analysing your website

Google Analytics is free and will provide you with:

How many people visit your website

New vs returning visitors

The pages people are viewing

How long people are staying on your website

Where people are finding your details (Search engines, other websites, direct link)

Bounce rate – people clicking out immediately


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Internet & Websites

What is your Return on Investment?

• Beware of over-priced website contractors and set contracts

• What is your dealership’s internet spend?

• Who’s using Google Adwords?

What is your ROI?


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Internet & Websites

Cost saving measures

• Ensure website contract provides a Content Management System (CMS) to add content yourself.

• Ensure you are not paying and branding external contractors for email enquiries on your website.

Having a CMS will allow you to do this yourself.

• Decrease reliance on external search sites for car sales.

• Analyse your website regularly.


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Goodbye...


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Next Meeting

Tuesday 24 August 2010

Venue: The Manningham

Time: 12.00noon to 5.00pm


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Appendix

Service Department(originally presented 19 June 2008)


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Service Department


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Technician Performance

1. Productivity% Hours Clocked

Hours Available

Benchmark 95%

2. Efficiency % Hours Sold

Hours Worked

Benchmark 110 – 120%

Service Department


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Key for measuring performance for each technician and service department on a daily basis.

• Productivity: Ability of the Service Department to find work for the technicians.

• Efficiency: Measures the ability of the technician to perform the required repairs with the specified time.

Service Department


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Key Components:

- Hours available

- Hours clocked

- Hours sold

- Unsold hours or unapplied time

Service Department


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Technician Performance – Discussion

Should keep records by type:

• Customer Retail• Internal or Used Reconditioning• Pre-delivery• Warranty• RO• Tech

• Available from your DMS• Tight workshop controls

Service Department


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Technician Performance - Discussion

• Total time must be accounted for

• Unapplied time to be charged to Cost of Sales

• Unapplied time should be a maximum of 5%, benchmark approx 2.5%

• Ensure hours clocked to miscellaneous RO is not included in performance. Charge time to Cost of Sales

• Ensure that only Applied time is used to measure performance

• Ensure WIP is correctly measured – opened ROs only and completed ROs taken to profit.

Service Department


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Workshop Statistics

• Labour Sales per Repair Order (RO)

Labour Sales $

Number of ROs

• Benchmark $ 160 + customer (depends on labour rate)

• Calculate by each type:

Customer /Retail

Internal/Used Reconditioning

Pre-delivery

Warranty

Service Department


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Workshop Statistics

• Labour Hours Sold

Labour Hours Sold

Number of ROs

Benchmark 1.9 (Customer)

• Labour Hours Clocked per RO

Labour Hours Clocked

Number of ROs

Benchmark 1.8 (Customer)

Service Department


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Workshop Statistics

• RO per day

Total RO

Work days

Actual RO sold per day

Service Department


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Workshop Statistics

Parts to Customer Labour Ratio

Workshop Parts

Customer Labour Sales

Benchmark 0.75

Indicates the value of parts sold per labour hour.

This ratio measures the ability of advisors to up-sell or technicians to identify any extra work required.

Service Department


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Workshop Statistics

Customer Parts $ per RO

Workshop Customer Parts

Customer ROs

Benchmark $65 – $80

Indicates the value of parts sold per customer RO.

This ratio also measures the ability of advisors to up-sell or technicians to identify any extra work required.

Service Department


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Technician Sales & Gross

Labour Sales $

Tech/Apprentice (equivalent)

Benchmark $14,000

Labour Gross $

Tech/Apprentice (equivalent)

Benchmark $10,500

Service Department


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Average Prime Cost of Labour

Payroll Cost of Labour

Payroll Labour hours

or

(Labour Sales – Labour Costs) + Unapplied Time

Hours Available

= Average Prime Cost of Labour

Benchmark $18 - $25 per hour

Service Department


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Labour Rates

• Retail $100 - $ 120 per hour + GST

• Internal Same as retail

• Warranty As agreed with factory

• Pre-delivery Same as retail

Service Department


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Effective Labour Rates

The actual labour rate earned or achieved by the workshop.

Assist to understand that impact of efficiency and productivity.

