Right-Sizing in The Current Economy

Different Dealers, Different Methods

As with any industry, the automotive retail industry has seen its fair share of buzzwords. The new buzzword in the industry is “right-size.” In order to avoid being a causality of the economy (NADA estimated 700 dealerships shut their doors in 2008), many dealers have been advised to right-size their dealerships. While it’s not bad advice, it’s not very helpful without explanation or solid examples.

To dealers, there are many different ways to right-size. Some dealers may relate right-sizing to personnel, different departments in a dealership, inventory, or the physical space of the dealership. Turns out, it can include one or all of those things, and when dealers make decisions to right-size their dealerships, careful consideration is given and the numbers are scrutinized to determine what changes are necessary.

John Paul Miller Jr., owner of the Paul Miller Auto Group in central Kentucky, said, “Right-sizing, to me, is an opportunity for a dealership to mirror the market and continue to be able to cater to the customer.” He added, “We basically spent the last 12 months being very aware of the ever-changing market conditions and we have made certain that our lineup of people basically compliments the amount of [sales] traffic and the amount of service we’re getting.” And that is a very basic explanation of what Miller did to right-size his business.

While nimble dealers around the country are right-sizing due to today’s economy, two other dealers – Gary Rosenberg of Crystal Lake Chrysler Jeep and Billie Remund of Gootee Chevrolet Pontiac Buick in Chehalis, Wash. – were willing to share their right-sizing efforts with ADM readers. They, like Miller, examined and modified their business models in 2008 to meet their market demands.

Trends in Service Lead to Adjustments in Fixed Ops
Miller, who owns three dealerships (Ford, Mazda and pre-owned) as well as an elaborate service operation, began to notice a trend in mid-2007 and spent much of 2008 making changes to mirror his market. “We started to see an interesting shift in our marketplace … our customers were servicing their vehicles more than they were actually purchasing a new vehicle,” he said.  

At Crystal Lake Chrysler Jeep, Rosenberg said he’s seen a “gigantic” uptick in service business in 2008, which he attributed to two things—the fact that “if people don’t buy cars they have to service them” and a couple of his competitors going out of business.

In order to handle the increase in service business, he added to his service department in a big way. In late November 2008, a $7 million expansion was completed, which added 14 bays to his service department. Prior to the completion of the expansion, Rosenberg added a technician to his service staff, and as of mid-November, he planned to add more service staffers to help man the 14 new bays.
 
Miller also added to his fixed ops departments. To create better relationships with service customers, Miller added the Ford Quick Lane to his service department, which included a new Quick Lane customer waiting area that allows the customers to watch their repairs and interact with the service techs working on their cars and ask questions.

To generate revenue, another recent addition to the service department was Paul Miller Custom Accessories. Miller said they’ve increased DVD and stereo installations, window tinting, and custom bedliner installation. In Lexington, Ky., trucks are still a big seller, so Miller saw value in investing in a new Toff bedliner spray system. He said adding the accessories business and the Quick Lane has been a “big success for us.”

Also a part of that success was adding two off-campus body shops, both of which are located less than 15 miles away from the main campus. Plus, at his on-campus service department, he added heavy truck service, which includes 32 service bays for medium-duty to heavy trucks.

Another subtle, but clever, addition involved revamping the dealerships’ shuttle service. Now, salespeople at Paul Miller fill in as shuttle drivers and transport service customers to and from their destinations in brand new vehicles, which allows the salespeople to educate customers about new products and grow their potential customer base.

Rosenberg had a positive outlook. “Business is not as bad as they’re saying,” he declared, contrasting it to the economic impact 9/11 had on the industry. “That’s when [zero percent financing] first hit. My service business fell apart a little bit, went down, but my sales business went up. Now it’s just the opposite.” He’s survived economic adversity in the past and plans to survive and even thrive in the current economy.

Making the Tough Decisions

Sometimes with right-sizing comes tough decisions (e.g., decisions to cut back on personnel, advertising, inventory, etc.).

Remund, who has been keeping an eye on expenses at Gootee Chevrolet Pontiac Buick over the past couple of years, began to look more closely at her business model in mid-2008 to determine where she needed to right-size. She concluded that she needed to scale back service and parts personnel. She was forced to trim a couple of employees – one in service and one in parts – a decision she said nobody likes to make.

Miller also made some difficult decisions when he overhauled his sales department and fixed ops. Ultimately, he cut personnel from both departments, which he called “the most difficult decisions in our company’s history because we have a lot of employees that had … put a lot of time and effort into the success of our dealership, and it was not any decision that was taken lightly.” In sales, he made the decision to keep the salespeople who were selling close to 10 and 15 vehicles a month and hone their skills, while those who were only averaging a couple sales a month were trimmed.

