How to Hold on to Front-End Gross and Improve the Overall Health of your Dealership – Brian Benstock, Paragon Honda

Front-End Gross

Dealers across the country have felt the pressure to hold on to front-end gross as margin compression continues to be a persistent issue. Here to tell us how you can increase profits and improve the overall health of your dealership is Brian Benstock, partner GM, and VP at Paragon Honda. Today, Jim and Brian also discuss operating successfully within the digital environment, as well as hiring and motivating talented staff.

Front-End Gross


Jim Fitzpatrick: you know him, you love him. Brian welcome to CBT.

Brian Benstock: Jim great to be here. Thank you for having me on.

Jim Fitzpatrick: So number one question as we go into 2019 that we’re getting asked here at CBT from our subscribers is who can you have on in a high volume situation that can help us figure out how to make money on the front end on this digital environment. On the new cars that we sell. I figured I’m turning to Brian Benstock cause not only you making money but you’ve got volume. And those two things often don’t go hand in hand.

So I wanna start our conversation today by asking you that question. In your opinion, what are the keys to holding front end gross profit today?

Brian Benstock: Well, I think the key to holding front end gross profit is not to rely only on front end gross profit. When I go to the bank with a deposit slip the teller doesn’t ask me is that front end, back end or is that service and parts? They’re just gonna take the deposit.

So I think when we take a holistic approach or a holistic look at the transaction I think that’s where the profitability and the profit opportunity exist.

This whole notion that you can’t make money digitally. It’s kind of interesting. I think we’ve heard of a company called Apple and they do a pretty good job making money online selling their products. Again, maybe some people are gonna say, well our products are different. How so? How so? Amazon seems to do doing a decent job making money online.

So what are the lessons that we can learn from those retailers? One, transparency is key. You have to be transparent with your pricing online.

Two, I already asked this. A number of years ago when you looked for real estate you would put an ad in the classified section of the newspaper and this is of course been taken over by digital ads. And in fact, today, if I’m looking at an apartment in Manhattan I can get the per square foot price sold for every single apartment in that building. Depending on the floor. I can get an exact price and there’s 100 percent transparency now with that.

Has that lowered the value of real estate one iota? The answer is no. More information to bring more people into the market place. Now I’m not suggesting you take [inaudible 00:02:54]. I’m suggesting that we take reasonable market-based price margins in order to sell more than our fair share of cars.

Jim Fitzpatrick: Yeah it really is very difficult for dealers nowadays. To your point I think this is where you’re going with this too is that you’ve gotta look for other areas in the transaction. Because it’s one of those things that we can rack our brains trying to figure out how to increase the front end gross profit of the deal when in reality the sale itself, no pun intended, really becomes the vehicle to allow you to make more gross in other areas of that sale, right?

Brian Benstock: So let’s take a look at that. Again, I think it comes to understanding your business better than maybe somebody else does. Let’s look at a transaction, we’ll call it a vehicle exchange transaction. I think we’re pretty good at that. What’s the value of a vehicle change? Meaning a customer whose car … driving your product now that you trade in to buy a new car. We put a dollar amount on that. That dollar amount was about $7,000 dollars. It’s not $7,000 on the new car. It’s not $7,000 on the used car. And it’s not $7,000 dollars on the repair but that total transaction averages about $7,000 in the dealership.

So if you have a transaction that brings $7,000 worth of gross profit, or six or five. Whatever the numbers are in your store, to the dealership. Then the only question we should have is how many. If we have a way of generating that kind of gross on a transaction and we take enough of those transactions and those deals, then we can also take these other deals at a smaller margin, given it the ability to be unstoppable in a particular market.

Jim Fitzpatrick: Then of course behind every successful showroom is a service department that we really need to focus I think more on than we have been in the past. Although dealers have come a long way in this area, I think as we moved in 2019 and beyond service is gonna become even more of a focal point for profitability in a dealership. Who wouldn’t like 110, 120 percent absorption rate in their store so that they can weather some of the front end gross profit compression that we see in the industry, right?

