Motor Retail Terminology and Concepts

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V.O.R % (Version 1)

Purchases on V.O.R. ÷ All Parts Purchases (x100)

Benchmark: < 30% of Total Purchases

Description:

V.O.R. is an abbreviation for Vehicle Off Road. V.O.R. sales occur when a vehicle is being repaired in the workshop and the parts that are required to repair it are not currently held within your Parts Stock.

In this instance, the required parts are ordered from your franchise manufacturer on an emergency basis and the parts are usually delivered the next day.

This KPI measures the percentage of your parts purchases that have been ordered on an emergency basis.

Example:

A) Purchases on V.O.R = R17,977
B) Total parts purchases = R79,894
C) V.O.R. % = 22.5% (A ÷ B X 100)

Discussion:

In most cases, parts that are ordered on V.O.R carry a financial penalty, which reduces your Average Buying Margin. Therefore it is in your interest to maintain harmony and balance between your True Stock Turn and V.O.R%

The suggested Benchmark for version 1 of this KPI is higher than that of version 2 because it is assessing monetary values, which can fluctuate depending upon the price of the items ordered on a V.O.R. basis.

Related Terminology:

Also see Average Bought Cost

V.O.R % (Version 2)

Line Items on V.O.R. ÷ Total Line Items (x100)

Benchmark: < 25% of Total Orders

Description:

The meaning of this KPI is exactly the same as version 1, except that it measures the number of line items ordered on a V.O.R. basis as opposed to their monetary values.

These two methods of measuring V.O.R % are very different to each other and it is obviously critical that you know which of these versions your departmental reports are showing you.

Neither one of these methods of measuring the V.O.R % is any better than the other and neither one of them is right or wrong; it is really a matter of what you want to measure.

Both indicators are influenced by the frequency of the parts stock order that is provided by your franchise manufacturer.

Example:

A) Line Items Ordered on V.O.R. = 546
B) Total Line Items Ordered = 2601
C) V.O.R. % = 21% (A ÷ B X 100)

Discussion:

The suggested benchmark for keeping V.O.R% less than 25% is applicable to weekly stock orders. If your stock orders are more frequent, then your V.O.R% should be considerably lower.

Related Terminology:

V.O.R. Penalty

Actual Buying Price X Optimum Terms

Guideline: Franchise Specific

Description:

This Key performance Indicator establishes the value of penalty that has been incurred by purchasing parts on a V.O.R basis.

In the example below, the Actual Buying Price represents the total price that you have paid for the parts that you have purchased.

The Optimum Terms Cost is the figure that you would have paid for these parts if you had ordered them all on a stock order basis.

The difference between these two values represents the additional money that you have paid to obtain these parts on the V.O.R ordering system.

The value of this penalty is dependent upon your Parts Sales, V.O.R % and of course the frequency of your parts deliveries.

Example:

A) Actual Buying Price = R532,423
B) Optimum Terms Cost = R520,069
C) V.O.R Penalty = R12,354 (A - B)

Discussion:

Measuring the value of the V.O.R Penalty can be misleading when comparing your information with other businesses so to level out the playing field in this area refer to the V.O.R. Penalty %.

Related Terminology:

V.O.R. Penalty %

V.O.R Penalty ÷ Parts List Price

Guideline: Franchise Specific

Description:

This Key Performance Indicator is most effective for measuring the trend of your V.O.R Penalty, especially when comparing your results with other dealers.

In this example, Purchases at List Price represents the total price that you would receive if you were to sell all the parts at their full retail sales value.

Although you will not receive the full list price due to the discount that you give on some parts sales, it is the best yardstick to use as a comparison because different dealers give different levels of discount. If you used your parts sales turnover for this equation, the different levels of discount would produce a sizeable distortion.

Example:

A) V.O.R. Penalty* = R12,254
B) Purchases at List Price = R734,743
C) V.O.R. Penalty % = 1.68% (A ÷ B)

*Please see V.O.R Penalty on the previous page to gain a full understanding of this equation.