Labour Sales $

Hours Clocked

Example:Labour Sales $

Hours Clocked

Effective Rate

Published Rate

Prime Cost of Labour

CustomerInternalWarrantyPre-delivery

150,75237,12514,50639,369

1,663458291652

90.6581.0649.8560.38

81657865

18.7018.7018.7018.70

= effective labour rate

Service Department


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Breakeven Labour Sales

Service Department Expenses $130,764

Fixed Expense Allocation 20% 47,708

Total Fixed Expenses 178,172

Cost of Sales (Labour) 57,420

Unapplied Time 5,250

Total Expense 240,842

Less Actual Labour Sales 247,392

Difference $ 6,550

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Breakeven Labour Sales

Breakeven reflects the position when the labour sale is sufficient to cover the operating expenses of the Service Department.

Breakeven is calculated using labour sales only, excluding sublet, petrol, oil and grease and other misc service sales.

Service Department


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Breakeven effective labour rates

The minimum effective labour rate to achieve breakeven.

Breakeven effective labour rate calculation

Step 1: Calculate cost to be recovered

Service department expenses + fixed expense allocation

= Total Fixed Costs

Less Gross – Other sales, Sublet, Petrol/Oil/Grease, Other Misc Service Sales

= Total Costs to be Recovered

Service Department


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Breakeven effective labour rate calculation

Step 2: Costs to be recovered per hour

Total Costs to be Recovered

Hours Available

Step 3: Effective Breakeven Rate

Costs to be recovered per hour + Prime Labour Costs

= Breakeven effective labour rate

Service Department


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Breakeven Effective Labour Rates

Service Department Expenses $130,764Fixed Expense Allocation 20% 47,708Total Fixed Expenses 178,172Less Gross Other (33,648)Total Costs to be Recovered 144,524

Total Costs to be Recovered $144,524Hours available 3,352

= Costs to be recovered per hour $ 43.12+ Prime Labour Cost $ 18.70Breakeven Effective Labour Rate $ 61.82

Service Department


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Compare breakeven effective labour rates and effectivelabour rates achieved

Effective Breakeven Profit Publish

CustomerInternalWarrantyPre-delivery

90.8581.0649.8560.38

61.8261.8261.8261.82

29.0319.24

(11.97)(1.44)

81657865

Service Department


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Breakeven Sales

Recovery Rate(slightly different to effective labour rate –based on hours available)

Total Labour Sales $

Hours Available

Example: $247,392 / 3,352 = $73.80

Compare with Labour Rate to BreakevenMeasures the minimum average sales per hour to be charged per hour available, that is recover all labour sales

Service Department


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Breakeven Sales

Breakeven Effective Labour Rate

Example: $61.82 (as previously calculated)

Rates

Recovery RateLabour Rate to BreakevenProfit / (Loss)

$73.80$61.82$11.98

Service Department


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Advisor Productivity: RO per Advisor per Day

Determines the number of Customers an Advisor deals with per day.

Total Customer RO per Day

Number of Advisors

Benchmark: 10–12 ROs per Advisor per Day

= RO per Advisor per Day

Service Department


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Parts and Service Absorption

Absorption is the ratio that measures:

1. Whether a dealership is front end or back end focused.

2. Amount if back end GP coverage of dealership fixed expenses.

3. Recovery of expenses to open the doors daily.

Calculation: Parts & Service GP

Fixed Dealership Expenses

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Included in Fixed Dealership Expenses

1. All department – direct/semi fixed expenses

2. Indirect or fixed expenses

3. Rental and building expenses or rent factor

4. Other indirect expenses

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Excludes front-end (new, used and F&I) expenses, including:

• Salesperson’s salary

• Commissions

• Delivery expenses

• Floor plan expenses

• Variable advertising

Absorption calculation varies by franchise.

Floor plans & Advertising is sometimes included in semi-fixed expenses.

Service Department


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Parts and Service Absorption

Ratio benchmark

• Inclusive of floor plan and advertising 50-60%

• Excludes floor plan and advertising 65-80%

• Current Benchmark including floor plan 57.5%

Service Department


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Accountant’s Toolkit

• Technician Performance

• Workshop Statistics

• Technician Sales and Gross

• Average Prime Cost of Labour

• Effective Labour Rate

• Breakeven Sales & Breakeven effective Labour Rate

• Workshop Capacity

• Advisor Productivity

• Absorption