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The concept of overhead absorption was popular in the early 70s but seemed to fade as the TIV grew and franchised dealers felt they could survive happily on car sales and F & I income.

We have noticed much more attention being paid to overhead absorption since the start of the recession. It’s a simple concept: having a sufficient aftersales profit stream to carry you through erratic cars sales. Put in another way, all overheads of the business are covered by aftersales profits. Back in the 70s when warranty played a much bigger role in aftersales many dealers were absorbing in excess of 100% of overheads. Currently, a decent rate would be around 80%, although few achieve this. So, completely absorbing all site overheads seems unlikely for most dealers. Or does it?

We think there are two good reasons for aiming to achieve a minimum of 100%:

– it will provide a cushion against fluctuating (and often low margin) car sales

– aftersales is a rich profit stream in its own right

That said, it is no easy task

As a reminder, please send your comments to views@aftermarketsolutions.co.uk putting Views as your heading.

 

Posted 1 October 2013