In a July 22 conference call, Lithia COO Chris Holzshu says the chain’s personnel expense was down 20 percent in the second quarter vs. the beginning of 2020.
He says Lithia is working to reduce its selling, general and administrative expenses as a percentage of gross profit and maintain it at a lower level. Same-store adjusted SG&A as a percent of gross profit was 64.8 percent in the second quarter, down 4.8 percentage points compared with a year ago, Holzshu says. In June, SG&A was down to 57.4%, Lithia says.
“Our stores are well aware their biggest cost is personnel,” so that’s where many of the cuts are, he says. Lithia is working to make “sustainable” cost cuts in personnel and advertising, Holzshu says.
Lithia, based in Medford, Ore., ranks No. 3 on Automotive News‘ list of the top 150 dealership groups in the U.S., with new-vehicle retail sales of 180,532 in 2019. At the end of 2019, Lithia had 14,320 full-time employees at 188 retail locations.
Several of the big, publicly traded auto retailers say they primarily laid off or furloughed entry-level technicians and kept senior technicians on the payroll, trying to balance the urgent need to reduce headcount as business fell with the need to retain highly sought-after, experienced technicians. That helped keep service departments prepared for any emergency and kept experienced technicians loyal. But it also cut into profits, says Darrel Ferguson, director of performance management for Xtime Inc., a Cox Automotive company.
Instead of telling customers to “come on in,” Ferguson says Xtime uses software to help dealerships schedule service appointments. It takes into consideration what technician skill level is required and available, how long the repair will take, whether the required parts are on hand or need to be ordered and more. If work is planned out efficiently, he says the data show dealerships could continue to afford a mix of entry-level and senior techs.
“Master techs love to change oil, because it’s easy,” Ferguson says. “But if I have a minimum-rate type of guy doing an oil change that’s a special with a coupon, I might pay him $3. I relatively break even, or even make a couple of bucks. But if I pay the $30-per-hour guy $10 to $12 for the same job, in a lot of cases I’m literally writing off a loss.”