Chapter 37 — Quiz: Reading the Dealership Financial Statement

Test yourself before moving on. Answers and short explanations are hidden in <details> blocks — try each question before you peek. Scoring guide at the end.

Multiple Choice (12)

Q1. The dealership's monthly financial statement is sent to all of the following EXCEPT: - A) The manufacturer (OEM) - B) The floor-plan lender - C) The dealer principal / ownership - D) Every customer who bought a car that month

Answer **D.** The statement goes to the factory, the floor-plan bank, and ownership/the GM — never to customers. It's an internal/regulatory document.

Q2. Every department on the statement follows the same logic. Which is it? - A) Cost − Revenue = Net - B) Revenue − Cost of Sales = Gross; Gross − Expenses = Net - C) Gross + Expenses = Revenue - D) Net + Cost = Gross

Answer **B.** Revenue minus cost of sales equals gross profit; gross minus operating expenses equals net profit. This sentence is printed, in effect, once per department across the page.

Q3. On Summit's illustrative statement, which department produced the single largest gross line? - A) New vehicles - B) Used vehicles - C) F&I - D) Service (labor)

Answer **D.** Service labor at $560,000 — bigger than new ($360K), used ($420K), or F&I ($480K). The quiet repair shop out-grosses the showroom.

Q4. The absorption rate is calculated as: - A) Net profit ÷ total gross - B) Fixed-ops gross ÷ total operating expenses - C) Front gross ÷ back gross - D) Service gross ÷ parts gross

Answer **B.** Fixed-ops (service + parts) gross divided by total operating expenses — the share of all the store's bills that fixed ops covers by itself.

Q5. Why is ~100% absorption the goal? - A) It means the store sells the most cars - B) It means fixed-ops gross covers all operating expenses, so every car-sale dollar is profit and the store survives a sales drought - C) It's a factory requirement - D) It lowers the price of new cars

Answer **B.** At 100%, service alone pays all the bills — car-sale gross drops straight to net, and the store doesn't bleed cash even if sales collapse for months.

Q6. A store has fixed-ops gross of $750,000 and total operating expenses of $1,500,000. Its absorption rate is: - A) 200% - B) 50% - C) 25% - D) 75%

Answer **B.** $750,000 ÷ $1,500,000 = 0.50 = **50%.**

Q7. PVR stands for: - A) Profit Versus Revenue - B) Per Vehicle Retailed - C) Pre-Validated Reserve - D) Parts and Vehicle Ratio

Answer **B.** Per Vehicle Retailed — the average gross per car (front, back, or total).

Q8. A spike in the floor-plan interest expense line most directly signals: - A) The store is advertising too much - B) Inventory is aging — cars sitting unsold are racking up interest - C) Salespeople are underpaid - D) F&I penetration is too high

Answer **B.** Floor-plan interest is the bank's charge on unsold inventory; a spike means cars are sitting (aging), tying back to [Chapter 34](../chapter-34-inventory-management/index.md).

Q9. One deal — front gross, F&I products, the trade, and the customer's future service — can land on how many different departments of the statement over time? - A) One - B) Two - C) Four - D) None; it's all one line

Answer **C.** Front gross → New/Used; reserve + products → F&I; the trade → future Used; service visits → Service/Parts. Four departments, one relationship.

Q10. On Summit's statement, total gross was $2,000,000 and net profit was $500,000. The net-to-gross ratio is: - A) 40% - B) 25% - C) 10% - D) 4%

Answer **B.** $500,000 ÷ $2,000,000 = **25%** — the store kept 25 cents of every gross dollar.

Q11. Which is the LARGEST operating expense at a typical dealership? - A) Advertising - B) Floor-plan interest - C) Personnel (payroll/commissions) - D) Utilities

Answer **C.** Personnel — typically around half of total gross. People are the biggest cost in retail automotive.

Q12. Carmen contributes more total gross to the statement than Rick even though Rick wins on front PVR. The main reasons are: - A) Carmen sells more units AND has a higher back PVR - B) Carmen has a lower CSI - C) Carmen sells only used cars - D) Rick doesn't use the F&I office

Answer **A.** Carmen sells more units (25 vs 18) and her trusting customers buy more in F&I (back PVR ~$1,000 vs ~$300). Total gross = total PVR × units, and she wins on both.

True / False (with one-line justification) (5)

Q13. A department can have a large gross and a thin or negative net. (T/F — justify)

Answer **True.** Net = gross − expenses; if a department's expenses (recon, floor-plan, advertising, commissions) are bloated, a fat gross can shrink to a thin or negative net.

