WITH tighter margins and rising operational costs, dealerships across Australia are taking a hard look at their cost structures through the lens of a “cost out” strategy. 

We know that market pressures are being compounded by global headwinds.

Trump-era on-and-off and on-again tariffs continue to cause disruption and chaos to global supply chains, while an influx of high spec and competitively-priced Chinese brands is reshaping consumer expectations and further squeezing dealership profitability.

Diana Kao

In this climate, the smartest operators are shifting gears and going back to fundamentals – reducing inventory and increasing productivity

A disciplined “cost-out” strategy isn’t just about cutting for the sake of cutting. It’s about identifying waste, streamlining operations, and unlocking real, sustainable value.

Four mainstays of a cost-out strategy

1. Reducing inventory: stop playing the demo game

One of the biggest levers in any dealership’s cost base is their new car inventory. In 2025, with market conditions shifting and consumer demand normalising after years of volatility, reducing new vehicle inventory is now critical.

Dealerships are actively selling down existing stock, limiting future stock orders, and focusing on increasing stock turn. Holding less inventory means less capital tied up in floorplan financing, lower insurance and storage costs, and more agility in responding to market trends.

Just as important, many dealerships are moving away from the “demo game”. Historically, dealerships have registered high volumes of demonstrator vehicles to meet OEM targets or keep up appearances. The downside? Inflated demo provisions that weigh on the bottom line. 

By trimming demo fleets, dealers are seeing a noticeable savings on their demo depreciation.

A side-effect of being over-stocked in new cars is the urge to discount first in an effort to clear stock. The opposite is true if a dealer isn’t over-stocked. This allows dealers to hold firm and realise full gross profits.

The market shift is clearly reflected in the VFacts data from the latter half of 2024:

2. Increasing Productivity: $1.3m revenue per head count is the new normal target

Alongside reducing inventory, dealerships are tightening up their labour model. With wage pressure and superannuation increases adding to the cost of doing business, maximising headcount productivity is more important than ever.We’re seeing smart consolidation of headcounts – not just across departments, but even across locations in dealer groups. Many dealers are implementing headcount freezes and choosing not to backfill roles lost through natural attrition, especially non-productive roles. Rather than doing more with less, the focus is doing better with less.

We are observing an increase in revenue per head, rising from $0.9 million to $1.3 million, as illustrated in the Eagers Automotive graphic below:

Technology is playing a key role here. Offshoring and automation are no longer taboo topics, they’re strategic advantages. Functions like deal processing, marketing, and accounts payable/receivable can often be moved offshore without compromising customer experience. Bots can handle repetitive tasks faster and more accurately, freeing up onshore staff for higher-value work.

While the example below shows that reducing two sales consultants results in an annual saving of $90k, applying this across 12 dealerships (which we found is typical of a large privately held dealer group) would boost the example group’s $6.72m profit by $1.08m, or 15%.

3. Utilising Property Strategically: The Hidden Lever

For many dealerships, property is both their largest and least-measured asset. Yet in a high-cost

environment, it can be a powerful and often overlooked lever for cost optimisation. Despite its potential, this lever remains largely untapped. We found only one of the 15 dealers we interviewed had a defined property strategy in place.

Opportunities exist to unlock trapped value through:

• Optimising underutilised space – consolidating departments or operations to reduce physical footprint and associated costs.

• Co-locating operations with other sites or brands to create multi-franchise hubs or shared service centres.

• Investing in data and benchmarking to properly assess and track property utilisation, costs, and return on capital.

Eagers Automotive has provided a real-life example of what’s possible when property is actively managed. As shown in their graphic above, they have exited 98 like-for-like leases between FY19 and FY24, demonstrating the scale of opportunity when property is treated as a strategic priority.

Real estate should be seen as a strategic asset – not just a cost centre. When actively managed, property can be a lever for growth, resilience, and better decision-making.

4. Low Hanging Fruit: Quick Wins Worth Grabbing

There are several easy wins available to dealerships looking to improve cost efficiency quickly:

• Fringe Benefits Tax (FBT): Consider shifting more staff into used vehicles or EVs to reduce your FBT bill. With the FBT returns due right around the corner, we at Pitcher Partners are recommending owners to conduct a review of their FBT returns for accuracy. Ask questions such as “did we nominate cars to form the drive car pool? Did we exclude stamp duty, registration costs and pre-delivery costs in our FBT calculation etc?”
• Fuel Tax Credits (FTC): Do you know what a fuel tax credit is and have you made a claim for this?
  
• Training and Empowerment: Equip your front-line team with the skills and confidence to upsell, cross-sell, and close – whether that’s service advisors selling tyres or sales teams selling
• accessories. The best practice dealers are busily training their team so they are well placed when consumer confidence becomes more buoyant post the federal election and when interest rates reduce.
  
• Customer Retention Teams: Whilst most dealer groups have a centralised team that solely focuses on contacting lapsed service customers, no one has a team focused on customer retention and mining their own database for repeat customers. 
  
• Redirect savings: Into small, centralised teams whose modus operandi is setting up bona-fide appointments back into your showroom. This can significantly reduce your Carsales bill whilst boosting your front-end gross margins.
  

Final Thoughts

Cost-out isn’t about cutting corners. It’s about resetting your business for long-term profitability. 

In 2025, the winners in automotive retail won’t be the ones who spend the most – they’ll be the ones who run the smartest, leanest operations without compromising customer experience. 

Going back to fundamentals may just be the most forward-thinking move a dealership can make.

By Diana Kao