Policy Work. • Service Loaners ... maintenance service is an elusive goal for retail
automobile ... Jr., “Zero Defections: Quality Comes to. Services,” Harvard ...
DealerDetails
FIRST CLASS U.S. POSTAGE
PAID
Permit No. 54394 Braintree, MA
25 Braintree Hill Office Park Suite 102 Braintree, MA 02184
T h e N e w s l e t t e r f o r A u t o D e a l e r s b y O ’ C o n n o r & D r e w P. C .
April, 2010 — Volume 2
O’Connor & Drew, P.C. has been servicing the dealership industry
Depositing Participant’s Pension Contributions The Department of Labor (DOL) issued final regulations on the Definition of Plan Assets – Participant Contributions which establishes a safe harbor period for certain employers to deposit participant contributions on a “timely basis.” Under this final regulation, participant contributions to a pension or welfare benefit plan with fewer than 100 participants at the beginning of the plan year will be treated as having been made to the plan in accordance with the general rule (i.e., on the earliest date on which such contributions can reasonably be segregated from the employer’s general assets) when contributions are deposited with the plan no later than the 7th business day following the day on which such amount is received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or the 7th business day following the day on which such amount would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant’s wages).
Automotive Tax Compliance Purpose of Tax Compliance Check-up:
Assess the level of compliance within your dealership. Minimize exposure to large tax assessments. Provide processes to stay compliant Sales & Use Tax • Policy Work • Service Loaners • Expense Payables • Resale Certificates • Sublet Repairs • Demos & Co. Veh. Cash Reporting • Rules • Penalties • Proper Controls • Employee Training Demonstrator Use • Salespeople vs. non-salespeople • New Rules under Rev. Proc. 2001-56 • NADA survey revealed nearly 55% not in compliance
Safeguards Rule/Privacy Compliance • Requirements • Compliance • Penalties W-2 & 1099 Reporting • W-2 Reporting • 1099 Reporting • Backup Withholding Minimum Wage & Overtime • Record Keeping • Classification • Salespeople • Miscellaneous Rules
for over 50 years. Our passion for dealerships is the hallmark of our commitment to the industry. We have built our firm on the trust we have earned from dealerships of all sizes throughout the country.
In This Issue
Preventative maintenance now could save you a lot down the road!
Managing for Customer Loyalty Depositing Participant’s Pension Contributions Automotive Tax Compliance
Need help? Please call Lauren Carnes, CPA, MST at (617) 471-1120
25 Braintree Hill Office Park
•
Suite 102
•
Braintree, MA 02184
•
Tel. 617.471.1120
•
Fax 617.472.7560
•
www.ocd.com
DealerDetails
FIRST CLASS U.S. POSTAGE
PAID
Permit No. 54394 Braintree, MA
25 Braintree Hill Office Park Suite 102 Braintree, MA 02184
T h e N e w s l e t t e r f o r A u t o D e a l e r s b y O ’ C o n n o r & D r e w P. C .
April, 2010 — Volume 2
O’Connor & Drew, P.C. has been servicing the dealership industry
Depositing Participant’s Pension Contributions The Department of Labor (DOL) issued final regulations on the Definition of Plan Assets – Participant Contributions which establishes a safe harbor period for certain employers to deposit participant contributions on a “timely basis.” Under this final regulation, participant contributions to a pension or welfare benefit plan with fewer than 100 participants at the beginning of the plan year will be treated as having been made to the plan in accordance with the general rule (i.e., on the earliest date on which such contributions can reasonably be segregated from the employer’s general assets) when contributions are deposited with the plan no later than the 7th business day following the day on which such amount is received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or the 7th business day following the day on which such amount would otherwise have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant’s wages).