Miller consolidated fixed ops into two key departments—the service department and a conglomerate of other departments he referred to as detail. Before he began right-sizing, he had a detail department, reconditioning department, parts department, accessories department, new car prep department, PDI department and Auto Butler department.

Miller and his management team discovered overlap in these different departments, so he merged all those departments into one and cut back the staff from 14 to five. Instead of separate departments with separate responsibilities, they’re now one department, with all employees on one team

Advertising  is one expense that many look to cut back on when times are tough, and both Remund and Miller did just that. Remund, who advertises in her local newspaper, simply stated that their store hasn’t done as much advertising lately.

The management staff at Paul Miller evaluated all of their campaigns – TV, radio, Internet, billboards, event sponsorships, print – and determined they needed to remain consistent in all the same media, but with a more focused approach. Miller explained, “We created a staple promotion for each quarter that we could basically rally around. In doing that, it allowed us to reduce our overall expense for advertising.” He relies on his manufacturer’s message as his monthly “go-to market strategy,” as opposed to “shooting from the hip on the third or fourth day of the month trying to figure out what we’re going to buy or where we were going to place our media.”

As a 55-year-old business, the Paul Miller Auto Group has decades of branding to its advantage, which will help it remain a staple in its market even with less advertising. Miller said there’s luxury in having built his brand, but it’s important to continue to stay in front of your customers on a consistent basis.

Miller surmised, “As the market continued to erode, we were continuing to try to stay ahead of it, and I think … the key is to stay ahead of the market conditions … You know your market better than anybody. If you can stay ahead of it and make decisions … the team that you have in place can come out ahead because you’re prepared for it.”

Inventory, another aspect of business at Gootee that went under the microscope, was refocused to meet market demands. Remund said, while she’s maintaining about the same inventory levels as before, her store is now stocking fewer trucks and more fuel-efficient vehicles. She added, “We’re a small business, so we don’t have that many places that we could cut.” Gootee has a total of 26 employees.

While Rosenberg’s service operation is fruitful, as of mid-November, his sales numbers had dropped, which caused him to scale back on inventory. As of November, his store was averaging about 60 units per month, down by about 40 units when compared to his 2007 monthly averages. He keeps an “extremely watchful eye on” inventory levels, always stocking a 90-day supply on his lot. He said matter-of-factly, “Now we’re in the 60-car range, so I just adjusted accordingly.”

Filling Any Gaps

With a smaller sales staff, Miller saw a need to beef up training for the remaining salespeople. They received additional, extensive training, which was completed in-house at the Paul Miller University.  

The sales department training covered customer relationship management (CRM), phone skills, product knowledge and Microsoft Excel. The motivation behind all this training: to cultivate their current customer base with a sales staff equipped with the appropriate knowledge to take care of the customer in the most efficient manner.

Miller now compares his sales staff to a business development center. Two managers, the Internet manager and the marketing manager, hold the sales staff accountable for their calls, follow-up and appointments on a daily basis. While the Excel training may seem a little out of place, it was a perfect compliment to right-sizing the sales department because it allowed the salespeople to perform certain duties more efficiently, like creating log sheets.

The dealership also receives several reports in Excel, and Miller wanted his salespeople to be able to understand those. “We really wanted our employees to be comfortable to open up those files, to understand what an Excel file is and how it calculates and how it works, so we just took them through a basic Microsoft Excel 101.”

Miller’s fixed ops employees had to be cross-trained to perform all related duties, so their team could really work as a team. While some of the fixed ops training was done at the Paul Miller University, much of it was on-the-job training overseen by the senior staff members.

In Gootee’s fixed ops, extra training wasn’t necessary, as the remaining employees “filled in the places” as needed because many of them were long-time employees already trained in those positions.

Rosenberg—who’s filling in gaps made by expansion, not by cutbacks—isn’t having any trouble finding new service employees. Since a couple of his competitors have closed their doors, he’s actually able to find well-trained employees, which he called “the pick of the litter.”

If it Ain’t Broke…

One department none of the three dealers adjusted was their finance department. For example, Miller reviewed and evaluated combining his two finance departments (standard and special finance) and ultimately did not make any changes. He chose to keep the departments separate mainly because they operate so differently. He said he has some special finance professionals who work extremely hard on each deal and “on the phone and helping customers getting approved,” and he didn’t see value in having those employees waiting in the showroom for the credit-challenged customer to walk up to the store.

Rosenberg, who didn’t make any changes to his sales staff and sales processes, was happy to add that he hasn’t had to lay off any of his personnel while right-sizing his dealership.  

While these dealers will continue to closely watch their markets and numbers, they’ve done a fine job so far in staying ahead of the market and remaining profitable in uncertain times. While some of their adjustments were minor (Miller’s salespeople shuttling service customers in new vehicles) and others were major (Rosenberg’s $7 million expansion), these dealers serve as solid examples of how to right-size a dealership in different markets and in this tough economy.

Vol. 6, Issue 1