Using KPIs to Detect Trends and Avoid Costly Errors in Your Dealership

In a dealership environment shaped by thin margins, rising carrying costs, and shifting consumer preferences, even minor operational blind spots can have major financial consequences. For dealership owners and CFOs, financial statements should do more than report—they should inform. The right key performance indicators (KPIs), monitored consistently and interpreted correctly, provide early warning signs of trouble, illuminate trends, and support data-driven decision-making across departments. At ARB, we use our Auto Dealership Business Intelligence (ADBI) tool to stay current with each client’s financial position, allowing us to identify emerging issues, interpret KPI trends, and support timely, informed decisions.

The KPIs below offer a starting point for leaders seeking to turn operational complexity into measurable control.

Contracts in Transit (CIT): Delays Disrupt Cash Flow
CIT represents completed retail deliveries that have yet to fund. A high or rising CIT balance can disrupt cash flow, especially when sales volume spikes. The ideal is to see these funded within 10 days. Monitor average days outstanding and segment by lender or deal type. Delays may reflect documentation issues, lender inefficiencies, or weaknesses in the funding processes.

Inventory Turnover: Sales Velocity and Capital Efficiency
Track turnover separately for new and used vehicles. Low turnover may suggest overbuying, mispricing, or poor vehicle mix. High turnover with declining gross points to discounting or insufficient Finance & Insurance (F&I) capture.

For parts inventory, slow turnover can indicate overstocking and risk of obsolescence. Fast turnover with frequent stockouts may hinder service performance. Benchmark inventory cycles against departmental performance and seasonal patterns to understand the trends without straining working capital.

Days Supply Inventory: A Risk and Cost Indicator
Days supply focuses on duration—how long inventory would last at the current sales rate. Review this KPI by category:

• New Vehicles: Too much supply ties up capital and incurs floorplan costs. Too little means lost sales.
• Used Vehicles: Aging used units rapidly lose value, particularly after 45 days.
• Parts: Parts days supply should reflect service bay volume and absorption goals—not vendor incentives.

Evaluating days supply helps anticipate carrying costs and informs stocking decisions.

Accounts Receivable – Days Sales Outstanding (DSO)
DSO reveals how long it takes to collect what you're owed. In dealerships, segmenting by source is the best course:

• Vehicle Receivables: Should clear quickly. Delays signal lender or process issues.
• Parts & Service: Increases signal collection or even customer satisfaction issues. Establish and enforce terms.
• Warranty Receivables: Reimbursement timelines vary. Delays often stem from submission or coding errors.

Reviewing AR aging in context of volume and process accuracy ensures tighter cash control and fewer write-offs.

Gross Profit: Volume Alone Doesn’t Tell the Story
Gross profit per unit is more important than sales volume alone. Break it down:

• New Vehicles: Monitor gross net of factory incentives to avoid margin illusion.
• Used Vehicles: Segment by source and age-to-retail. Margins often deteriorate with age.
• F&I Gross per Contract: Track both the per-contract average and total contracts per retail unit. Declines may reflect product mix changes, menu presentation issues, or reduced penetration rates.

Monthly trendlines and benchmarks help surface margin compression early before it undermines net profitability.

Sales per RO: Fixed Ops Performance Gauge
Sales per repair order (RO) provides a view of technician efficiency, advisor performance, and customer behavior. Declines may suggest fewer maintenance recommendations, lower upsell acceptance, or changes in job mix. Evaluate in conjunction with hours per RO and effective labor rate. A sustained drop can signal deeper issues in service lane processes or customer retention.

Fixed Expense Coverage: Gross Profit vs. Overhead
This KPI compares total gross profit to total fixed expenses and is a useful proxy for operational breakeven. Fixed expenses typically include:

• Personnel Costs: Salaries, commissions, benefits.
• Advertising: Review ROI and customer acquisition cost.
• Rent/Facility: Fixed cost but should align with market norms.
• Floorplan Interest: Rising rates and inventory age can cause costs to escalate quickly.

A healthy ratio indicates that the store can cover overhead from gross profit alone, without relying on one-time gains.

The Road Ahead
Financial statements show where you’ve been. KPIs tell you where you’re headed—and whether your current trajectory is sustainable. Dealerships that review KPI trends monthly are better equipped to adapt and grow. If your reporting doesn’t help you anticipate risk or pinpoint performance gaps, it may be time to revisit your metrics—or the tools and partners you rely on to interpret them. A qualified financial advisor can help you build a strategy that supports more informed leadership. 

Author: Erin Gagne, CPA