Welcome to the Revolution

In 1984, a young Tom Murray quit a construction job paying $3.50 an hour and went to work for an auto dealership.

At first, being a car salesman almost made him yearn for the relatively happy days of lugging around heavy objects in a hard-hat zone.

“I witnessed two fights in the service department,” Murray says. “Then there was a fist fight between two salesmen trying to grab the door handle of a customer's car as he pulled up to the dealership. He hadn't even got out of his car yet.”

Murray recalls his first customer, a farmer missing three teeth, who was trading in an old Ford F-150 pickup truck. They got along well, going back and forth doing the deal. Then the sales manager aimed the man toward the finance and insurance office. There, he endured nearly two hours of product presentations.

“When he came out, he looked completely different,” Murray recalls. “I wanted to show him the features and benefits of his new vehicle, but he said, ‘Son, give me my keys and don't make me ask you again.’”

The car business has changed in the last 25 years, becoming more friendly for customers and less combative among staffers.

That has been evolutionary. But something of a revolution now is occurring in auto retailing spurred by recent traumas, such as the recession, credit crisis and automotive-sales slowdown.

“The industry is changing at a pace I've never seen before,” says Murray, now president and chief operating officer of Resource Automotive, a training, consulting and F&I services firm.

To get dealers and lenders through with a minimum of scar tissue, he proposes a “call to arms” at an F&I Management and Technology conference in Orlando. “As the basketball coach, Pat Reilly, said, ‘Be an active participant in your own rescue.’”

For lenders, it means “focusing on quality over quantity,” Murray says. For dealers, it means the further jettisoning of old ways in favor of better practices, such as reducing used-car inventory turns from 60 days to 30. That's done by pricing vehicles competitively, systematically tracking what models sell best and stocking accordingly.

“You don't need to be an inventory guru, but you need to understand that part of the business,” Murray says, adding that it will not only help the sales department but also boost F&I profits.

“What does inventory have to do with F&I?” he says. “Everything. You can't offer F&I products on cars you don't sell.”

The F&I department has become a primary profit center for dealerships. Two years ago, it contributed on average 31% of store profits; today, that's nearly 53%, Murray says.

But he worries that F&I staffers, trained in sales effectiveness and proper techniques, might regress. That's because dealerships, in an effort to reduce costs, are cutting back on training.

“There has been a 67% drop in training,” Murray says. “A golf instructor once told me 90% of his students, left to their own devices, go back to their old habits in 30 days.”

He worries dealerships are losing too much service-department business to independent repair shops.

“Customer retention is woeful, because there is a perception that service work at a dealership costs too much and takes too long,” Murray says.

Dealerships should provide products and opportunities that pull in and keep customers, he says. “One study says six of 10 people who bought a vehicle never stepped foot in the dealership again.”

As experts call for recalibration, one dealership group started doing that when it sensed the economy was turning bad.

“We are in a situation now where we really are strategic and keep an eye on metrics,” says Richard Ackman, variable-operations manager for Germain Motor Co., a 15-franchise, 21-store, 5-city operation based in Columbus, OH.

“In 13 months, we went from almost no planning to planning and forecasting,” he tells Ward's. “We teach managers to use those tools to make decisions. It's hard to change to that from just getting up every day and doing deals.

“But when you look further out — when you take the numbers and put together an action plan and then wrap measurements around it — you get results, even in a down economy.”