Q14. Absorption above 60% guarantees the store is profitable. (T/F — justify)

Answer **False.** Absorption measures how much of *expenses* fixed ops covers, i.e., resilience — not net profit itself. A store can have decent absorption and still post a poor net if car-sale gross is weak. (High absorption makes profitability *easier* and survival *safer*, but it isn't a guarantee.)

Q15. Holdback and factory volume bonuses show up in the salesperson's front-end gross per unit. (T/F — justify)

Answer **False.** They land in the "additions to income" section as factory money the store keeps — they don't appear in the front-end gross-per-unit the salesperson sees, which is one reason a store will sell at near-zero front gross.

Q16. CSI never appears as a dollar line on the statement, so it doesn't affect the statement. (T/F — justify)

Answer **False.** CSI sits *behind* the statement — it drives factory bonuses, allocation, and the repeat/referral business that fills next year's gross lines. It's next year's statement hiding behind this month's.

Q17. Service revenue is "transactional," while car sales are "recurring." (T/F — justify)

Answer **False — reversed.** Car *sales* are transactional (once every several years, swing with the economy); *service* is recurring (the customer pays into it for years, in good times and bad). That's exactly why service is the stable foundation absorption measures.

Short Answer (4)

Q18. In one or two sentences, explain the difference between a department's gross and the store's net.

Answer Gross is what a department made on the goods/services it sold (Revenue − Cost of Sales). Net is what the whole store keeps after subtracting all operating expenses (and adding factory money) — the bottom line. Gross is what you made; net is what survived the cost of running the place.

Q19. Give the order in which a GM reads the statement (the five-step priority from §37.7).

Answer (1) Net & net-to-gross (the score) → (2) Absorption (the safety check) → (3) Gross by department (where it came from) → (4) Expenses vs. gross (the leaks) → (5) Floor metrics: PVR, units vs. target, days' supply & turn. Then act.

Q20. Why does a dealership get more aggressive on price at month-end and model-year-end, in terms of the statement?

Answer The store is chasing a factory **volume bonus** that lands as a fat "addition" on the statement. One more unit at thin or zero front gross can *trigger* a bonus worth far more than the car's gross, so the last days of the month are the most negotiable.

Q21. Name the two numbers with a salesperson's "name on them" that a GM looks at when evaluating that salesperson, and say which one is "this month" and which is "next year."

Answer **Total PVR** (this month's gross contribution — gross ÷ units) and **CSI** (next year's statement, hiding behind this month's — it drives repeat/referral business and factory bonuses).

Applied Scenario (2)

Q22. Sandra opens the statement: net down 15%, gross flat across all departments, floor-plan interest up sharply, used-vehicle days' supply at 85. Diagnose and give her first action.

Answer **Diagnosis: aging used inventory.** Gross flat = not a selling problem; the damage is in *cost* (floor-plan interest up) and the symptom (85 days' supply, well past the ~60-day line). **First action:** attack the aging report — price over-age units to the live market so they're visible, and wholesale the dead ones to stop the bleed ([Chapter 34](../chapter-34-inventory-management/index.md)). A defense problem, not an offense problem.

Q23. A store: New gross $320,000, Used gross $410,000, F&I gross $460,000, Service gross $540,000, Parts gross $170,000, total operating expenses $1,560,000. Calculate (a) total gross, (b) operating profit, (c) absorption rate, and (d) state in one sentence the store's biggest strength or risk.

Answer (a) Total gross = $320K + $410K + $460K + $540K + $170K = **$1,900,000.** (b) Operating profit = $1,900,000 − $1,560,000 = **$340,000.** (c) Fixed-ops gross = $540K + $170K = $710K; absorption = $710,000 ÷ $1,560,000 = **~46%.** (d) Sample: the store leans on car sales (sub-50% absorption); its biggest opportunity/risk is growing fixed ops to deepen the keel before a slow sales stretch hits.

Scoring Guide

  • 21–23 correct (90%+): You can read a statement. Move on to Chapter 38 — and bring this skill to your next manager one-on-one.
  • 16–20 (70–89%): Solid. Re-read §37.5 (absorption) and §37.6 (PVR / where deals land) to lock in the two highest-leverage ideas, then proceed.
  • 12–15 (52–69%): Re-read the worked Summit statement (§37.4) and redo the Part B and Part C calculations in the exercises — the math is the fluency.
  • Below 12: Re-read the whole chapter, paying special attention to the department-as-a-mini-P&L logic in §37.2. Everything else builds on it.