The Collapse of the Retail Automotive Industry : 3 Key Factors for Prevention

The end of an era is at the step of your showroom floors. You've ignored it or just do not care by what you have seen, facts being told or even realize the health of your operation. It is coming. Inevitable it is not, as it can be counteracted immediately. It's a choice not a requirement. A choice of fiscal and social responsibility. You might be the guy who just wants to overpack his vehicles so you know you are going to get your cut and that is all that matters.

More consumer friendly ways to purchase cars are now almost in every city. Big chain service centers and parts stores popping up like weeds in a abandoned lawn. Where are you going to be in the next five years?

The Beginning of the End

By reading the title and the intro, some are already constructing their thoughts on what I am about to write. Shuddering at the fact that this is probably something you have heard before or that I am a nut. Never professing to be a proficient writer, I am doing it to evolve my skills. I am adapting and changing DAILY to better myself and the life I choose to lead. Change is something that is inevitable and imperative to adapting to a constantly changing world.

Having worked in the automotive retail industry my entire life, my insight of its operations and atmosphere is extensive. Always having been envious of companies outside the automotive retail industry that offer truly exceptional employee benefits, a solid foundation, progressive training and a positive work atmosphere. Except for a handful of dealerships in this nation, this is not the standard automotive industry or atmosphere.

I will go over what needs to change and that it needs to be immediate. If you think I don't understand what cost factors go into a dealership and how to operate one, you can click off this article now. You are one of the one's in denial of the obvious.

 

  1. Benefits

Working at a dealership, one will be lucky to get benefits that are even comparable to industry standard. Most of my employees in my lifetime have gone without benefits due to cost factor or the plans are just horrible. Employee portions of premiums usually are the bigger part of forty percent of their after taxed income. Their spouses end up working jobs at companies just for the benefits for the entire family with no real income aside from the benefits. I have lost employees in the past to an unnamed large auto group that PAYS the premium for their employees and have reduced family rates. Employees want benefits.

Profit sharing is pretty much non-existent. Dealers will quickly retort with, " What profits?". That is another article, dealers! Having been a senior level director in my time in a few small auto groups, 401k was non-existent. This was something profound to me. Understanding that upper management and some employees might use different avenues of investing for retirement, most dealership employees live paycheck to paycheck.  Not offering any source of savings for your team is just irresponsible as an employer. When you do offer a 401k, the dealer contribution is non-existent or so small that it is not worth even vesting in. Part of the duties of a leader is to teach our people about fiscal responsibility. It pours over into their performance.

Time off, vacation and sick days. These are something rare in the retail automotive world. Vacation is usually a given but strictly policed. Personally, I have taken a week off and had my dealer act is if I had stolen something from him. Dealers need to understand; the general public want a balanced work/life ratio and a mentor to lead them to this. You wonder why sales consultants burn out so fast and managers end up burnt out. Look at your turnover rate for employees that left to go to different industries or a dealer who offers PTO, liberal vacation and paid sick days.

Compensation is a huge factor in all this. I can tell you most subscribe to the “eat what you kill” ideology. It’s something I believe in. Just not your basic intellect. Motivation comes in many different forms. Monetary being the biggest with respect and admiration coming in close second. If you build a pay plan, make it obtainable. Let’s not go off the deep end but start analyzing changing your producers to something game changing. Look at your techs, sales, finance and service consultants’ compensation. Give them a reason to be there. The rest will come.

After researching small to large companies that are very successful, I have found a lot of parallels in their benefits/compensation packages. It is no wonder people flock to these companies. These companies I speak of recruit and retain the nation's top talent for a reason. I have seen, and even worked at, one auto group that prefers to recruit college graduates. It is one of Texas’ top dealers and has all the benefits and perks of a Fortune 500 company.

  1. Atmosphere

Some years ago, I went to train on a software platform that my dealer was launching. Traveling to Utah for my first time, I spent almost a week at their corporate headquarters outside Salt Lake City. I got a firsthand look at something that blew my mind. This alone made me understand why they had a strong employee base and happy customers! As this has nothing to do with a dealership, I am giving you the vision.

Every employee seemed happy and positive at this place. Their workstations were their personal creative spaces. There was no lack of professionalism, just an overabundance of positive production. The company had several "snack/beverage" stations stocked with healthy snacks and beverage options. These were all FREE. Blew my mind. FREE! When I asked one of the trainers the thought process behind this, we sat down during a break and he, with excitement, explained the company philosophy. This company is Solera and continues to rapidly grow and is very successful.

