m
 


 

93- Mohd. Azharuddin Shaikh
94- Kartik Nigam
95- Rahul Pardeshi
97- Chandrakant Patil
99- Pankaj Patwari
113- Vijay Singh
114- Sidharta Suryagandha
119- Chetan Waghmare
p  

 t was a franchised dealer and factory authorized
service center for Ford, Saab and Volkswagen.
 The dealership was situated in an upstate New York
town with a population of about 20000.
 ndustry analysts were estimating that fewer than 50 %
f dealers in the US would make a profit on new car
sales in 1990.
 North
Country Auto
Departments

New Car Used Car Oil Change

Services Body Shop Parts
Sales Sales Operation
p  
 
 The new & used car department each had a sales
manager.
 They shared six sale persons for each division.
 The used car manager was responsible for controlling
the mix of used car inventory through buying and
selling used vehicles at wholesale auto auctions.
 The manager was paid a flat salary plus a bonus on the
departmentǯs gross profit on labor hours billed.
 
 The parts department consisted of a manager, three
stock keepers and two clerks.
 The parts manager was responsible for tracking parts
inventory for the three lines.
 The manager had to be expert on the return policies,
stock requirements and secondary market of 3 distinct
and unrelated lines of merchandise.
 
 ºeorge Liddy believed in decentralized profit centers and
performance based compensation models of control.
 The mechanical repairs would not necessarily increase
wholesale value if the car subsequently were sold at the
auction.
 The transfer price for internal work recently had changed
from cost to full retail equivalent.
 
 ºeorge Liddy believed in decentralized profit centers and
performance based compensation models of control.
 The mechanical repairs would not necessarily increase
wholesale value if the car subsequently were sold at the
auction.
 The transfer price for internal work recently had changed
from cost to full retail equivalent.
R

m

Amount in USD
R

 


Selling Price 14150

( - )Dealer Cost 11420

( - )Overhead Expenses 835

( - )Transit loss 1300

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R



Amount in USD
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Selling Price 5000

( - )Purchase cost 3500

( - )Overhead Expenses 665

( - )Repair & Tune up Cost 705

( - ) Sales commission 250

R

 
 
R




Amount in USD

R

 


Selling Price 705

( - )Parts Cost 235

( - )Labor cost 134

( - )Overhead Expenses 114

R

 
 
R

R


Amount in USD

R

 


Selling Price 235

( - )Parts Cost 168

( - )Overhead Expenses 32

R

 
 
 The loss may have occurred because new car owners are pushing for
trade-in car values above market valuations on their used cars.
º

  

    

 !
Retail price $5000
Trade in allowance $4800
 For example, if new cars are sold for $4800 and used cars for $3500,
the used car group would have a difficult time making a profit.
 By selling the car for $5,000 they could still make a profit despite the
inflated prices but most of the time they will have difficulty selling
the used car above its Blue Book value of $3,500.
 Therefore, the used car division may be operating at a loss because
the cost they are using for the used cars is too high.
 
   



  
 Car retailers make their money primarily on new car
sales, used car sales, and services.
 New car sales margins are low but frequently lead to
good services relationships for maintenance, oil
changes and service work.
 Used car sales margins are probably slightly better
than new cars, but are likely being pressed down
through competition from large players
 The services department is probably the area where
good margins and recurring revenue streams could be
attained.
 Customer loyalty for services offerings is likely to be
very high.
 Therefore North Country should focus on seeding the
market with new cars at a relatively low margin in
anticipation of receiving higher margin services
business.
 Additionally, they should look to capitalize on the
quality of that relationship at the time of trade-in,
charging a slightly below market value for the car but
having customers willing to take this deal due to the
convenience of working with a known party.
 f it were found one week later that the trade-in could
be wholesaled for only $3000, which manager should
take the loss (New Car Sales or Used Car Sales).

 Advice for the Ownersǥ

CONCLUSON
 ncentives should be based on company profits.
 A better system should be established such that managers of
the two departments are given incentives based not on the
gross profits of their respective departments but on the profits
of the company as a whole.
 This would help ensure that conflicts of the two departments
will be lessened and that the two departments will no longer
compete but will work together to enrich the value of the
firm.
 n order to be more profitable, the firm could use blue book
values for the trade-in value and use that as the cost to the
used car division.
 
 åowever, if it is better for the firm to provide added
incentive to customers to trade in their cars, the firm could
allow for higher trade-in values but responsibility for those
added costs should reside in the new sales division.
 Regarding the issue of costs, whether it should be at
wholesale or retail, it should be considered that North
Country is a company offering more on services.
 The cost of service of making the cars sellable differs
minimally from the market price. And these service costs
should be added to the cost of used cars in wholesale.
 The profit on repairs must be akin to competitorǯs values as
well as to the industry.
Thank You