If your dealership has been firing on all cylinders and the bottom line is healthy, it’s only natural to think about expansion. Yet, knowing when to grow can be challenging, especially in uncertain economic times.
SCORE, which the U.S. Small Business Administration partially funds, recently highlighted several big-picture indicators that a company is ready to expand. These signals include:
- No shortage of customers: Staff members spend more time servicing new and existing clients than marketing.
- Complacency: Becoming too comfortable with existing operations means a business will eventually become stagnant. Innovation keeps a company moving forward.
- Solid financials: A large amount of cash and strong cash flow are essential tools for expansion.
- Loss of focus: A new endeavor pushes a business to reassess its efforts and concentrate on the future.
Growth from the dealer’s view
Let’s look at this from a dealer’s perspective. If you can check these boxes, your dealership is ready for the next step.
- Profitability: Expansion is a pipe dream without solid financial performance. Dealerships seeking to expand need three to five years of consistent year-over-year growth, robust cash flow, and other strong indicators.
- A capable team: If your business runs like a well-oiled machine thanks to a competent and professional team, looking for new opportunities makes sense. This contrasts with an operation that might suffer because of one individual’s stubbornness or absence.
- Marketplace understanding: Dealerships don’t operate in a vacuum. So, knowing what the competition is doing is essential before setting any expansion plans into concrete. Any assumptions should be backed-up with definitive research and marketplace intelligence.
- Sufficient financial resources: Whether growth is financed by cash in the bank or outside funds, future objectives require ample capitalization. In other words, no money, no mission.
Identifying growth strategies
Dealership expansion can take many forms, with some efforts more visible than others.
Acquisition: Larger dealers acquiring individual stores or entire dealer groups is nothing new these days. And forecasts call for this activity to increase even more in 2023. While not the cheapest way to grow, buying out another dealer puts expansion plans on steroids.
Expansion: Expansion comes in all shapes and sizes (and budgets). These efforts can include adding an additional franchise or increasing the number of service bays. Of course, expansion doesn’t always involve physical changes to facilities. Growth can come from hiring more staff, such as extending service department hours. Some dealers are getting creative by adding newer collectible cars to their inventory.
Vertical integration: Bringing outside services and functions in-house can make sense, particularly if you grumble each month about writing a check to an independent supplier like a body shop or tire company.
Additional Services: A low-threshold approach to growth can include adding or enhancing services, such as different F&I offerings or creating a richer digital shopping platform for customers. Undoubtedly, most dealership executives can rattle off a list of services ripe for improvement.
Moving forward with growth strategies
Transforming ideas into actionable plans requires skillful execution and an updated business plan. It restates the obvious, but this road map should reflect the following:
Market research: Confirming what your customers want and need before making the plunge can avoid headaches and aggravation later.
Staffing: Depending on the plans, you’ll need to incorporate hiring into the effort. Or, at a minimum, assess how the proposed endeavor might impact current employees.
Marketing: Adding to your dealership’s capabilities won’t do much good if no one knows. Any growth strategies should include a promotional aspect, even if all you’re doing is telling staff about the changes.
Technology: Modern dealership operations aren’t possible without technology. So, recognizing this requirement from the outset is wise. Not only will you need to get a handle on what technology might be involved, but you’ll want to investigate leading-edge systems (to avoid or delay obsolescence).