Automotive Tax Compliance Purpose of Tax Compliance Check-up:
Assess the level of compliance within your dealership. Minimize exposure to large tax assessments. Provide processes to stay compliant Sales & Use Tax • Policy Work • Service Loaners • Expense Payables • Resale Certificates • Sublet Repairs • Demos & Co. Veh. Cash Reporting • Rules • Penalties • Proper Controls • Employee Training Demonstrator Use • Salespeople vs. non-salespeople • New Rules under Rev. Proc. 2001-56 • NADA survey revealed nearly 55% not in compliance
Safeguards Rule/Privacy Compliance • Requirements • Compliance • Penalties W-2 & 1099 Reporting • W-2 Reporting • 1099 Reporting • Backup Withholding Minimum Wage & Overtime • Record Keeping • Classification • Salespeople • Miscellaneous Rules
for over 50 years. Our passion for dealerships is the hallmark of our commitment to the industry. We have built our firm on the trust we have earned from dealerships of all sizes throughout the country.
In This Issue
Preventative maintenance now could save you a lot down the road!
Managing for Customer Loyalty Depositing Participant’s Pension Contributions Automotive Tax Compliance
Need help? Please call Lauren Carnes, CPA, MST at (617) 471-1120
25 Braintree Hill Office Park
•
Suite 102
•
Braintree, MA 02184
•
Tel. 617.471.1120
•
Fax 617.472.7560
•
www.ocd.com
DealerDetails
DealerDetails
Managing for Customer Loyalty Michael McKean, MBA, AVA, CMAP President, OCD Consulting, LLC Satisfied customers will shop anywhere; loyal customers will only buy from you. It’s a cliché but it’s true. Evidently however, maintaining the loyalty of customers requiring repair and maintenance service is an elusive goal for retail automobile dealers. Consider the statement released by the Automotive Aftermarket Industry Association just shortly after the government’s Auto Task Force announced the impending closure of thousands of Chrysler and General Motors dealerships. How has it happened that twenty-thousand franchised automobile dealers have allowed a sufficient number of customer defections to support one hundred and thirty thousand independent shops? There are probably multiple answers but one may be the failure by dealers to recognize that managing for customer satisfaction is not the same as managing for customer loyalty.
Dealership Compensation Plans
Compensation remains the single most significant expense of an automobile dealership. The average dealership spends 40% of its total gross profit on compensation (not including owners). Add to that an additional 10% for payroll taxes and benefits and half the dealership’s gross profit has been absorbed by personnel expenses. Therefore, the performance of your employees is crucial to the profitability of the dealership. A well constructed performance-based pay plan should motivate the employees to perform at a high level, increasing the profitability of the dealership and in turn increasing their paychecks. “Everyone works his/her pay plan.”
Certainly, loyalty starts with satisfaction, but because of the competitive nature of the automobile business dealers need to earn very high satisfaction scores to retain their customers. A study published in the Harvard Business Review by Jones and Sasser reported that in order to retain seventy-five percent of its customers, dealers must have a satisfaction index of 4.8 out of five, versus much lower indexes for less competitive industries. So if it is more than just customer satisfaction what else encourages customers to be loyal? Actually, there are seven drivers of loyalty, all of which can be managed to reduce customer defections. These are employee loyalty, employee engagement, flawless execution, complete customer satisfaction, frequent and positive contact, fair pricing and value proposition, and a broad spectrum of products and services Is there money in managing for customer loyalty? A study completed by Frederich F. Reicheld and W. Earl Sasser, Jr., “Zero Defections: Quality Comes to Services,” Harvard Business Review, September-October 1990, indicated that just a five percent decrease in customer defections might result in a thirty percent increase in customer value. In the next article we will talk about some of the seven drivers and ways of measuring improvements in customer loyalty.
“Vehicle owners should not stress out about where they will get service and repair if their local new car dealership closes, advises the Automotive Aftermarket Industry Association (AAIA). More than 130,000 independent repair shops, conveniently located in most every community nationwide, have access to the parts for all vehicles, as well as the required professional technicians, tools, and equipment. Independent repair businesses account for more than 70 percent of the vehicle service and repair, compared to 28 percent of non-warranty repairs by new car dealerships.”
