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Adopted Stock

Adopted Stock

Fully Paid New Vehicle Stock

Benchmark: 0

Description:

Most new vehicle stock is supplied to a dealer from a franchise manufacturer on a consignment basis. This means that when new vehicles are delivered, the dealer usually pays the interest charges or stocking charges as they are more commonly known.

Example:

After an defined period (typically 120 days) the new vehicles have to be adopted by the dealer, or in other words, the dealer must pay for the vehicles in full.

Discussion:

Before reaching the point of adoption, when a dealer sells a vehicle, the consignment agreement stipulates that the vehicle must be paid for at the point of registration. Therefore new vehicle stock is paid in full in one of two scenarios.

1) When the vehicles are registered
2) When they reach the end of their consignment period

When vehicles reach the end of their consignment period they become Adopted Stock. The worst scenario that can happen is to be adopting vehicles because it absorbs huge amounts of money, which in turn prevents activity in other areas of your business.

Related Terminology:

Annualised Sales

Annualised Sales

Projected Annual Sales Volume

Guideline: Own Policy

Description:

This is a theoretical figure that provides you with the Sales volume that you will achieve at the end of the financial year, if nothing changed. That means that you will have to maintain your sales performance, thus meaning that environmental factors will not change dramatically, supply rate stays the same, etc.

Example:

The formula uses the year-to-date sales volume figure, multiply it by twelve (months in a year) and divide it by the number of months which the year-to-date figure represents.

Let's say your financial year runs from January, it is now May, and you want to determine the annualised sales volume figure.

You sold the following number of Units in each month:

January = 46

February = 51

March = 57

April = 63

May = 49

Year-to-Date = 266

Multiply by 12 = 3192

Divide by the number of months which the year-to-date figure represents

It is Divide by 5 = 638.4 this year

Discussion:

This number is often used in many KPI calculations. It represents merely a projection of your annual sales based on your current performance, in the current trading conditions.

Related Terminology:

Annualised Sales per Salesperson


Other Income

Other Income

Income From Miscellaneous Items

Guideline: Dealer Specific

Description:

This KPI identifies the profit or loss that you have generated from items that are not listed separately on your financial reports.

Typically, this could be Warranty Sales, Tax Disc refunds or 3rd party accessories such as Scotchguard etc.

The total of this revenue is put into a single accounting line shown as Other or Miscellaneous.

Discussion:

Be careful with this one. It is a statistic that requires your investigation because it can often be used as a dumping ground for all sorts of profits or costs that have not been properly identified.

Unless you know exactly what is contained here, you could be charged for something without your knowlegde or consent.

Related Terminology:

Target Related Bonus

Target Related Bonus

Bonuses Received for Target Achievement

Guideline: Franchise Specific

Description:

If your dealership is part of a franchise dealer network, then it is usual business practise for that franchise to set vehicle sales targets. When you achieve these targets, the franschise manufacturer pays a bonus.

The amount of bonus paid by each manufacturer varies considerably, but the thing that you should keep in mind is this. When do you show this bonus payment within your reports?

Some dealers show the bonus in the period within which it has been earned and other dealers show this bonus when they actually receive payment, the difference could be two months apart.

Example:

Discussion:

The variance across this method of accounting causes a sizable distortion in profitability. Some franchise manufacturers are now informing their dealers to enter bonus payments at a specific time so that these distortions are eradicated and composite reports are more meaningful.

When comparing your profitability with another dealer, it is always worth establishing how and when this element of bonus is allocated.

Related Terminology:

Used Vehicle Stock Ageing

Used Vehicle Stock Ageing

Stock Age Profile of Units in Stock

Guideline: Own Policy

Description:

This information is really four Key Performance Indicators all rolled in to one. They assess your total units in stock and separate them into age categories expressed as a percentage.

Example:

A) Units between 01-30 Days = 36 - 60%
B)
Units between 31-60 Days = 15 - 25%
C) Units between 61-90 Days = 6 - 10%
D) Units over 90 Days = 3 - 5%
E) Total Units in Stock = 60 - 100%

Discussion:

This example shows that 5% of the units that are in stock are over 90 days old. What it does not tell you is how much older than 90 days they are.

Related Terminology:

See also % Value of Stock Over 90 Days.


Used Vehicle Stock Value

Used Vehicle Stock Value

Value of Used Vehicle Stock at Stand In Value

Guideline: See Stock Turn, Used Vehicles

Description:

This statistic simply provides you with the value of your used vehicle stock at any one moment in time.

The figure is usually taken directly from your Balance Sheet from which your used vehicle stock can be found within the section labelled Current Assets.

