The 21st Century General Manager

Close your eyes and pause for a moment. Think about some of the qualities you believe would characterize the perfect general manager — the person you want running your dealership.

We asked several dealers, consultants and trainers what they thought would be the important characteristics of the general manager as the industry settles into the 21st century.

Some of the answers are interesting; perhaps none more intriguing than the one from John Hawkins, the current chairman of the American International Automobile Dealers Assn. His response? “A guy that runs a pizza store.” More on that later.

Answers reveal a common theme, and convincingly make the case that the role of general manager is changing quickly and drastically.

It is an important question. Your choice of general manager could determine whether your store survives the next five years.

A radical shift is occurring in the dealership world, and dealers who understand the change — and are able to staff for it — will be in a much stronger position than stores whose owners continue to plod along running stores using outdated strategies and equipment.

For about the last 50 years, the automotive retail industry has operated with what can be described as a “sales-first” mentality. As long as the metal is being moved, profitability will take care of itself.

For the most part, that strategy worked fine, and is still working today, at least for large-volume dealers. But those dealers are learning that sales alone no longer guarantee profitability, or even survivability.

Following the World War II, many gas station and independent repair shop owners began selling cars. They'd hire a few sales people and whoever sold the most cars got moved up to management.

Factories ran at full speed pumping out as many vehicles as possible, often faster than the dealers could sell them. But overall, there was plenty to sell and demand was high. If you were selling cars, you were making money, so it made sense to have sales superstars managing the stores.

General managers often were passionate, hard charging, managing by the gut and didn't have time to truly manage the business.

“Car people have always thought of themselves as business people,” says Ed Bozarth, a long time General Motors dealer with stores in Kansas and Denver. “But this really has been an easy business, as long as we were selling cars.”

According to Mark Rikess, a veteran dealership consultant in California, the general manager's job description was and continues to be at many dealerships: “Hit your numbers and stay out of jail.”

The years following the war were volatile. The marketplace weeded out the glut of dealerships that sprang up immediately after the war as several auto makers went out of business or were acquired by stronger competitors.

Sales, though, continued to be “king.” And that mentality did not change, even as the World War II crop of dealers began to age and their sons started taking over the businesses in the 1970s and 1980s.

According to one dealer's perspective, the kids kicked around for a semester or two at college partying. Then they came back to the store, worked for a few months in each department, and were declared ready for management.

As crazy as it sounds the formula seemed to work. There were some economic downturns, to be sure, and some dealerships failed, but the majority survived and made money and lots of it.

Because so much focus was on sales, other areas, such as human resource management and inventory management received scant attention. General managers continued stomping the pedal to the floor, pushing sales people to sell as many vehicles as possible, while ignoring other areas.

But the old ways are not working any more and now the proverbial chickens are coming home to roost. High-pressure sales environments have created high employee turnover, which hurts profitability.

“Many dealers today are working in last century's business model,” Rikess says. “That passionate, high-energy, moving-the-metal mentality probably is more suited for the sales manager today.”

Experts agree that in today's retail environment, the general manager needs to be more concerned with profitability and less with sales.

So what's changing?

For one, increased competition and more knowledgeable customers created by the Internet have eroded profits on new vehicles.

According to the National Automobile Dealers Assn., net profits from new-vehicle sales slipped below break-even levels for the average dealership for the first time in years.

Net profit before taxes as a percentage of total sales for new vehicles was 1.5% in 2006, down from 2% in 2001.

Selling more new vehicles likely won't stem the profitability decline.

And that means dealerships are going to have to find new ways to make money. It is not as simple as cutting costs and people. Simply put, general managers have to be adept at managing the business for profitability if the dealer wants to be in business a few years from now.

“It's not about the car anymore,” Michael Najdzin, vice president of Park Avenue Dealer Group in New Jersey, says. “And it's not just about selling as many cars as you can. The general manager has to look at it as running a business and making a profit.”

Another change is the growing influence of the public dealer groups and the subsequent increase in consolidation.

“That has been a major impact,” Charles Oglesby, president and chief executive officer for the Asbury Automotive Group, tells Ward's.

As private equity money and Wall Street investors entered the market, they have forced the larger retailers to adopt stronger business processes while training management to be more professional.

The changing retail world begs the question: What will the general manager of the 21st century look like?

“In the past, the general manager position was about the individual,” Oglesby says. “Today it is more professional. We're looking for great leadership and try to build around that.”