Brian Benstock: Oh yeah. I think service is absolutely the key. That’s certainly an area that Paragon’s been focusing on in our stores the past two years. In fact, the growth that we’ve had in service is nothing short of phenomenal.

If you look at our service numbers you’ll see that we’re just under hitting that target of doubling our service business in less than 24 months and the really great part about that is we haven’t added a single lift. Not in the Acura store, not in the Honda store.

Jim Fitzpatrick: Wow. And how do you do that by opening 24 hours a day and running a couple of shifts?

Brian Benstock: Well that’s certainly a great way to increase your capacity. I learned a long time ago you pay rent 24 hours a day. Might as well generate income 24 hours a day.

The other really great secret sauce or turn on learning that we got from spending some time with the folks at Amazon and Google was that we thought by bringing the service to the customer that we would be able to increase our business instead of requiring them to come to the dealership. What if we reached out to the customer, picked up their car, serviced it and gave it back to them? What if we made better use of the 94 percent of the time that the customer’s not using his or her car? Wouldn’t that be a great service to the customer? Wouldn’t that enable us to grab a larger share of the market?

I’m not taking any market share away from my competitive Honda dealers. No, no no. The 80 percent of the business that we’re losing to independents is up for grabs. So if you wanna make more money let’s go after that. I don’t wanna steal a deal from my local Honda dealer. I have no interest in that. They do a good job. Let them do their good job. But there’s 80 percent of a 500 billion industry that’s being taken by the independent shops. And it’s not because they charge less. It’s because they’re more convenient to the customer. The probably closer to their home. Their hours are probably a little better. They may advertise a slightly lower price. The dealers … we’re sort of, we constrain ourselves. We don’t have to be constrained.

By picking up the customers car, servicing it and bringing it back to them we take away the advantage that the independent has which is proximity.

Jim Fitzpatrick: Yeah. For sure. That’s thinking outside the box and certainly sounds like its paid off for you. I’m gonna jump around here and switch gears a little bit.

One of the complaints that we continue to hear in the industry is that when somebody works for an independent dealer, not one of the public’s per se but maybe one of the conglomerates that’s got 30, 40, 50 dealerships in their group. But the stores that have one dealer or three or four or what have you. Family run organizations. There’s not a clear concise career path for the individuals that come into the industry and there’s a concern about that.

So I guess showing these individuals that when they come into your organization if they do well and live by those different rules that there is a path to go forward in their career. Right?

Brian Benstock: Isn’t it great to have a receptionist that’s over a long period of time? That does the job incredibly well and maxes out … there’s a particular person that I’m thinking of that she asked me for a raise and I said you are at the max that I’ll ever pay a receptionist. In fact, you’re over index. It’s time for you to move to something else. I put her in a position where she was an assistant to the finance team. Happy to say that she became a finance manager earning several hundred thousand dollars a year. From one started out as an 11 dollar an hour job.

I’ve got dozens of stories like that. Of people that we’ve taken from zero to 100 miles an hour. The one things that’s been consistent is the teachership. We’re here. If you do your part we’ll do our part. I have had success developing people within the dealership.

Jim Fitzpatrick: How do you continue to inspire and motivate your staff in sometimes troubled waters or troubled times? Or ups and downs? When we see pictures of your staff they are suited, they are booted. They all look like they got 1000 dollar suits on and 500 dollar ties. They’re ready for action. I’ve seen the ra-ra sessions that you guys have in sales meetings and the professionalism when I called the store. It’s just tops. What’s the key in your opinion to keeping the staff all going in the same direction and coming in every day to be pumped and motivated?

Brian Benstock: Well you know I think speed of the boss is the speed of the place. I think I’ve got a … I earned and I inherited a great work ethic from my partner, Paul Singer. It’s very difficult for them not to notice that I’m here six days a week or sometimes seven. I’m not here because I have to be. I love what we do. I’m still playing with this Rubics cube trying to figure everything out.

As far as motivation, motivation’s fleeting. It ignites something. I think there has to be a constant learning. I think people love growth. Growth is more important than money. If you grow somebody and you continually grow them they’ll stick around and I think we do an above average job with that.

