If there’s one thing dealers and GMs hate it’s discovering that the money they thought they made last month has quietly evaporated. Not stolen, exactly, just… misplaced. Like the way a single sock disappears in the dryer, or how you swear you had twenty bucks in your wallet until your teenager “borrowed” it for gas.
Money leaks out of a dealership the same way air leaks out of a tire: slowly, invisibly, and always at the worst possible times.
The good news? You can fix it.
The bad news? It involves used car aging reports, dusty parts shelves, and conversations with people who’d rather be doing literally anything else.
Where the Money Disappears When You’re Busy Selling Cars
If you’ve ever stared at your financial statement wondering why your gross profit is suspiciously allergic to your net profit, you’re not alone. Dealers are masters at making revenue. They’re slightly less enthusiastic about monitoring where it leaks out.
Auto dealerships operate on often thin net profit margins, making the identification and elimination of gross profit leaks critical for financial health. The most significant profit leaks typically fall into several key categories:
- Chargebacks and write-offs.
- Process inefficiencies and operational blind spots.
- Parts returns that never quite make it back to the manufacturer, but do live rent-free on your shelves.
- Service comebacks that chew up labor hours like a Labrador with a shoe.
- Loaner cars that mysteriously transform into your customers’ personal vehicles for three weeks straight.
- Vendor contracts you signed before COVID and haven’t revisited since.
- Staffing inefficiencies and overtime.
- Or my personal favorite: Aging used car inventory. Nothing warms the bank’s heart like you paying interest on a car no customer will ever love, especially that weird purple sedan you bought on a hunch 634 days ago.
Aging used inventory is the dealership version of that treadmill you bought to get in shape but now serves as a $1,500 clothes hanger.
Every extra day you hold that used unit, it costs you — interest, insurance, depreciation, missed opportunity. Meanwhile, your sales manager swears it’ll sell “this weekend” if you’d just run another ad. It won’t.
Each of these on their own is mildly annoying. Together, they’re an anchor around your neck when you’re trying to swim to shore.
Step 1: Pull the Receipts
Now it’s time to do something radical: look at the numbers. I know. Thrilling. But nothing brings people back to reality faster than seeing real dollars drifting away.
You don’t need to fix everything at once. Actually, please don’t. If you try to tackle parts returns, warranty write-offs, and aging used cars all at once, you’ll get so overwhelmed you’ll go hide in your office.
Pick one. I recommend the leakiest. Used cars, for example, love to tie up cash in ways that make your flooring bank do a happy dance.
Most used car managers have an aging report. Whether they look at it is another story.
Ask the Controller to pull you a Used Car Inventory Schedule. How many units are over 60 days old? If you find anything over 120, go ahead and add a therapy budget to your expenses too because you’ll need it.
Now, do the math.
- How much floor plan interest (and cash) is that inventory soaking up?
- How much could you have wholesaled them for a month ago?
- How many of those “Just Needs Recon” cars are buried behind the service department right now because someone “forgot” to approve the estimate?
What about the other leaks?
- If you picked parts returns, pull six months of parts credit data.
- If it’s loaner cars, look at the fleet’s utilization.
- If it’s overtime, look at who’s milking the clock or who’s not managing their team.
- If it’s Warranty Claims, ask for the Warranty Receivables schedule. While you’re at it, ask for the Extended Warranty Receivable schedule too.
Step 2: Name the Culprit (Spoiler: It’s Usually a Process, Not a Person)
This is where dealers and GMs sometimes get it wrong. They assume someone’s being lazy, or dishonest, or both. Occasionally, sure, you’ll have a parts manager who hoards returns in a dusty corner like a squirrel storing nuts for winter. But usually? It’s a boring, outdated process…or no process at all.
Nobody’s clear on who’s responsible. No one follows up. And the accounting office, god love them, doesn’t have time to chase every core charge or parts box that left the building in 2017.
So gather your suspects: the people closest to the leak. They know what’s broken. They’ve just accepted it as The Way Things Are.
Step 3: Demand Better, But Be a Coach About It
Now you’re the hero with a clipboard. Ask questions. Listen more than you talk. Try not to sigh dramatically when they tell you the same half-baked workaround they’ve been using for years.
Then – and this is the fun part – work together to fix it:
- Who does what?
- By when?
- What do they need to do it right?
- What report will prove it’s working?
- Who signs off?
Write it down. Yes, on paper. Or a spreadsheet, if you’re feeling fancy.
Step 4: Inspect, Because Hope Isn’t a Strategy
This is the step where 90% of some dealers or GMs give up. They launch a new process, pat themselves on the back, and assume everyone will follow it forever. Newsflash: they won’t.
The only way to keep people honest is to check. Every. Single. Time.
Build it into your managers’ meeting. Make it a standing agenda item. Review the reports, the spreadsheets, the whatevers. When people know you’re looking, they keep doing the thing.
If you don’t? Well, don’t be surprised when those dusty parts boxes reappear like raccoons at a campsite..
Review the Used Car Inventory Schedule (and its aging information) in every managers meeting. Call out the old units. Ask what’s being done about them. If you see excuses, dig deeper. Sometimes that means wholesaling a stale unit you once loved. Do it anyway.
Step 5: Celebrate the Tiny Victory
When you fix one leak, tell everyone. Thank the people who did the work. Maybe buy them lunch. The service manager who suddenly processes every warranty claim on time? He deserves a burrito. The parts clerk who keeps track of returns? She deserves two.
Nothing reinforces good behavior like praise and free food.
Then – when you’re done patting yourself on the back – pick the next leak. Because there’s always a next leak.
Celebrate the Fresh Turn
When you tighten used car inventory processes, you free up cash flow – real cash you can spend on, say, more vehicles that actually sell. Or fancy coffee for your customer lounge. Or, you know, your bank account.
Same goes for parts returns, loaner fleets, overtime – pick one, fix it, track it, and enjoy watching money that used to vanish stick around instead.
A Realistic Truth: It’s Never “Done”
Expense control is not a heroic one-time fix. It’s tedious. It’s repetitive. It’s about as glamorous as sweeping the service bays at closing time. But the payoff is real.
If you don’t plug these leaks, your net profit will keep gaslighting you. Trust me.
There’s no glory in bragging about gross if the net never shows up.
Final Word: Don’t Forget to Laugh
If all this sounds tedious, it is. But it works. And if you can’t find a little dark humor in the absurdity of your own dealership’s money leaks, you might as well close up shop and start selling scented candles instead.
When you realize your used car dept. is hoarding cash like a doomsday prepper hoards canned beans, you can either despair or find the absurd humor in it. I recommend the second option. You’ll sleep better.
Want Help Plugging the Leaks?
If you’d rather not hunt down every stale car and dusty parts bin yourself, that’s where I come in. I help dealers spot the leaks, tighten the screws, and keep more of the money they already work so hard to earn.
One leak at a time. One process at a time. And maybe a laugh or two along the way.
Is your financial health in the fast lane or stalled on the side of the road? You want experience on your side without the huge salary expense. Let’s talk and figure out if an On-Demand Automotive CFO is right for you!