for Automotive News
June 14, 2019
Just what is fixed absorption rate, and how is it calculated? Frankly, it depends on whom you ask. And those you ask may have other thoughts on the value of your calculation when it comes to making business decisions about the financial health of a dealership.
NADA’s 20 Group guides suggest including used-vehicle gross in the formula above to calculate a dealership’s overall absorption rate — as opposed to fixed absorption rate. Note that in all cases, the numbers to do the calculations come from a dealership’s financial statement.
But Scot Eisenfelder, CEO of Affinitiv, a marketing technology company in Chicago that works with more than 5,500 franchised dealerships, argues that using fixed absorption to measure financial performance is “archaic” and “dangerous.”
“Therefore, the metric itself does not provide any guidance for how to optimize service profitability.”
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