I know that I don’t know it all. I think that’s a good learning for me that there are lots of other people that we can use to motivate our staff. Frankly once or twice a month I fly in somebody from out of town to have a host sales meeting. I’ve had Sedrick King. I’ve had Tim Grover. I’ve had Glen Lundy. I’ve had Lisa Coplan come into the dealership. They don’t charge us because I said I’ll do the same for you. Because I’m like old socks to most of the people here. You put me in a drawer and you don’t pay attention to me.

I think Pat Riley said it best. He was the coach of the Los Angeles Lakers. In between half time the Lakers were losing in a championship game and he went into the locker room and went [inaudible 00:10:49] and started screaming. He said you trained for this since the first time you ever touched a basketball. We’re here and you’re not executing. [inaudible 00:10:57]. From what I understand he smashed the chalkboard and my God the Lakers were shocked.

They ran out of the locker room after the half time and they went out and they won the game. Pat Riley was smart enough to know that same technique won’t work next year. You don’t get away with that next year. So you constantly have to reinvent yourself. Constantly have to be pushing and raising the level. Bigger fix for motivation.

Jim Fitzpatrick: That’s right. You’re encouraging your staff to read David Goggins new book, Can’t Hurt Me. Why are you hoping that they’ll get this book?

Brian Benstock: I love this book. It’s with me. This thing is so dog year. I’m encouraging them to read it. I’m encouraging them to listen to it. It’s all about the what if. It’s all about what if I was that man. What if I was that woman? Goggins story really touched me on a number of fronts because we wanted things in our life that could stop us. We’ve all had difficulties maybe with our families. And we’ve all had struggles. Maybe it’s weight or it’s physical or its’ something else. You can use it for an excuse to stop you or you can use it as a springboard to propel you.

So I thought his story was so compelling because each of our guys and gals out there has experienced whether it be racism, sexism, something is out there. I’m too tall, I’m too short. And he really breaks right through the clutter. I don’t get a dollar for posting his book. I think it’s good. I hope my competitors read the book and I hope they up their game. Cause if they up their game I’m gonna up my game.

But the real important thing is to get our team turned on to see the possibility. Because there are salesmen today, saleswomen today that think this is environment is difficult because they’ve never experienced difficult. You need to experience difficult to appreciate and exploit easier.

We were making some sales calls and I sat down with a salesperson and wanted to do it and we sort of filmed it. The first call we make is to the customer that’s $10,000 dollars upside down and I said, John how would you handle this call? He goes, I probably wouldn’t make the call. I said I love you. You’re honest. Let’s make the call. This is not an easy call. He made the call. I said here’s what we’re gonna do. There’s a car in the service department and you’re gonna checks the box.

Check number one, is this Jim Fitzpatrick? It is. Okay. Jim, do you have a car in for service today? You do. Is that car the 2019, 2018 [inaudible 00:13:23]? It is? Let me tell the reason for my call. My lord, he makes the call. The customer says sure I’ll come in. I’d love to do that. Even though $10,000 upside down. That night the customer rode out in a brand new Honda Pilot and the transaction profit was substantial.

I think we have an obligation to show people what’s possible.

Jim Fitzpatrick: That’s right. That’s exactly right. Brian Benstock. Now you guys know that are watching why this guy is one of the key thought leaders in our industry and one of the motivating factors I think out there and we can all learn something from him.

Brian, it’s guys like you in the industry that make CBT what it’s been over the last six years because you’re not afraid to share your successes, your challenges, how to overcome them. Some best practices. I commend you for that. I thank you for that very much because this has been some great insight that you’ve shared with our viewers. Again, thanks very much. I appreciate all the time you gave us today. This has been super.

Brian Benstock: Jim thanks for having me. Giving me an opportunity to share my thoughts with my team and other teams around the nation. We are one industry. It’s not a fragment. Or it shouldn’t be a fragmented industry. I think together some of us smaller dealers compete with the big consolidators. Just gotta put our heads together.

Jim Fitzpatrick: That’s exactly right. Again, thank you so much.

Brian Benstock: Thank you, Jim.

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