The used vehicle stock value takes into account all stock write down that has taken place within the current year and it is this figure that is used for the calculation of KPI's such as used vehicle Stock Turn.

Example:

Discussion:

It is important to note that this figure is reported as a monetary value and reflects the stand in value as opposed to the retail selling price or the original purchase price.

The information that you really want to know here is how much stock should you be holding at any one moment in time? The answer to this question lies in the KPI used vehicle Stock Turn.

Related Terminology:

Used Vehicle Write Down

Used Vehicle Write Down

Depreciation of Used Vehicle Stock

Guideline: Vehicle Specific

Description:

If there is one thing that is certain about used vehicles, it is that their value changes on a monthly basis and unfortunately for us, it's usually in a downward direction.

The top performing Sales Managers within our industry re-evaluate their used vehicle stock every month, and where depreciation has taken hold, the effects are shown within Used Vehicle Write Down.

The value of Used Vehicle Write Down represents the amount of depreciation that has been suffered. Typically, this value can be found within the Semi-Fixed Expenses of your management accounts.

The value of Used Vehicle Write Down is usually deducted from the stand in value of the used vehicles that have depreciated so that the screen price can be reduced.

Example:

A) Current Used Stock Value = R324,500
B) Revaluation of used stock = R320,700
C) Used Vehicle Write Down = R3,800 (A - B)

Discussion:

This process serves to maintain a competitive pricing strategy for used vehicles within your marketplace without the loss of Gross Profit.

It provides you with the true trading status of your business as opposed to hiding behind lower margins.

Related Terminology:

Hours Attended (Service Department)

Hours Attended (Service Department)

Total Number of Productive Hours Available

Guideline: See Hours Bought

Description:

This term represents the total number of hours that the Technicians are available to work, or in other words, the total number of hours that the Technicians are clocked-in at the dealership.

The number of Hours Attended is the statistic that is used in the calculation of Utilisation and Overall Efficiency.

It is important to note that this does not give you the total number of Hours Worked; it provides you with the total number of hours that are available to work.

As well as collating the total number of Hours Attended, it is also recommended that you calculate the hours attended for each individual Technician so that their individual Utilisation can be ascertained.

Example:

Discussion:

Factors that will influence the number of Hours Attended is time spent on training courses, time off on holiday, and sickness.

Related Terminology:

(Also see Hours Bought)


Hours Bought (Service Department)

Hours Bought (Service Department)

Total Number of Hours Paid to Technicians

Guideline: See Hours Attended

Description:

This term represents the total number of hours that you pay your Technicians, or in other words it represents the total Technicians salary for the specified period.

It includes time spent at the dealership, time spent on training courses, sickness and holiday pay.

For statistical purposes, and the calculation of key performance indicators, Hours Bought is never considered in any equation. For the most part, it is usually seen in business plans and annual budgets so that an accurate forecast of cost can be attained.

For instance, there are fifty-two weeks in the year of which four weeks could be allocated to holiday, two weeks allocated to training, and one week could be allocated for sickness.

Example:

A) Training = 80 hours (2 weeks)
B) Holiday = 160 hours (4 weeks)
C) Sickness = 40 hours (1 week)
D) Attended Hours = 1800 (45 weeks)
E) Total Hours Bought = 2080 (52 weeks)

Discussion:

Simply by multiplying the hourly rate that you pay to your Technicians you are able to calculate a reasonably accurate forecast in each sector listed.

Related Terminology:

Hours Sold (Service Department)

Hours Sold (Service Department)

Total Number of Hours Invoiced

Guideline: See Labour Sales Mix

Description:

This figure represents the total number of hours that have been invoiced. Of course, the monetary value of this statistic is represented by the Labour Sales value.

It is more important to keep track of the number of Hours Sold than it is to keep track of their monetary value. This is because the monetary value of the Hours Sold can be influenced by your charge out rate and Recovery Rate and this does not therefore provide you with an accurate reflection of the direction of your business.

Example:

Discussion:

By far the easiest way to track the performance of the Hours Sold is to compile them into a simple graph on a weekly or monthly basis.

The graph will of course be more meaningful if you are able to segregate the hours sold between Retail, Internal and Warranty so that you can accurately plot the trend in each performance sector.

Related Terminology:

Lead Time (Service Department)

Lead Time (Service Department)

"I want my vehicle serviced, when can you fit it in?"

Benchmark: 3 days or less

Description:

The Lead Time is the length of time a customer must wait before their vehicle can be seen by your Service Department.

