If you examine the average dealership’s sales from 2010 through 2016, you’ll notice that they steadily grew year-over-year. Of course, the average dealer grew because the market grew; and while everyone saw sales increases over that period, only a small percentage of dealers experienced an actual increase in their market share.
Interestingly, during this same period, most dealers also saw their employee turnover increase while their new car margins were being squeezed; all despite the positive sales trends. This really begs the question: In a flat market – when there are no year-over-year gains – what’s the average dealer to do?
The Flattening Vehicle Market
Arguably, the biggest trend impacting dealers right now is how to deal with a flat market. While not qualifying as a “sky is falling” moment, if the market is indeed flattening (as most experts suggest), it will affect everything dealers do for much of the foreseeable future.
There are two sayings about a growing market that have always held true: 1) A rising tide raises all boats; and 2) Sales cures all ills. When a dealer’s market stops growing, their “ills” become genuine issues; and the average dealer – the one without strict, simple, repeatable sales processes – will begin to panic.
Panic, as we know, is not a good thing for a dealership (or an OEM, for that matter).
Even as the market was still setting records in 2016, we began seeing increases in discounting. For top dealers who focus on always creating a great customer experience and following solid sales processes, the increased discounting seemed like madness.
Unfortunately, if your only strategy is to chase volume, then the slightest hiccup in your month can cause you to abandon everything you know in order to hit your volume goals…
…for that month
…without regard to next month
…or next quarter
…or next year.
String enough panic months together and your team begins to believe that’s the way it works around here. We relax the first couple of weeks, we get yelled at in the third week, we drop our pants the last week.
Rinse. Lather. Repeat.
For dealers and (especially) groups chasing volume with no underlying strategic plan, you see your discounting grow and your margins shrink as you watch your already horrendous turnover get worse. (We’ve all seen this movie before and we know how it ends; so, let me be the first one to get this out on the table this time: You cannot cut your way to growth.)
If Only We Could Recruit & Hire Better Salespeople!
Let me level set before moving forward: I think the whole staffing, hiring, & recruiting focus in automotive retail is misplaced (at best) and a massive fraud (at worst). The issue is not who we’re hiring or who we’re recruiting. The issue is who is leading these people once they join our team.
Give me a great leader and 10 random Burger King fry cooks, and over the long term that team will outperform a bad manager and 10 “perfect” hires. (I know this, because the bad manager will blow out your 10 perfect hires in the first 90 days.)
Ultimately, the great leader with the 10 fry cooks will end up with a turnover rate near 20%, while the bad manager will continue to hover above 100%. (And, as I’ve written before: If you can solve the turnover issues at your dealership, everything else is a cakewalk.)
Presently, dealers waste hundreds of thousands of dollars every year on recruiting, hiring and training; when the real issue is that they have Deskers instead of Leaders. Now, there is certainly a place for Deskers, but every dealership needs someone to lead their salespeople. There is no other industry that wastes more money on training and retraining their salespeople than automotive retail.
Why is that? Here’s a hint: It’s not because we need to spend more on better recruiting, hiring or training.
It’s Culture, Right?
Sure, higher turnover and chasing volume can be symptoms of a bad culture; but telling someone “you need to improve your culture” is utterly meaningless to most people. If you want to help a dealer or group positively impact their culture, it’s better to give them examples of what a great dealership culture looks like.
First, let’s agree that the results you reap from having a great dealership culture are worthwhile. That is, it makes sense to pursue a better culture, because the rewards far outweigh the effort.
Next, let’s agree that we can identify a great dealership culture by examining metrics like market share growth, gross profit growth, employee retention, employee morale, customer retention and, of course, customer satisfaction. When all of these measurements are moving in the right direction, I would argue that the respective dealership or group has a great culture. When they are not, I would argue the opposite.
Okay, So What’s a Great Dealership Culture Look Like?
Over the years, I’ve worked with hundreds of dealerships, and it’s become easy to quickly spot whether or not a particular store has the makings of a great culture.
For example, when the owner or general manager is highly engaged with their team and their customers, you can bet with certainty that the metrics I mentioned above are moving in the desired direction. In these stores, the leader is someone who is on the floor every single day interacting with salespeople, mechanics, lot porters, service advisors and customers. You see them walking through service at 7:30 AM and taking the time to greet everyone. You see them chatting with the salespeople in the late afternoon and shaking the hands of their customers.
When I see this, I know immediately that this team has higher morale, lower turnover, better grosses and they are growing market share.
Although it may seem counterintuitive at first, stores with great cultures also have a strict adherence to rules and processes. This helps create a great culture, because deep down great people want structure, order and direction (and marginal performers need structure, order and direction). Moreover, teams that understand what is expected of them happily perform better than teams kept in the dark.
Along with these strict rules and processes, you’ll usually uncover that great cultures almost never make wholesale changes to their pay plans. Instead, these dealerships find that relatively steady, fair pay plans are generally superior to those where the team sees you as someone who is constantly moving the goalposts. This does not mean great cultures never change pay plans, it’s just that the best dealerships in the country only touch these when dictated by significant market changes.
You also discover with great dealership cultures that everyone feels appreciated. That is, employees from the receptionist to the general manager feel that their contribution matters and that their contribution is appreciated by those in charge.
Finally, whenever I find myself working in a great dealership culture, it’s no coincidence that I can clearly see that they love their customers. This might seem cliché, but the dealerships with the best cultures are actually excited to serve customers. You don’t see service advisors, for example, not returning calls in these dealerships. On the contrary, you see everyone proactively working to assist their customers.
More than likely, this is the result of the leadership truly appreciating their employees. With customer service, everything rolls downhill; all the way to the customer. How you treat your receptionist dictates exactly how she’ll treat the next person who walks up to her desk.
Great Cultures Cannot Be Faked!
Duplicity is the enemy of a great culture. So, whether it’s cheating a customer or lying to the OEM rep just to get him off your back, duplicitous dealers – those who say one thing and do another – create a culture of duplicitous managers and employees.
It’s just not possible to build a great company culture without a solid foundation that includes full compliance, rules, honesty, processes and clear expectations that we’re always going to do what’s right, not necessarily what’s going to make us the most money in the short term.
But What About the Flat Market?
Getting back to the flattening market; those dealerships with great cultures will weather any storm better than those without. From lower turnover to their simple, repeatable processes (that are preferred by today’s buyers), those who grew market share during the market upturn will continue to do so in whatever market we find ourselves in this year.
They won’t panic during the last week of a slow month, because they know that solid sales processes are what sell cars today. They also know they need to sell cars next month… and next year.
They won’t cut their marketing budgets to the bone, because they know you cannot cut your way to growth. Moreover, they know (because they measure) that their marketing is working and delivering an acceptable ROI. (And, why would anyone cut a marketing source that was driving an acceptable ROI?)
Whether the market flattens this year or 2018 or even 2019, we do know it will eventually flatten. It’s been a good run, but even below average dealers have to know that if you didn’t grow share on the way up, there’s no way you’re going to grow it on the way down.
As I wrote, the flattening market is not a “sky is falling moment,” but it should be a wake-up call (especially to the big groups).
Steve Stauning, creator of The Appointment Culture and an expert in The Customer Experience. He is also an extremely popular keynote speaker, writer, and industry consultant. Learn more about Steve at SteveStauning.com.