Chapter 37 — Exercises: Reading the Dealership Financial Statement

A note before you start: this chapter is the most numbers-heavy in Part VII, so several of these are calculation exercises. Work them with a pencil and a calculator, not in your head — that's how you build the fluency to read a real statement on the fifth of the month. Reread the chapter's worked Summit statement (§37.4) and the absorption math (§37.5) before Parts B and C.

Difficulty legend: ⭐ basic recall · ⭐⭐ applied · ⭐⭐⭐ skills/judgment · ⭐⭐⭐⭐ advanced/extension.

Selected calculation answers are in <details> blocks; most conceptual answers live in Appendix I.

Part A — Conceptual Understanding ⭐

A1. Name the three audiences a dealership's monthly financial statement is sent to, and give the one main reason each cares about it.

A2. Write the two-step universal formula that every department on the statement follows (from revenue all the way to net).

A3. In your own words, what is the difference between a department's gross profit and the store's net profit?

A4. List the six departments that typically appear as their own blocks on a full factory statement.

A5. Define absorption rate in one sentence and give the formula.

A6. Why is ~100% absorption the goal? Give the two reasons from the chapter.

A7. What does PVR stand for, and what are its three flavors?

A8. True or false, and fix it if false: "The new-vehicle department usually produces the largest single gross line on the statement."

A9. What does a sudden spike in the floor-plan interest expense line most likely signal, and which earlier chapter does it send you back to?

A10. Why does CSI matter to the statement even though it never appears as a dollar line on it?

A11. What are additions to income on the statement, and name two things that land there (the factory money a salesperson never sees in their front-end gross)?

A12. Fill in the blank with the right word and explain it in one sentence: "Net is the score, gross is offense, __ control is defense, and absorption is whether the team can survive a losing streak."

A13. A store's net-to-gross ratio is 25%. In plain English, what does that number tell you the store does with each dollar of gross?

A14. Why is service revenue described as "recurring" while car sales are "transactional," and why does that distinction make service the foundation absorption measures?

Part B — Applied Analysis ⭐⭐

B1. A new-vehicle department sold 160 units for total revenue of $5,600,000**, and those cars cost the store **$5,360,000 from the factory. (a) What is the department's front-end gross profit? (b) What is the front-end gross per unit?

B2. A used-vehicle department posts **$390,000** gross on **130 units.** (a) Gross per unit? (b) The chapter says used per-unit gross is usually higher than new's — is that true here if new's per-unit gross is $1,500 (from B1)? By how much?

B3. An F&I department generated $432,000 of gross on 288 deals. What is the store's back-end PVR?

B4. A store's fixed-ops gross (service + parts) is $680,000** and its total operating expenses are **$1,700,000. Calculate the absorption rate and interpret it in one sentence.

B5. A store has total departmental gross of $1,800,000** and net profit (before tax) of **$360,000. What is the net-to-gross ratio, and is it higher or lower than Summit's 25%?

B6. Map each item to the statement line it lands on: (a) the front-end profit on a new sedan; (b) the dealer reserve on a customer's loan; (c) a customer's first oil change four months after delivery; (d) a trade-in, after recon, sold off the used lot; (e) an extended service contract sold in F&I.

B7. Two salespeople: Dana has a total PVR of $1,100** and sold **22** cars; Wes has a total PVR of **$1,400 and sold 16 cars. Who contributed more total gross to the statement this month, and by how much?

B8. A store's operating expenses break down as: personnel $900,000, advertising $110,000, floor-plan interest $85,000, rent $170,000, other $215,000. (a) What's the total? (b) Personnel is what percent of a $2,000,000 gross? (c) Is that percent in the normal range the chapter describes?

B9. A store currently runs 46% absorption ($740,000 fixed-ops gross ÷ $1,600,000 expenses). Over a year it grows fixed-ops gross to **$1,000,000** while expenses rise to $1,650,000. (a) What's the new absorption rate? (b) Did the store get more or less resilient, and how would you justify the rise in expenses?