A few years ago, a dealership’s general manager made the statement that every employee “works” his/her pay plan. This statement could not be more true. Essentially, they will focus their concentration on areas of their job that maximize their overall compensation. If you pay a general sales manager on volume, he will “move iron.” If you pay him on gross profit, he will manage his inventory closely to try to maximize the gross. If you pay him only on retail gross profit, wholesale grosses could suffer. Therefore, it is important to align the goals of the company with the structure of the employees’ pay plans and each employee should only be paid based on things he/she can control.
Avoid Guarantees Guarantees generally breed complacency and sometimes can be difficult to change. Guarantees are usually implemented when the manager inherits an unprofitable department and the dealer feels the need to provide the new manager with a grace period to turn things around. In this situation, it would behoove the dealer to structure the variable portion of the pay plan to reflect the goals necessary to generate a profit (e.g. reduce aged inventory, increase PVR, increase labor hours sold, etc.) Conclusion The key to any performance based compensation plan is to structure the plan to reflect the goals of the company, which clearly includes profitability. The best way to maximize the performance of the employee and the profitability of the dealership is to construct pay plans that reward them for outstanding performance on the variables they realistically can control. We have a compilation of various pay plans that work. We can help put them to “work” for you.
Fixed versus Variable Typically, a departmental manager’s compensation plan should be part fixed and part variable. The fixed portion (i.e. the salary) should be approximately 40-50% of the overall projected compensation with the variable (i.e. the monthly bonus) making up the difference. Salespersons and service advisors should be paid very little, if any, salary. Most of their compensation should come from commissions. Bonuses/Commissions Bonuses and commissions should be based solely on those items that the employee can control. For example, most salespersons are paid a percent of the gross profit from the vehicles they sell. However, they control neither the selling price nor cost of the car, which are the two components that comprise gross profit. The selling price is set by the Dealer or G.M. and then negotiated between the sales manager and the customer. The cost is based on the purchase price of the car. The salespersons’ commission should be based on units sold. Furthermore, managers should be paid on gross profit net of the expenses that they can control. Some managers have no control over expense because the dealer controls all the expenses, in that case, they should be paid on the gross. However, most departmental managers can control certain operational expenses of their departments (e.g. service manager: policy, supplies, company vehicles; parts manager: freight, etc.) General managers should be paid on the operational profit of the dealership or, at the very least, profit before overhead.
If you have any questions pertaining to compensation plans, please contact Frank O’Brien, Principal at (617) 471-1120.
DealerDetails
DealerDetails
Managing for Customer Loyalty Michael McKean, MBA, AVA, CMAP President, OCD Consulting, LLC Satisfied customers will shop anywhere; loyal customers will only buy from you. It’s a cliché but it’s true. Evidently however, maintaining the loyalty of customers requiring repair and maintenance service is an elusive goal for retail automobile dealers. Consider the statement released by the Automotive Aftermarket Industry Association just shortly after the government’s Auto Task Force announced the impending closure of thousands of Chrysler and General Motors dealerships. How has it happened that twenty-thousand franchised automobile dealers have allowed a sufficient number of customer defections to support one hundred and thirty thousand independent shops? There are probably multiple answers but one may be the failure by dealers to recognize that managing for customer satisfaction is not the same as managing for customer loyalty.
Dealership Compensation Plans
Compensation remains the single most significant expense of an automobile dealership. The average dealership spends 40% of its total gross profit on compensation (not including owners). Add to that an additional 10% for payroll taxes and benefits and half the dealership’s gross profit has been absorbed by personnel expenses. Therefore, the performance of your employees is crucial to the profitability of the dealership. A well constructed performance-based pay plan should motivate the employees to perform at a high level, increasing the profitability of the dealership and in turn increasing their paychecks. “Everyone works his/her pay plan.”
