Three Strategic Questions

In an industry that has been reluctant or resistant to change, the automotive arena has become a frenzy of change moving at light speed. Hardly a day goes by that dealership leaders do not receive a call or read an article about a new technology or process designed to improve their dealership business model. So how do leaders make decisions on the new ideas, tools, and processes they should consider?

Multiple solutions with varying approaches and levels of functionality are available to address the same operational issues. We need only look at CRM or DMS applications to understand the vast range of solutions and vendors to choose from. Consequently, selecting the right solutions can be extraordinarily complicated: What improvements should I expect? What is the ROI? In what ways will I have to operate differently? What disruptions should I expect and for how long? How will a new technology affect my employees and customers? Is this technology solution even my best option?

Having had the remarkable opportunity to interact with some of the greatest automotive leaders in our industry during the past 30+ years, I have been able to observe how they think about questions like these. What these visionaries do first is think strategically, considering three key questions whose answers form the basis for considering potential solutions.

As we move into not only a new year but a new administration and potential reduction in business regulations, it is highly likely we will see some change and associated opportunities worth considering. Following are the three strategic questions I’ve observed successful auto industry leaders use to properly frame their decision-making.

How will my customers react?

I have always marveled at how dealership owners and senior managers make snap decisions on significant issues. It is perhaps their inherent entrepreneurial spirits at work, but many decisions are nevertheless made in a bubble or because certain solutions have worked in the past. Characteristically, we miss the simplest practice when considering business model or process changes: asking the customer.

Historically the automotive industry has been very savvy at responding to changing markets, regulation, and consumer behavior…shifting revenue streams accordingly. It’s been like putting pressure on a balloon and watching it expand in a different area; we simply moved from where revenue was lost to focusing on where it could be increased. Based on age and tenure, for example, I can remember when trucks did not have Monroney labels with pricing information. When the labels changed to include pricing we simply added addendums.

Today’s consumers have all—and I do mean all—the information they need right at their fingertips. They have no hesitation about checking out what you’re saying—or what the competition has to offer—while standing right in front of you in the dealership. And many retailers are facing even more extreme challenges, with customers in electronics, clothing, jewelry, auto parts, and other stores not only fact-checking the merchant and comparing prices with the local competition, but ordering the product right then and there from Amazon.com!

So, asking your customers how they would like to interact with your business is critical today. But be prepared; there is no one-size-fits-all answer. However, by increasing your understanding of what customers want when doing business with your dealership, you can better understand what products, services, processes, technologies, and vendor-partners you will need to meet and deliver on your customers’ expectations. This will result in differentiating your dealership from those that continue to make decisions based on what’s worked in the past or what has been learned “inside the bubble.”

Will this idea increase customer and employee retention?

If your business strategies are not laser focused on customer and employee retention your business model is at risk. Let’s look first at consumer retention as a critical aspect of your business. Many dealerships have experienced record profits over the past few years. You have likely increased your units in operation (UIOs), increased profitability, and are enjoying—rightfully so after suffering through the Great Recession of 2007 – 2009—solid business growth. I don’t want to be a doomsayer, but as many of you are aware, we are overdue for the next economic down turn.

Again, it has been my observation that dealerships committed to customer retention experience comparatively less disruption in their businesses when the industry slows. Why? Because solid customer relationships and the value-added services and tools that make it easy to do business with a retailer keep the store top of mind both during economic slowdowns and afterwards, when customers eventually return to the market for their next purchases.

Communicating with your client base on a regular basis with non-sales-related information about your brand, employees, dealership, and community activities is of interest and value to many customers. Offering special rewards for vehicle, service, and parts purchases is also greatly valued by most consumers…just look at your customers’ key chains: many are loaded with bar code fobs and membership tabs for grocery and drug stores, gas stations, and other retailers. These retention tools constantly remind consumers of the extra value they are receiving from their customer-focused retailers, and they respond accordingly during good economic times and bad.

Equally critical is employee retention. In 2015 NADA recorded sales consultant turnover at 71%. We all know the expenses associated with this horrific statistic; however, it has been my observation that there is an additional, hidden expense not discussed when we look at this issue. When two-thirds of your staff are new and inexperienced—a nice way of saying “incompetent”—dealership production, customer satisfaction and retention, and online reviews all suffer. This sort of thing is sometimes referred to as the Cost of Poor Quality (COPQ).

But wait, there’s more. When you are in an environment that is constantly training sales fundamentals, your company is stuck. As an example, in variable operations, you never get your sales consultants to an “advanced” level where they’re selling 20+ units/month, making a good living, building a loyal customer base, and growing the dealership’s business.

And there’s yet one more thing: dealerships compensate for the cycle of turnover and suboptimal sales consultant performance by loading up on managers. In a business besieged by margin compression and expected slowing growth, we cannot continue to add management to fix the problem; there just is not enough gross to go around.

As an industry, we must identify the causes of and arrest employee turnover in our dealerships. This can be accomplished through improved employment offerings, improved interview skills, increased and sustained training activities, improving internal sales processes that mirror customer preferences and sales consultant skill sets, and—most importantly—by moving leadership away from transactional skill sets and into the roles of coach and personnel developers.

Is this something I’m willing to commit to in the long term?

With the rapid pace of change in today’s marketplace I think it is incumbent upon a leader to think in terms of both long- and short-term net profit effects. The implementation of a new process or technology may have a negative impact on short-term net profit yet yield large long-term returns in 3 to 6 months and beyond. So, the objective is to determine your appetite for the time needed to fully make a change generating improved customer satisfaction and retention, sales, employee effectiveness and retention, and business profitability.

I am reminded of the insightful words from Stephen Covey’s Law of the Farm. Covey wrote that you cannot enjoy the wonderful taste and experience of sweet corn on the cob in September if you plant your crop in August. First you need to till the ground from the previous crop and then plant early in the spring, weed and water, fertilize and tend for months to reap the harvest.

I am also reminded of a story I once heard Zig Ziglar tell about a man who was priming an old-fashioned water pump. The man pushed the handle up and down hundreds of times without any water starting to flow, so he gave up and walked away. Another man came by, pumped the handle a few times, and the water started flowing. The moral of the story? You can either decide to put in a specific amount of effort to get a result, or keep working until you get the results you want.

The point of both these stories is that you have to be willing to put in the work and spend the time needed, however much work and time it takes, to get your return on investment. Hence the third question I’ve seen industry leaders ask themselves before embarking on a significant project: Is this something I can commit to for the long term?

Of course, like many things, this is easier to say than to do. What is your appetite?