A short Lead Time of two to three days is usually expected and generally accepted by a customer unless they have a serious problem  that needs immediate attention.

A long Lead Time of seven to ten days is not generally understood or accepted by a customer and usually results in them taking their vehicles elsewhere.

If your Lead Time is seven days or more on a consistent basis, then you should certainly examine your Utilisation, and you may consider taking on an additional technician if you have the facilities available.

If your Lead Time is nonexistent on a continual basis, then your Aftersales marketing campaigns may need an extra boost to gain additional work.

Example:

Discussion:

Factors that affect the lenght of Lead Time are Utilisation, cutomer retention, and Aftersales marketing. The lenght of Lead Time that your dealership has is really a reflection of the work that is available to you and your ability to cope with its demand.

Related Terminology:

Policy Costs (Service Department)

Policy Costs (Service Department)

"Certainly, we'll rectify that as a gesture of goodwill."

Guideline: Own Policy

Description:

This term refers to those costs that must be borne by the Service Department that cannot be reclaimed or charged on to warranty or any other Department.

Example:

Let's say that three days ago you fitted a new exhaust system for  one of your customers, and now they are back in front of you with a problem. They are saying that the exhaust system is rattling and of course they are not happy.

Naturally, you cannot expect the customer to pay any more money, as they have only just paid you to have the exhaust system fitted. Therefore you agree to rectify the problem for the customer, and the question is who pays the bill?

Discussion:

Since this job is the direct responsibility of the Service Department, it cannot be charged onto warranty or any other department and therefore the hours spent on the rectification is accounted for within Policy Costs in your management accounts.

Related Terminology:

This term is also known as Policy adjustments, Goodwill Policy Grants or Rectification.


Rectification (Service Department)

Rectification (Service Department)

"Certainly, we'll rectify that as a gesture of goodwill."

Guideline: Own Policy

Description:

This term refers to those costs that must be borne by the Service Department that cannot be reclaimed or charged on to warranty or any other Department.

Example:

Let's say that three days ago you fitted a new exhaust system for one of your customers, and now they are back in front of you with a problem. They are saying that the exhaust system is rattling and of course they are not happy.

Naturally, you cannot expect the customer to pay any more money, as they have only just paid you to have the exhaust system fitted. Therefore you agree to rectify the problem for the customer, and the question is who pays the bill?

Discussion:

Since this job is the direct responsibility of the Service Department, it cannot be charged onto warranty or any other department and therefore the hours spent putting the right accounted for within Rectification in your management accounts.

Related Terminology:

This term is also known as Policy Adjustments or Goodwill.


Annualised Parts Sales

Annualised Parts Sales

Projected Annual Sales Volume

Guideline: Own Policy

Description:

In order to calculate many Key Performance Indicators, your Parts sales Volume may need to be annualised. This is simply a projection of your annual sales based on your current sales performance.

Example:

The formula is the year-to-date sales volume figure, multiplied by 12 then divided by the current month number. For example, if your current reporting period is January to April year-to-date, then the sales figure is multiplied by 12 (12 months in 1 year) and then divided by 4 (April is the 4th month in your reporting period).

A) January Sales = R40,652
B) February Sales = R85,112
C) March Sales = R60,238
D) April Sales = R45,894
E) Sales to date = R231,896
F) Multiply by 12 = R2,782,752
G) Divide by current month = 4 (April)
H) Annualised Sales = R695,688

Discussion:

This is a theoretical figure that provides you with the Sales value that you will achieve at the end of the year if your sales performance where to be maintained at the current rate.

Related Terminology:

Obsolete Stock

Obsolete Stock

Benchmark: < 1% of Stock Value

Description:

Wouldn't it be a wonderful world if you were able to sell every single part that you purchased? The truth of the matter is that you are unable to achieve this utopia in the real world and therefore you have to make decisions about how long you keep hold of stock before you admit to yourself that it's just not going to sell.

Just think for a moment about the food that you buy. Accompanying the price of the produce there is usualluy a date that tells you when the food must be sold or it will be removed from the shelf and thrown away. This date is commonly known as the "Sell by date".

Example:

Although the parts that are occupying your shelves right now do not have a "sell by date" printed on them, you already know that there is a limited amount of time for them to sell because new vehicles are being launched and demand for older parts diminishes. Once this time has expired, those old parts are said to be past their sell by date, or in other words, they become obsolete stock.

Discussion:

There are no hard and fast rules for placing sell by dates on your parts stock, but the general rule seems to be around 2 years. After this amount of time, most parts have benefited from Stock Adjustments and are usually written off and thrown in the bin to make way for some fresh stock that will sell so that the profits can be recovered.

