INDUSTRY INSIGHTS | FALL 2010 EFFECTPeople, Pay, and Profit Centers
by Saylor SimsBetween 2007 and 2009 U.S. automobile sales dropped by more than 5.7 million units, or nearly 35 percent. The number of dealerships also declined dramatically—by nearly 2,500 stores—over that same span. A large portion of this reduction was due to the elimination of the Pontiac, Saturn, and Hummer lines during 2009 and, more recently, the Mercury brand.
Dealers, however, have higher hopes for 2010. Most expect an economic recovery to begin this year, with demand increasing at a measured pace and inventories remaining low. The question facing dealers now is how to capitalize on these growth opportunities as the economy in general, and automobile sales in particular, begin to recover.
Several areas of a dealer’s business hold the potential to provide the seeds of success going forward.
Prime personnel
The reduction of franchised dealerships has created a large pool of experienced personnel at all levels. As the economic recovery kicks in, dealers should evaluate staff needs and determine if new hires might strengthen the dealership. This may involve reassigning or reducing current employees as the dealership reconfigures itself based on the additional skills it acquires with new staff.
Analyze compensation plans
Your pay plans should provide fair compensation to each employee and motivate them to perform. Recognizing the contributions of high performers not only serves as a motivational tool but may also help with retention. By failing to recognize and reward the loyalty and contributions of everyone in the organization, you risk losing good employees.
Add franchises, not locations
The elimination of multiple brands over the past two years has left many dealers searching for replacement franchises. Based on the high return on investment at many dealerships, this may result in the blue-sky value of the franchise increasing to unreasonable levels.
However, dealers with sufficient capital have a distinct negotiating advantage because of the lack of funding available for expansion. In addition, the recent closure of poor-performing dealerships will further encourage strong dealerships to expand their franchise base, (typically to the detriment of weaker dealerships). This combination of factors means that now may be an excellent time to grow.
Develop additional profit centers
The current economic climate should provide abundant opportunities for dealers to increase revenue through used vehicle sales, service, and parts. They may also be able to develop new profit centers. As consumers and their credit remain on shaky ground, many cannot afford to make big-ticket purchases, such as new automobiles, so they are holding onto their cars longer and are more likely to need repair services. Those opting to purchase a vehicle may turn to the used vehicle market instead, and some of these customers will require financing—possibly through the dealership.
Though the economic landscape has changed, it is still filled with opportunities. Despite the challenges many dealers have faced recently, the future provides elements of hope. Focusing on a few key areas should position dealers to grow stronger as the economy recovers.