man drawing umbrella over car

Auto Dealers: What’s Your Total Cost of Risk (TCOR)?

by Tom Kline

Financial statements track how you are doing financially every month. Consider measuring and benchmarking TCOR as a part of your ongoing financial statement process.  

What is TCOR and why should you care about your dealership’s Total Cost of Risk (TCOR)? 

Business is about keeping the money you make. Your sales and gross profits could be at record highs, but your losses might be, as well. Unless you are tracking TCOR, your money may be walking out the back door because of losses or customer problems. Consider changing the way the dealership accounts for losses at the store (TCOR).   

The only way to improve in any area is to measure it and benchmark it.

TCOR is a metric used to evaluate your dealership’s internal risk process.

Here is how it’s calculated:

Insurance premiums +

self-insured losses +

losses associated with lower profits and productivity +

risk administrative expenses (internal & external)

= Total Cost of Risk (TCOR) 

Tracking this metric will help you laser focus on which parts of the dealership cost you money. Consider customizing and defining each aspect of the formula to specify the guidelines for your dealership. These guidelines will be different for every owner-operator. It’s important to be consistent in how you establish and execute the accounting at your dealership based on those guidelines. Consistency will produce accurate data leading to meaningful answers. 

Here’s an example: Let’s say you sell vehicles to people who have credit challenges (secondary customers). In my experience, if you “spot” them in their vehicles, and then cannot get them financed for whatever reason, they tend to write more negative online reviews. Hopefully, you have a process at the dealership to bring them back in and try to satisfy them in some way.  

(If not, start today. Most lawsuits and regulatory problems start with upset customers. In fact, a dealership in Tennessee recently had its license revoked after multiple claims of deceptive acts. Now, the owner has been convicted of twenty-one (21) felony counts. His problems all started with customer complaints. Pro Tip: After you have satisfied the customers’ concerns, ask them to “update” their review. If you ask them to “change” their review, the customers will feel manipulated, Then, it will look like the only reason you helped them was to have them update the online review.)

If you tracked the personnel time and all other expenses associated with these types of issues, you would be able to determine the actual cost of taking care of these customers. This is only one aspect of TCOR. (Please refer to the formula above.) If the dealership accounts for these costs accurately, it means you can no longer hide these losses in “Other Income.” In many dealerships, “Other Income” becomes the “garbage pail” of accounts, where you charge expenses, so the managers who are paid on gross won’t complain about chargebacks.   

Using the secondary customer example above - whether or not TCOR is being tracked - we can discuss which policies and procedures can be put into place to stop these types of losses. There are plenty! We will not know the effectiveness of the procedures unless the numbers are tracked accurately.

Recently, I have been hearing dealers espouse a case of the “yets.”  

  • “I haven’t been sued yet.”
  • “I have not heard from a regulator, yet”
  • “We haven’t had any major problems, yet.”

So, I don’t need to track TCOR… 

Depending on the accounting controls at the store, the losses may be bigger than you realize. Unless you are measuring these costs, it is unknowable how much money is being poured into issues at your dealership.

Do you really know your risk costs? Reputational losses? Customer satisfaction charges? Please consider tracking and measuring these numbers moving forward.  I’ll bet you’ll be glad you did. 


Tom Kline

Tom Kline, a former dealership owner with 30+ years of experience, specializes in solving dealership problems through risk mitigation remedies, compliance, and dispute resolution for dealerships. Tom is the Lead Consultant and Founder of Better Vantage Point and has worked with publicly-held and private dealerships. Kline recently created AlwaysDoBetter.com/HowWeHelp, a digital comment box, to prevent employees and customers from posting negative reviews online while giving the dealer an opportunity to resolve the issue. Kline is a member of the Expert Panel for Dealership Marketing Magazine and an Endorsed Expert for the RVDA, VIADA, and the CIADA. Kline recently spoke at the national Digital Dealer Conference and will be presenting at the RVDA National Conference. Thank you for seeing things from a Better Vantage Point.


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