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A Letter to Dealer Principals

· Automotive

Dear Dealer Principal,

If I asked you, "what keeps you up at night?" or asked a different way, "what's your biggest challenge?" I'm sure many struggles may come top of mind. Floor planning, which previously provided credits, has now become an ever-rising expense, thereby limiting the amount and type of inventory you carry. Margin compression continues to place added pressure on f&i to increase gross profits and do so in an ethical manner. Acquiring profitable pre-owned vehicles from wholesale auctions has never been more difficult, pushing some dealerships to purchase vehicle's they'd typically overlook (e.g., Vehicle history reports with accident damage, manufacturer buy-back vehicles, and even vehicles with frame damage). Not to mention, inventory challenges from the manufacturers.

Rest assured, I am aware that astute leaders have sounded the alarm, working in conjunction with their management teams to address these areas of concern. Still, there's another issue that hasn't received the amount of focused attention it deserves. It flies just below the radar yet impacts our business in corrosive and destructive ways (both qualitative and quantitatively).

I'm talking about culture.

Culture isn't this soft, intangible concept that leaders all too often shy away from. Culture is the conduit to sustainable profitability and growth. One reason culture gets labeled as the "soft stuff" resides in how we define the concept. The most common description of culture "the way things are done around here" misses the mark. Michael Hyatt, former chairman and CEO of Thomas Nelson, more accurately pinpoints the true essence of culture "the unseen force that drives operating results." If your operating results are underperforming or your engagement levels are low chances are high that an unhealthy culture may be the culprit. Alternatively, you may be performing well, but your success may be masking unhealthy culture chasm's which are preventing you from achieving even more significant results than you're currently experiencing.

Symptoms

The primary symptom of an unhealthy culture is turnover. A recent NADA dealership workforce study found that total dealership turnover increased to 43% (Sales turnover reached 74%!). Cox Automotive conservatively lists the cost of hiring a new dealership employee at $10k. By taking the total number of employees who've left your organization and multiply it by $10K, you can quickly determine the financial implications of turnover. Other industries utilize a different formula that paints an even darker image of the pain turnover causes dealerships. By calculating the number of employees who have left, by their average salary and multiply that by the cost of turnover as a % of salary (say 30%) you can determine an estimate of turnover cost. Either way, the results can be striking. In some cases, the numbers are so weak and discouraging that dealers stop measuring turnover altogether, which further exasperates the problem.

Another symptom of an unhealthy culture is low customer satisfaction. If you've recently fallen below manufacturer norms for your district/region in CSI, an unhealthy culture may be the root cause. Beyond manufacturer survey's, another way to view customer satisfaction is through the lens of review sites. A study by Dataium found that "DealerRater users were 90 percent more likely to visit a dealer website and 5.3 times more likely to convert to a lead when that dealer has a positive overall rating of 3.5 stars or higher". If you have a review site with a 3.5-star rating or lower, consumers may be bypassing your dealership and offers. The solution, far too often for low CSI, is to "coach the customer" on the survey. While I'm not opposed to reminding the customer, "anything other than a 10 is a fail," the best approach is to provide such an exceptional experience that the customer becomes a brand evangelist organically. The goal should be to trigger the customer's emotion during their purchase experience with your store so that in turn, they act positively towards your dealership when prompted to share their feedback. Organic brand evangelism can only happen in a healthy culture.

 

An additional symptom of an unhealthy culture is low employee engagement scores as measured through your annual or bi-annual employee engagement survey. When analyzing the survey data, it's essential to begin by paying particular attention to the participation rate. Low completion percentages may indicate disengagement. Service technicians and the office are two departments that typically have the lowest levels of engagement. If there's a department with lower scores than those two, it should immediately trigger further investigation. It's important to note that engagement begins with the work environment and then shifts to feelings and finally, behaviors. To be truly useful, your survey should ask questions within each of those areas.

 

Here's the good news, if you are experiencing any of these symptoms, there's hope.

 

Treatment

One of my favorite quotes from Dr. Tony Alessandra is "prescription before diagnosis is malpractice." The best way to treat your unhealthy culture symptoms is to identify areas of opportunity based on the feedback of your employees from the engagement survey. Department managers should develop action plans to address areas of concern. Then report back the progress to each of their team members. From there, developing an energizer team that meets on a monthly or bi-monthly basis with the focus of providing continuous improvement for the store will bring you closer to actualizing your goal of a healthy culture.

 

I love dealerships. But not their broken parts. (no pun intended parts people) There are challenging times ahead for our industry. By addressing the internal challenges with relation to the culture, we can begin a domino effect that will positively impact the lives of our employees and customers. Furthermore, we will have accomplished something even more significant. Our culture work will create a leadership legacy that we can be proud to be remembered by.

 

Respectfully yours,

 

Stephen R. Moore

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