Smart Dealers Get Lean

Rising interest rates, skyrocketing gas prices and failing domestic manufacturers always shock the many who call to ask what dealers can do in the face of expensive inventories, a weakening domestic new-car market and falling residual prices.

It's not a new situation. So my answer is from experience: Dealers have their greatest opportunity for control and a return on investment during the toughest of new-car markets.

While most of the industry's pundits are focused on things that kick our manufacturers in the butt, few see that dealers and manufacturers don't always eat from the same trough of opportunity. Dealers are better positioned to make money in used cars and service.

In the good times for manufacturers, dealers don't need to be creative. They simply need to order their allocations, advertise national and regional themes and wow customers.

But, rarely do dealers make much money on new cars during those times. In times that products are compelling, manufacturers seem most challenged to spot what dealers contribute.

Struggling to harvest more, dealers suffer great consumer dissatisfaction when they are forced to push customers to support legal compliance (which no one thinks about), warranty and incentive bookkeeping (which no one sees) and the incredibly high cost of acres of prime real estate invested in uses such as storage and service.

Most other franchised industries are blueprinted right down to their color schemes with all the entrepreneurial spirit beaten out of them. Car dealerships are different. Our markets, products, pricing and staff are too volatile for such routine. In the car business, predictable patterns are few.

Like soldiers, dealers use routine and discipline to get into battle, but need improvisation, creativity, and flexibility to win that battle.

Costumed consistency works for McDonalds, and greatly appeals to manufacturers. But it doesn't sell cars in a tough market. So when Wall Street is batting around manufacturers and bankruptcy is snapping at their feet, it is the scrappiness of dealers that enables their own survival. Those times are now.

But because there are too few “traditional customers” to cover the rent, thriving retailers sway from the new-car sales for which manufacturers are desperate. The result is that traditional meet, greet, qualify and close new-car strategies shift dramatically to used cars financed at credit levels unfamiliar to good time Charlies.

Show me a profitable dealer today and I'll bet his or her dealership has very, very, very strong used-car and finance skills. Note: that was three “verys.”

That same dealer will have an efficient facility and a thin organizational chart that pays performers a lot, but doesn't overdo it with support staff.

Winning dealers avoid manufacturer strategies where dealer profits are a long shot. Things like employee pricing, tiered incentives, Internet shopping, home delivery, published invoices, vehicle-history reports and used-car value guides over the counter are all part of a scheme that does not favor retail profits.

Ikea, Wal-Mart and Dell have convinced today's customers that good information and no frills yield low costs. In this millennium, outlet, warehouse and Internet shopping are smart. Lots of sales people and fancy showrooms mean higher prices — period.

Supporting this are information-rich manufacturer's web sites that push many dealers to negotiate new cars over the phone and to offer delivery at home or office at little profit.

Bigger dealerships and swollen organizational charts are signaling a bad deal for dealers and burdensome costs to customers.

Such grandness doesn't encourage dealers to work harder or reward them. People who think otherwise aren't doing the math.

Top companies everywhere have thinned ranks, embraced just-in-time inventory and eliminated lines of business where high cost and risk are married to thin margins.

Like survival, profitability favors lean efficiency. In these rough times, dealers are finding the courage to achieve just that.

Peter Brandow is a dealer in Pennsylvania and New Jersey.