North Country Auto Case
Chapter 5 Profit Centers
201
Country Auto, Inc.
{Liddy, part owner of North Country Auto, Inc., was feeling pretty the new control systems recently put in place for his five departtiers (new and used car sales, service, body, and parts departments) . .escrioes eacn aepartment. Mr. Liddy strongly believed in the concept " geach department individually as a profit center. But he also recoghl3.llengeof getting his managers to "buy in" to the system by work '::.:ffotthe good of the dealership.
Untty Auto, Inc., was a franchised dealer and factory-authorized llter for Ford, Saab, and Volkswagen. Multiple franchises were beore common in the 1980s. But the value of multiple franchises. did f guidebook, published monthly, was, at best, a near estimate of liquidata; value. Actual values varied daily with the supply-demand balance at auto .~"" tions. These variances could be as much as 25 percent of the book value, '. . ........•. Ms. Robbins believed that she could sell the trade-in quickly at $5,000 a.!: ' earn a good margin, so she chose to carry it in inventory instead of wholes .1::;
Chapter 5
Profit Centers
205
206
Part One
The Management Control Environment
"Fmance fees consist of income that the dealer earns on dealer-sourced extended warranties sold through the dealership.
auto loans. It also includes the dealer 's commission
on service contracts
and
it for a value estimated to be $3,500. Mr. Walker, in turn, used the $3,500 value in calculating his actual profit on the new car sale. In performing the routine maintenance check on the trade-in, the service department reported that the front wheels would need new brake pads and rotors and that the rear door lock assembly was jammed. The retail estimates for repair would be $300 for the brakes ($125 in parts, $175 in labor) and $75 to fix the lock assembly ($30 in parts, $45 in labor). Cleaning and touch-up (performed by service department as a part of the service order for
201
Country Auto, Inc.
{Liddy, part owner of North Country Auto, Inc., was feeling pretty the new control systems recently put in place for his five departtiers (new and used car sales, service, body, and parts departments) . .escrioes eacn aepartment. Mr. Liddy strongly believed in the concept " geach department individually as a profit center. But he also recoghl3.llengeof getting his managers to "buy in" to the system by work '::.:ffotthe good of the dealership.
Untty Auto, Inc., was a franchised dealer and factory-authorized llter for Ford, Saab, and Volkswagen. Multiple franchises were beore common in the 1980s. But the value of multiple franchises. did f guidebook, published monthly, was, at best, a near estimate of liquidata; value. Actual values varied daily with the supply-demand balance at auto .~"" tions. These variances could be as much as 25 percent of the book value, '. . ........•. Ms. Robbins believed that she could sell the trade-in quickly at $5,000 a.!: ' earn a good margin, so she chose to carry it in inventory instead of wholes .1::;
Chapter 5
Profit Centers
205
206
Part One
The Management Control Environment
"Fmance fees consist of income that the dealer earns on dealer-sourced extended warranties sold through the dealership.
auto loans. It also includes the dealer 's commission
on service contracts
and
it for a value estimated to be $3,500. Mr. Walker, in turn, used the $3,500 value in calculating his actual profit on the new car sale. In performing the routine maintenance check on the trade-in, the service department reported that the front wheels would need new brake pads and rotors and that the rear door lock assembly was jammed. The retail estimates for repair would be $300 for the brakes ($125 in parts, $175 in labor) and $75 to fix the lock assembly ($30 in parts, $45 in labor). Cleaning and touch-up (performed by service department as a part of the service order for