B10. The Okafor deal's pieces (from earlier chapters): front gross ~$200, dealer reserve ~$1,000, ESC margin $1,400, GAP margin $600. (a) What's the total back-end gross on this one deal? (b) Front-end vs. back-end — which is bigger, and by how much? (c) Which statement line carries the back-end gross?

B11. A salesperson sold 20 cars: total front gross $9,000, total F&I gross (their customers) $22,000. Compute their (a) front PVR, (b) back PVR, (c) total PVR, and (d) total gross contribution.

Part C — Skills & Practice ⭐⭐–⭐⭐⭐

C1. Build a mini-statement. Using these figures, build a one-month operating statement down to net profit, and compute net-to-gross: New gross $300,000; Used gross $400,000; F&I gross $450,000; Service gross $520,000; Parts gross $170,000; total operating expenses $1,520,000; factory additions (net) +$110,000; other adjustments −$30,000.

C2. Compute and interpret absorption for the C1 store. Fixed-ops gross is service + parts. Calculate absorption and write two sentences: where does this store stand on resilience, and what would you do first?

C3. Read your own deals. Take your last 10 deals (or build 10 realistic ones from this book's numbers). For each, record front gross, F&I gross (reserve + products), and whether there was a trade. Then compute your front PVR, back PVR, and total PVR. Write three sentences: which is your stronger number (front or back), what that says about how you sell, and one concrete thing that would raise your total PVR.

C4. Write the owner's read. You're handed Summit's statement from §37.4. In exactly five sentences — one each — state: (1) the score (net & net-to-gross), (2) the safety check (absorption), (3) the strongest department, (4) the biggest expense and any concern, (5) the single thing you'd do first if you ran the store. Write it as if briefing the dealer principal.

C5. Diagnose from symptoms. A GM reports: net down 18% month-over-month, gross flat across all departments, F&I back PVR down from $1,500 to $1,150, everything else stable. Write the diagnosis and the first two actions you'd take. (Hint: gross flat means it's not a selling-volume problem.)

C6. Role-play the one-on-one. Script the 60-second conversation where you ask your manager, "Where do my numbers land on the store's statement, and what would you most want me to move?" Write both your ask and a realistic manager reply that names a specific number (front PVR, back PVR, units, or CSI). Practice it out loud.

C7. Month-over-month detective work. A store's statement, two months side by side:

                          MONTH 1         MONTH 2
  Total gross           $1,900,000      $1,920,000   (roughly flat)
  Floor-plan interest      $80,000        $145,000
  Advertising             $115,000        $115,000
  Personnel               $880,000        $885,000
  Rent / other            $400,000        $400,000
  Factory additions       +$100,000       +$100,000

(a) Compute total operating expenses and net profit for each month (additions add after operating profit). (b) Net went which direction, and by how much? (c) Gross was flat — so where did the change come from, and what real-world cause does it point to (Chapter 34)?

Part D — Synthesis & Critical Thinking ⭐⭐⭐

D1. The chapter says "the ethical number and the profitable number are the same number on different timelines." Explain what that means using CSI and the gross lines of the statement. Then give one situation where they appear to conflict in the short term and resolve in the long term.

D2. A GM is one unit short of a factory volume bonus worth $40,000 on the last day of the month. A salesperson offers to "report" a deal as delivered that's actually still in finance approval and might fall through. Using §37.5's ⚠️ box, explain why this is gaming the statement, what specifically it risks, and what the GM should do instead.

D3. Two stores have identical net profit this month: $450,000. Store A has 70% absorption; Store B has 35% absorption. They look equally healthy on the bottom line. Argue which store is actually in a stronger position and why, especially if a recession hits next quarter.

D4. The chapter frames absorption as a threshold concept. Describe the "before" and "after" understanding in your own words, and explain how crossing this threshold changes how a salesperson (not just a GM) should behave on the floor.

D5. Floor-plan interest is "the cost of being slow." Explain how a single decision — letting a used car age past 60 days — shows up on the statement in two different ways (one in a gross line, one in an expense line), and why a GM who watched only gross would miss half the damage.

D6. A new salesperson says: "I made the store $3,000 of gross on that deal — I'm a hero." Their manager replies with a second question the salesperson never thought to ask. What is that question, and why does it separate a salesperson's view of the statement from an owner's view?