Let's go back to Hawkins' declaration that he wants a pizza shop manager running his dealerships. It may sound wacky, but Hawkins is far from that.

He is passionate, but also is a sound businessman who owns Metro Autogroup, a collection of eight dealerships in California.

Hawkins started thinking about the general management position when an acquaintance, who was running a Pizza Hut, received a call from a headhunter recruiting for used-vehicle retail giant CarMax.

It proved to be a good hire for CarMax as Hawkins' friend showed he was adept at managing the car business.

“A guy that runs a pizza store goes around thinking in terms of ounces of cheese and sauce and other measurements,” Hawkins says. “He's a numbers guy looking at the minutia of the business. He has to be disciplined, understand the financials and know how to manage his materials.

“Too many general managers don't know how to read a financial statement.”

Knowing the numbers are important, but so is understanding them, says Kent Bozarth, Ed Bozarth's son and vice president of the Bozarth group.

“Technology is doing a lot to change the general manager's role,” says the younger Bozarth. “We have access to real-time data today. General managers have to be able to interpret that data and make good decisions on the fly. It didn't make a difference before because the reports and data were available a day or two later.”

Of course, that means the 21st century general manager needs to be able to embrace technology, Najdzin says.

The curriculum at NADA's Dealer Academy has evolved to meet the current needs of today's car dealer, says Allan Jones, the academy's director.

“We talk a lot about the metrics of running a successful dealership,” he says. “Once you have the numbers, you have to be able to understand them.”

General managers need to be quicker thinkers and strategize in a faster manner, says Jim Schoonover, the academy's assistant director.

“We use to teach students to think methodically,” he says. “But now, the dealership is much more intense today. The key for our students is to help them understand what they are measuring and what impacts those numbers. That is a critical component.”

One example is the pay-plan structure at the dealership. Is the general manager able to show how the pay plans are helping to accomplish the dealer's vision — whether it's high grosses or high volume?

Another area is inventory management, both for new and used cars. Interpreting inventory data correctly, especially in the used-vehicle department, and making sound decisions as a result, can work miracles in driving profitability today.

In addition to being able to understand the numbers, general managers also need great soft skills in managing dealership personnel, says Jones.

Strong communication skills along with the ability to mediate managers of the various departments are key.

“The general manager has to convince the department managers to look outside their own departments and work for the good of the entire store,” Jones says. “And that starts with a solid understanding of the business.”

According to Hawkins, the general manager must overcome the “that's-the- way-we've-always-done it,” syndrome. “The one thing that doesn't lie is the numbers,” Hawkins says.

What is happening is the general manager's job is changing from a sales-oriented role, to more professional, business-management position.

“The general manager today absolutely is going to have to be college educated,” Najdzin says.

Dealer principals have to recognize this change, Rikess says, if they want to be profitable in the future. That may require a change in culture.

General managers are not going to like this, but Rikess believes the era of paying them $375,000 a year for high sales volumes will be a thing of the past.

“We're going to see dealers paying general managers who can implement sound business processes $100,000,” he says.

But dealers also are going to have to create better work environments for their employees if they are going to attract more professional people, he says.

Better working hours; pay plans not based solely on commission; and dealerships not plagued command/control issues are all critical.

Some dealers already are ahead of the game. The Bozarth organization, for example, recently was honored with the USA Today's Dealer Innovation Award because of its aproach and success with employee training, development and management initiatives.

Ed Bozarth also won the Ernst & Young Entrepreneur of the Year award.

The dealer group, though, looks for job candidates with proven track records. It does not have to be job-related, but the Bozarths value people who have shown they can be successful in certain areas.

According to Oglesby, finding the right people may be the industry's biggest challenge.

For dealers who invest in and train their employees, the rewards are significant.

According to a McKinsey & Co. study on how to build top-performing stores, talent management is a critical area for dealerships.

The top stores in the study, whose turnover rates were 17% lower than poor performing dealers, used standardized recruiting practices that involved several interviews of job candidates along with consistent training and incentive packages for employees.

General managers have to be included in the hiring process and have to be able to force the implementation of sound business practices, according to Rikess.

Dealers not keeping up with the changes at the general manager level are going to find themselves in “crisis mode” very quickly, Rikess says. “We're starting to see turnover at some dealerships get as high as 300%,” he says. “This is where the large dealer groups are going to have an advantage. They have the resources and processes to hire professional general managers.”

At the very least, you now have an excuse to eat at Pizza Hut.