Dealership performance can improve if dealers focus on leading and not doing
I am very fortunate to have the regular opportunity to speak confidentially to auto dealers about their businesses. I consider this an honour and a vote of trust in the professional reputation and friendships I have built over the years.
As you can image, no two conversations are entirely the same. It’s testament to the autonomy dealers have had over the years and to their ever engaging entrepreneurial endeavours.
There are so many factors at play, far too many to identify in this short article. As dealerships evolve from small businesses to mid-market businesses, complexity and risks naturally increase.
With those increased risks, comes increased uncertainty. Gone are the days when a dealer principal can have his or her hand on the pulse of all aspects of the business.
Dealerships are organizations and with organizations comes some decentralization and a reliance on processes and internal controls. Managing KPIs has become a dealer’s core skill. There are simply not enough hours in a day or energy in the gas tank, for a dealer to be involved with every aspect of the business.
We have had several years of increasing profitability as a result of increased business activity and managing the business better. Many dealer principals have realized that by letting go and letting others do the jobs you have hired them to do, the business improves.
The analogy that I use is that the dealer has evolved from a playing-coach to a behind the bench coach. The players on the ice get the job done using the coaching philosophy that is endorsed by the coach. And quite frankly, the players on the ice are far better and more focused on the task at hand, than the playing coach could ever be.
This is the single most difficult transition for a dealer to make. After all, you’re are the dealer, right? By definition you know everything. Reality could not be further from the truth.
Those dealers that recognize that, by and large, will thrive. Those dealers that work from bell to bell, never really moving forward, in many ways are like a hamster on its wheel, running like hell and getting nowhere.
Consistently, I get two questions. Our store is not profitable enough to afford me to step back. How can we afford to do that?
The second question is, how can my neighbouring dealer be away from the store so much? I have better CSI and better staff loyalty but his dealership regularly punches above its weight class and performs very well.
The truth is that the neighbouring dealer has learned to leverage his or her knowledge, create a performance expectation amongst managers and then gets out of their way and lets them do their job.
These dealers review the results against their game plan regularly with their managers and collectively they make decisions to make the modifications required. It becomes their responsibility not the dealer’s.
Many dealerships generally operate with one game plan for all situations. That is to say, their approach remains the same, unless it breaks down for some reason.
Do you think a professional hockey team approaches each opposing team the same way? Certainly not. They analyze the performance of their upcoming competitor and then make adjustments to put themselves in a better position for success.
Transitioning to the dealership world, how many times have you said “the factory does not have good programs right now. Hopefully they will come to their senses soon and come to market with some aggressive programs.”
Have you worked with your management team, with full knowledge there are no new vehicle retail programs, to change your game plan?
Focus more on used and fixed? Have you done your job as a coach?
Many dealer principals have realized that by letting go and letting others do the jobs you have hired them to do, the business improves.
It’s much easier to blame your managers and players but in fact, the coach is mostly at fault. It’s time to look in the mirror!
With the business changing as rapidly as it is, I believe, no dealer can afford to be a playing coach any longer.
What will I do? asks the playing coach dealer.
The first step is to become the coach and lead your organization. You will likely find that your managers are likely not the type of manager you need since you have had your hand in everything and indirectly undermined their ability to develop and perform effectively.
Once you step back, you might find that the managers you have might not have the skills needed to earn your trust. You then have two choices: train them or replace them.
The former requires you to invest in your people, with the ultimate goal of making your life easier as they become more successful. The latter is expensive and you have to train them anyway, so why not work with the people you have, as a first step?
The graduate Automotive Dealership Management Program at Georgian College is a great program for your managers to enroll in. It’s a great way for you to invest in your managers and create the environment that allows you to hang up the skates and finally throw away that stinky equipment.
Some of you will think this is hogwash. After all, you know your business and market best. All I am saying, is that there are other options. Eventually, the longer you continue as a playing coach, the more that approach will cost you. Let me explain.
The store owned and operated by the playing coach is likely a middle of the pack performer at best and might even be categorized by their brand as underperforming.
Annual new vehicle sales targets seem just out of reach as your sales effectiveness slowly declines. You’re not hitting all the targets on your brand’s balanced score cards.
You might be profitable but likely do not charge yourself fair value rent, even still, you find maintaining brand and bank working capital requirements a challenge.
You heart stops when the brand calls on the phone and wants to have a meeting with you. You really don’t like talking to your brand representatives, they just don’t understand your market.
This scenario could be taking years off your life and taking money right out of your pocket. Remember how dealerships are valued. Your goodwill is largely calculated on the free cash flow your business has been able to generate. Poor cash flow generation means low valuation in real dollar terms, plain and simple.
Many dealerships in this type of scenario end up selling their dealerships, some willingly and others not, only to witness a turnaround performance by the new owners who employ a very different operating philosophy and plan.
How can some dealers operate more than one store, but don’t work as hard as the playing coach dealer?
It’s simple, they operate differently and give their managers the opportunity to manage and be successful.
If you think about it, we have 3,350 dealerships in Canada with one dealer principal each, probably 1,700 playing coach dealers, maybe 2,500 non-dealer general managers, approximately 14,000 departmental managers and about another 14,000 assistant managers.
Many dealers look outside the auto industry for the general managers and chief operating officers. The pool of talented managers is very large. It’s your job to find and attract them. It might be as simple as a son or daughter, or require an executive search.
Protecting and enhancing the value of your dealership investment should be your number one goal. Are you taking all the steps necessary to realize on your goal?
It might not be easy, but in the end, it will certainly be rewarding both business wise and personally.