Discussion:

Your franchise manufacturer usually provides your Parts Department with these statistics on a monthly basis.

Related Terminology:

Also see Average Bought Cost

Variable Expenses (Bodyshop)

Variable Expenses ÷ Departmental Turnover (x100)

Guideline: Own Policy

Description:

Variable Expenses are those expenses that are directly linked to the volume of business that you conduct. A good example here is consumables. If you do not sell any hours then consumables will be zero, as soon as you begin to sell hours then consumables build accordingly.

Typically, Variable Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Example:

A) Variable Expenses = R18,570
B) Total Turnover = R371,388
C) Variable Expense % = 5% (A ÷ B X 100)

Discussion:

The term "Variable" does not mean that an expense varies by value, nor does it mean that it may change in some way. It simply means that this type of expense grows with the level of business that you conduct.

In order to gain full control over your Departmental Expenses you really need to understand the difference between Variable and Semi-fixed Expenses and have them properly separated on your financial reports.

Related Terminology:

Variable Expenses (Sales Department)

Variable Expenses ÷ Departmental Turnover (x100)

Guideline: Own Policy

Description:

Variable Expenses are those expenses that are directly linked to the volume of business that you conduct. A good example here is Sales Commission. If you do not sell any vehicles then commission will be zero. When a Salesperson sells a vehicle, only then does the Sales Commission become payable.

Typically, Variable Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Example:

A) Variable Expenses = R133,778
B) Total Turnover = R7,432,165
C) Variable Expense % = 1.8% (A ÷ B X 100)

Discussion:

Related Terminology:

Variable Expenses (Service Department)

Variable Expenses ÷ Total Turnover (x100)

Guideline: Own Policy

Description:

Typically, Variable Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Example:

A) Variable Expenses = R18,570
B) Total Turnover = R371,388
C) Variable Expense % = 5% (A ÷ B x 100)

Discussion:

Related Terminology:

Vehicle Debtor Days

Vehicle Debtors ÷ Vehicle Sales Daily Turnover

Benchmark: < 14 Days

Description:

The Vehicle Debtor Days informs you of the average number of days that your customers take to pay you for their vehicles. Typically, this usually applies to Fleet Sales.

Example:

A) Vehicle Debtors = R21,400
B) Vehicle Sales Daily Turnover* = R3,891
C) Vehicle Debtors Days =Â 5.5 days (A ÷ B)

Note:
In order to calculate the Vehicle Sales Daily Turnover, you will need to take the total value of the vehicles sold on credit for one month and divide that figure by the number of days in that month to arrive at a daily sales turnover.

A) Vehicles Sold On Credit = R120,624
B) Days in Current Month = 31
C) Vehicle Sales Daily Turnover = R3,891 (A ÷ B)

Discussion:

Credit terms around the country with fleet companies vary considerably. In any event, you should ensure that you recover your money in the fastest time possible to reduce any risk and to minimise the investment.

Related Terminology:

Vehicle Parc (Bodyshop)

Description:

Your franchise manufacturers provides you with all the vehicles registered within your dealership's area of responsibility over a given period of time; this represents your vehicle parc. These vehicles could be registered by your dealership or by another dealership that is selling vehicles into your area. In many cases the time period for measuring vehicle parc spans 10 years, although this varies from manufacturer to manufacturer.

Example:

Vehicles registered in current year = 958
Vehicles registered in Year 2 = 821
Vehicles registered in Year 3 = 767
Vehicles registered in Year 4 = 789
Vehicles registered in Year 5 = 745
Vehicles registered in Year 6 = 827
Vehicles registered in Year 7 = 754
Vehicles registered in Year 8 = 706
Vehicles registered in Year 9 = 635
Vehicles registered in Year 10 = 582
Total 10-year vehicle parc = 7,584

Discussion:

In the years that follow, the current vehicle registrations are added and year 10 of the calculation is replaced with the year 9 statistics and so on, therefore providing a revised ten-year vehicle parc.