Certainly, loyalty starts with satisfaction, but because of the competitive nature of the automobile business dealers need to earn very high satisfaction scores to retain their customers. A study published in the Harvard Business Review by Jones and Sasser reported that in order to retain seventy-five percent of its customers, dealers must have a satisfaction index of 4.8 out of five, versus much lower indexes for less competitive industries. So if it is more than just customer satisfaction what else encourages customers to be loyal? Actually, there are seven drivers of loyalty, all of which can be managed to reduce customer defections. These are employee loyalty, employee engagement, flawless execution, complete customer satisfaction, frequent and positive contact, fair pricing and value proposition, and a broad spectrum of products and services Is there money in managing for customer loyalty? A study completed by Frederich F. Reicheld and W. Earl Sasser, Jr., “Zero Defections: Quality Comes to Services,” Harvard Business Review, September-October 1990, indicated that just a five percent decrease in customer defections might result in a thirty percent increase in customer value. In the next article we will talk about some of the seven drivers and ways of measuring improvements in customer loyalty.
“Vehicle owners should not stress out about where they will get service and repair if their local new car dealership closes, advises the Automotive Aftermarket Industry Association (AAIA). More than 130,000 independent repair shops, conveniently located in most every community nationwide, have access to the parts for all vehicles, as well as the required professional technicians, tools, and equipment. Independent repair businesses account for more than 70 percent of the vehicle service and repair, compared to 28 percent of non-warranty repairs by new car dealerships.”
A few years ago, a dealership’s general manager made the statement that every employee “works” his/her pay plan. This statement could not be more true. Essentially, they will focus their concentration on areas of their job that maximize their overall compensation. If you pay a general sales manager on volume, he will “move iron.” If you pay him on gross profit, he will manage his inventory closely to try to maximize the gross. If you pay him only on retail gross profit, wholesale grosses could suffer. Therefore, it is important to align the goals of the company with the structure of the employees’ pay plans and each employee should only be paid based on things he/she can control.
Avoid Guarantees Guarantees generally breed complacency and sometimes can be difficult to change. Guarantees are usually implemented when the manager inherits an unprofitable department and the dealer feels the need to provide the new manager with a grace period to turn things around. In this situation, it would behoove the dealer to structure the variable portion of the pay plan to reflect the goals necessary to generate a profit (e.g. reduce aged inventory, increase PVR, increase labor hours sold, etc.) Conclusion The key to any performance based compensation plan is to structure the plan to reflect the goals of the company, which clearly includes profitability. The best way to maximize the performance of the employee and the profitability of the dealership is to construct pay plans that reward them for outstanding performance on the variables they realistically can control. We have a compilation of various pay plans that work. We can help put them to “work” for you.
Fixed versus Variable Typically, a departmental manager’s compensation plan should be part fixed and part variable. The fixed portion (i.e. the salary) should be approximately 40-50% of the overall projected compensation with the variable (i.e. the monthly bonus) making up the difference. Salespersons and service advisors should be paid very little, if any, salary. Most of their compensation should come from commissions. Bonuses/Commissions Bonuses and commissions should be based solely on those items that the employee can control. For example, most salespersons are paid a percent of the gross profit from the vehicles they sell. However, they control neither the selling price nor cost of the car, which are the two components that comprise gross profit. The selling price is set by the Dealer or G.M. and then negotiated between the sales manager and the customer. The cost is based on the purchase price of the car. The salespersons’ commission should be based on units sold. Furthermore, managers should be paid on gross profit net of the expenses that they can control. Some managers have no control over expense because the dealer controls all the expenses, in that case, they should be paid on the gross. However, most departmental managers can control certain operational expenses of their departments (e.g. service manager: policy, supplies, company vehicles; parts manager: freight, etc.) General managers should be paid on the operational profit of the dealership or, at the very least, profit before overhead.
If you have any questions pertaining to compensation plans, please contact Frank O’Brien, Principal at (617) 471-1120.