If you walk into a dealership, you are most likely going to find the opposite. Having been in the industry for almost three decades, the last decade has been the worst. I have bought supplies, tools and small equipment with personal funds that dealers would not budge on.  Having any basic creature comforts available to staff is non-existent.

When someone goes inside a business that they are going to spend a considerable amount of their money at, should it not be clean, modern and inviting? Employees tend to have more sense of pride when they work at some place they can be proud of.

When your atmosphere is inviting, your customers will feel welcomed. If you create it, they will come. This alone will build value in your brand. You are not just a car franchisee, you are a brand. Building it correctly will not only increase customer retention, it will increase profits.

 

  1. Leadership

The automotive retail industry is a competitive atmosphere. So much that the sales consultant who sells a steady number of cars will most likely be a sales manager within six to eight months. If that success continues for another year, they will be rewarded with a general manager position. Having no real business acumen or discipline, they now are commander in chief over all variable and fixed operations.

This in turn breeds the synonymous and vicious cycle of your dealership atmosphere. Everyone from techs, parts, service and sales employees rabidly fighting to down a manager to take his spot. The carousel just keeps going.

Leadership is a very rare skill and only comes with the proper tangibles. Many profess expertise as they were manager or directors. That in no way statutes a leader. Did you consistently train, build and develop your team? You must always go into a leadership role as you are going to train your replacement. If you cannot grasp that process, your insecurities are stronger than your leadership abilities. When your team is properly trained and empowered, you spend less time micromanaging (which is a big fail) and more time profitably growing. I could go on, but I am trying to get this as short as possible.

The leadership team must consist of very knowledgeable individuals fluent in common business practices. Knowledge comes from years of experience and not just a few good years as a consultant. Having your team consume information from books and consultants is one way to grow your leaders. This team must also possess integrity and tenacity. True leaders are not cheap. They are an investment which produce multitudes of income for the dealer versus what you compensate them.

The usual practice is to find the cheapest help, someone who will bow to authority and do anything to make things happen. Operating lean is one thing. Subscribing to the ideology of “saving your way to profit” is another. Unless you understand the methods of six sigma, don’t flaunt you are running a lean operation.

Common dealership ideology of running lean translates into bad working atmosphere, poor leadership and toxic employees. Profitability tends to be mediocre and growth, let’s just say growth is only a dream at this point. As a leader, in my opinion, running lean is a very scientific method which takes completely understanding processes, cause and effect, investment versus expense and a variable of strategic tangibles. These allow proper growth, employee retention and the ultimate customer experience.

 

In Conclusion

These are the basics. All three are commonly acknowledged, never to be implemented. Working for dealers in the past and seeing the upside of these work, takes an investment. I understand this is where we agree to disagree. It’s where you must determine your sustainability in the future.

You have places like Carvana eating up market share like no one’s business. Countless threads I subscribe to in automotive sections on Facebook and other forums, I read the same thing day in and day out. Dealers are too expensive, hard to deal with, too much pressure, not consumer friendly atmosphere, employees are rude. These are testimonials and comments about parts, service, sales, finance and even collision. We are so arrogant to think a few pissed off customers got on the internet and shot off. Think about the population that doesn’t complain, but also never comes back!

If you really want to own a dealership, run it like a legitimate business. Growth is only obtainable if consumers keep coming back. You know the old saying, it’s cheaper to keep a current customer than get a new one.

I know it’s a large order to change. You must start thinking about the future today. If you are in the business of buying dealerships to flip, you will most likely disregard any and all advice on investing in the future. Most of you are flying on hope that you will get the right guys at the right price to move metal and kick fixed into raising labor rates and matrixes.

Odds are someone is going to pack the hell out of the vehicles, so you get your personal money up front and the consultants barely feed themselves unless they sell 30 units. You most likely bought a former high performing dealer from years back. Now you are going to hold your new staff to five-year-old data. “They sold 120 new units in 2011, we should be able to hit that!”. That’s not how it works. Paying yourself first mentality is sickening.

Those dealerships didn’t get in the shape they did for you to buy them cheap overnight. Look at the variables. Have more dealers went in recently around the location? Look at turnover rates in the past.  There is so much to look at when acquiring a store. Gauging a dealership by its former performance to predict the future, so many analogies I could throw out here, but it is straight bad business sense.

I know this all sounds like nonsense.  I just believe our team is our biggest asset and investment. They are the key to our success in all ventures. There has to be a huge paradigm shift in this industry for most. If not, where is this industry going to be in the next decade?

Please leave comments or suggestions. I love hearing from others.

 

David Allen Wood

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