D7. The chapter argues that "gross is offense, expense control is defense, and net is the score." Pick a real (or realistic) decision a salesperson can make on the floor — not a manager — that affects each of those three things, and explain the chain from your action to the bottom line. (Hint: think about a complete delivery, a service handoff, or how hard you grind a fair deal.)

D8. Two salespeople have identical total PVR of $1,300. One has front PVR $900 / back PVR $400; the other has front PVR $450 / back PVR $850. Same total — but a GM thinking about next year's statement may not value them equally. Argue which profile the GM should prefer to grow, and why, using what the chapter says about trust, CSI, and the F&I line.

Part M — Mixed / Interleaved Practice ⭐⭐–⭐⭐⭐

M1. (Ch 37 + Ch 33) From the desk's seat, you structured the Okafor deal in Chapter 33 (front + back gross). Now trace that exact deal onto the statement: name every department line each piece of the deal lands on, and which line carries most of the deal's profit.

M2. (Ch 37 + Ch 1) Chapter 1 gave you a one-table statement preview; this chapter gave you the full page. List two things the full statement shows you that the preview table could not — and explain why each matters to a GM.

M3. (Ch 37 + Ch 34) A store's days' supply is 80 and climbing. Predict, specifically, what will happen to two lines on next month's statement (name them and the direction), and what the GM should do this week to prevent it (Chapter 34).

M4. (Ch 37 + Ch 35) Chapter 35 called fixed ops "the keel." Using the absorption formula, explain mathematically what a "deep keel" looks like as a percentage, and what investment grows it. Then explain why growing it can raise the expense lines and still be a great decision.

M5. (Ch 37 + Ch 24) F&I back PVR is the F&I gross line divided by deals. If the store's F&I manager improves product penetration honestly (Chapter 24), which single line on the statement grows, and how does that flow down to net? Trace it.

M6. (Ch 37 + Ch 12 + Ch 5) A buyer who's read Chapter 1 says, "I know the car is your thinnest profit, so I want your rock-bottom price." Using what you know about where the store actually makes money (this chapter) and ethical negotiation (Chapter 12), write a two-sentence honest response that neither lies nor gives away the store. Then note how that deal still pays you (Chapter 5) through volume and back-end.

Part E — Research & Extension ⭐⭐⭐⭐

E1. Find out (from NADA's published industry data, your store with permission, or a reputable automotive-retail source) the typical absorption rate for franchised dealers in a recent year, and how it varies by brand or store size. Write a paragraph: where would a store want to be, and what drives the differences? Cite your source plainly (Tier 1 only).

E2. Real factory statements use a standardized chart of accounts (the manufacturer specifies the form). Without reproducing any confidential document, research how the statement is structured — what a "page 1 / financial summary" versus the detailed departmental schedules contain — and write a one-page explainer of how the levels of detail serve the GM versus the factory.

E3. Interview someone who reads a dealership statement monthly (a GM, controller, office manager, or owner — with their permission). Ask: "What's the first number you look at, and why?" and "What number do most salespeople never understand?" Write up what you learned in half a page and compare it to this chapter's order-of-reading in §37.7.

E4. Build a small spreadsheet model of a dealership month. Create input cells for each department's gross and each expense line, plus a factory-additions cell, and formula cells for total gross, total expenses, operating profit, net profit, net-to-gross, and absorption. Then run three scenarios: (a) baseline (use Summit's §37.4 numbers), (b) a "slow lot" month (floor-plan and advertising rise, as in the chapter's productive-struggle box), and (c) a "deep keel" month (fixed-ops gross grows and absorption climbs toward 70%). Write a short paragraph on what each scenario teaches about which lines a GM should defend.

E5. Compare the franchise factory statement to an independent used-car dealer's financials (Chapter 21). Using NIADA resources or a reputable source, write a page on what lines an independent's statement has that a franchise's doesn't (and vice versa) — and why the absence of factory additions (holdback, volume bonus) and, often, a service department changes how an independent must manage gross and floor-plan to survive.