Related Terminology:

Parts Sales

Parts Sales

Invoice Value of Parts Sold

Guideline: See Parts Sales per Parc Unit

Description:

This is simply the invoice value of the parts sold. Generally, management accounts separate the different streams of income so that you can see the growth in all areas of the department.

Typically, these different categories are Retail sales, Trade sales with sales to the Service Department and Bodyshop being split between Retail, Internal and Warranty.

Many financial reports show the plit of these different streams of income in the from of a simple pie chart (See Parts Sales Mix)

Example:

Discussion:

In order to calculate many Key Performance Indicators, Parts Sales may need to be annualised (See Annualised Parts Sales). This is simply a projection of your annual sales based on your current performance.

Related Terminology:

Parts Stock Value

Parts Stock Value

Value of Parts Stock at Purchase Price

Guideline: See True Parts Stock Turn

Description:

This statistic simply provides you with the value of your Parts Stock at any one moment in time.

This figure is usually taken directly from your Balance Sheet from which your Parts Stock can be found within the section labelled Current assets.

The Parts Stock Value takes into account all Obsolete Stock and any parts stock write-down that has taken place within the current year and it is this figure that is used for the calculation of KPI's such as Parts Stock Turn.

It is important to note that this figure is reported as a monetary value and reflects the parts purchases price as opposed to the retail selling price.

Example:

Discussion:

The information that you really want to know here is how much stock should you be holding at any one mo0ment in time? The answer to this question lies in the KPI True Parts Stock Turn.

Related Terminology:

Rebates and Bonuses

Rebates and Bonuses

Guideline: Franchise Specific

Description:

Rebates and Bonuses are two different ways for a franchise manufacturer to reward a dealer for good performance.

Rebates.

These are forms of discount that are claimed back when you hit an agreed purchase target on a specific product line or product group.

Example:

You could have a target to purchase 100 widgets at R10 each with a Rebate of R2. When you hit that target you will be able to claim the agreed Rebate of R2 on all 100 widgets that you have purchased resulting in a Rebate of R200 (qoo widgets with a R2 Rebate on each). Rebates are usually retrospective upon target attainment.

Bonuses.

These are bonus payments in the true sense of the word. Your franchise manufacturer usually provides you with an annual parts purchase target, which is broken down into quarterly segments. When you reach these targets the franschise manufacturers pays you a bonus for hitting this target.

Discussion:

What you need to know is this: When does the value of the Rebates and Bonus payment appear within your reports? Do they appear when you hit the target, or do they appear when you receive the payment?

This makes a considerable difference to the interpretation of your departmental profitability when you are comparing your results with everyone else.

Related Terminology:

Stock Adjustments

Stock Adjustments

Guideline: Own policy

Description:

If there is ne thing in the Motor Industry that is an absolute certainty, it is that your stock suffers the effects of depreciation on a continuous basis.

When you buy parts and sell them within a short period of time, this is when your business makes the most profit.

Obviously, the longer the parts sit in the shelf, the more depreciation, they attract and the chances of selling them become fewer. If they sit there for too long, they fall into the category called Obsolete Stock.

Generally speaking, the Parts Stock holding is reviewed on an annual basis and the parts that have been in stock for some time will have a portion of their cost written off to reduce their price.

This financial write off is deducted from the profits of the Parts department and is shown within the management accounts as an expense called Stock Adjustments.

Example:

Discussion:

aaaSome businesses choose to conduct Stock Adjustments on a monthly basis, some quarterly and some annually.

There are no strict guidelines for this practise, but the more frequently you conduct the exercise, the more your attention will be focussed upon the disposal of slow moving items and of course the trend of True Parts Stock Turn.

Related Terminology:


Hours Attended (Bodyshop)

Hours Attended (Bodyshop)

Total Number of Productive Hours Available

Guideline: See Hours Bought

Description:

This term represents the total number of hours that the Productive staff are available to work, or in other words, the total number of hours that the Productives are clocked-in at the dealership.

The number of Hours Attended is the statistic that is used in the calculation of Utilisation and Overall Efficiency.

It is important to note that this does not give you the total number of Hours Worked; it provides you with the total number of hours that are available to work.

As well as collating the total number of Hours Attended, it is also recommended that you calculate the hours attended for each individual Productive so that their own individual Utilisation can be ascertained.

Example:

Discussion:

Factors that will influence the number of Hours Attended is time spent on training courses, time off on holiday, and sickness.

Related Terminology:

(Also see Hours Bought)



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