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Reinvent the wheel?

Bailoutno bailout versus bankruptcy no bankruptcy. What should the Big 3 do? Is it the responsibility of the public to hold the burden of saving the automotive industry? What happens when the next big corporation such as; Macys, Citibank or JP Morgan Chase should have to file for their piece of the bailout package? Do we say no to them? Where exactly do we draw the line in the sand?

The counterarguments against the bailout have varied in their basis from product development to business plans to executive parachutes and the strong-hold the UAW has. Some of the naysayers have boasted about the poor future planning of the Big 3 to design, build and sell a more fuel efficient vehicle comparable to the Hybrids of Honda and Toyota. None of those naysayers have commented on the drop in sales and profits of Toyota during this market adjustment. Let them go under is the mantra thats heard all over the airwaves of talk radio.

As you look around at the remaining auto dealers in the market place ask yourself a question. Are the dealers remaining; good business people? Do they focus on their business at hand? Is a dealer that was smart enough to open a Honda, Toyota or Hyundai dealership smarter than the dealer who opened a GM, Ford or Chrysler store?

Experts tell us that the dealers who focus on their fixed operations, reduce overhead costs and manage variable expenses will survive during this tenuous time. The experts are right. However, I submit that an article written back in 1933 about the industrys problems: for and about the Detroit Big 3 said in part if we want to get more business, in a market which is temporarily limited, we must get ahead of competition. Read into it anyway you choose and decide for yourself what the article meant.

Just a thought: do we need to reinvent the wheel?


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"focus on the purpose, not the outcome."

Re-inventing the wheel in one case makes perfectly good sense. The conventional wisdom based automotive sales process is dead - traditional desk managers, closing managers, floor managers, etc. are extinct. The process has actually been dead for some time, we just didn't notice it.

The traditional model depends on desk management to achieve sales and gross profit goals. Here is a bulletin, unless your desk manager is Superman or Superwoman this no longer works, and hasnt worked for years. The auto industry is the only retail model that is centered around the "manager" as opposed to customer-centric centered around the person who has the money. And its the sales consultants and the consumers who pay for this Neanderthal approach to selling. Taking it one step further, the auto industry is the only retail sales model that causes high levels of anxiety and misery for both those doing the selling and those doing the buying!

The retail auto industry applies a hub-and-spoke sales model, with the desk being the center of the sales process. The major problem with this is the desk adds little to no value for customers. In fact, if you listen to the consumer, they will tell you that the only value a desk manager provides is the lowest price! So in essence, the desk manager adds no value and they reduce the dealers gross profit by their very existence. The desk's goal is to optimize gross profit with every customer transaction, an outdated model considering the knowledge level of today's highly informed consumer and evidenced by todays plunging gross profit figures.

Due to significant market changes, the "desk" driven system is and has been inefficient and expensive for years. There is one manager for every 2.3 sales consultants in most stores. If you have 20 sales consultants you'll have at least 9 individuals with the title manager, including finance and insurance.

It is the opposite of the more economical and more effective sales model that the rest of the business world has advocated for years! The buyer today is different, better prepared; more informed and has more choices. Most sales people are so poorly trained it would be like sending a soldier into a battle in 2008 armed with a bow and arrow!

As for those sales consultants, most are personable, smart, hardworking and honest. So why does the buying public think this group of personable, smart, hardworking and honest people "lack professionalism?" Maybe it's what they are taught to say and the tactics they employ as part of their desk driven sales process? Ya think.

There isn't enough profit to pay sales consultants what it takes to attract and retain the caliber of individual required to sell a product with an average price of almost $30K and a desk manager who adds no value for the consumer. Sales Consultant aren't going to go away, most managers will. The sales model of the future will have well trained and well paid sales consultants working hand-in-hand with well trained Finance Managers. And the future is now...Re-invent the wheel, why not? What's it going to do, hurt sales? Gross? Customer satisfaction?

[This message has been edited by Steve Richards (edited 12-21-2008).]

Sales Managers' offer no value? Wow, an interesting assesment to the sitaution. While I agree the process is somewhat archaic, I don't see "salespeople" being able to "sell value" until the process of arriving at a price is standardized. I'm wondering what a well-trained sales person can do when the competition is selling below net costs? The conventional process you compare it to "rest of the business world" doesn't have negotiable products with the costs of such products and incentives to the dealers posted for all eyes to see. It's no wonder the customer doesn't like the buying experience. Is it value? Is it "cheapest price wins"?
You have some valid points with reference to old style T.O. houses with closers and weak-minded individuals posing as salespeople. However, there are a lot of professional sales manager's who train properly, follow up, handle sales direclty and coach their respective staffs. Anyone who has a model where there is 1 manager for every 3 sales people is operating in the past.
Change the negotiation process? Change what information is released to the public? Are we really ready or does the public truly want fixed pricing? I don't think so! Otherwise the Saturn concept would have gone over better, am I right? Thanks for the debate.

Ok Steve you make a compelling arguement against the current system but offered absolutely nothing as solution. How about moving into a FOURTH quarter quaterback position with a vaible solution?????

Thank you both, calgm988 & TheOne, for your comments, observations and challenges. TheOne, I particularly liked the observation that I offered no solution! You are correct, I didnt know if anyone really cared. My response is long, but its not exactly a minor league topic were addressing. Fixing the sales process lowers the cost of sale, increases the profit, and drives up the customer loyalty factor.
First of all, I am not attacking Real Sales Managers there just arent many, not due to a lack of commitment or talent among sales managers, but due to the process most know and have worked within their entire careers and a complete lack of good training for sales managers. Compounding the problem further, while most managers receive no training, sales people are more often than not provided training that accelerates their failure. As an example, the next time you hear someone talk about a sales person whose productivity was great when they first started, then tailed off as the months went by, think about this...When someone starts selling cars, they do the only thing they know how to do, they use the manners they taught growing up and they treat people as nicely as possible, because regardless of what industry or job they left, someone taught them that being nice and liked by a prospect was necessary to making a sale. Then the dealership "trains" them to be car sales people. Managers load their lips with some of the most inane statements and ridiculous questions known to civilized society. Trainers give them sales advice that's 40 years old, the sales people are made to look like buffoons to their customers, and performance suffers. The smart ones figure it out in time. They get it that the tactics theyre asked to use are counterproductive and they resort to subverting the process in order TO sell cars (thats why in many cases, the least trained sales people are the most productive!). The majority do as they are taught because they mistakenly figure no industry would teach skills and tactics that would accelerate their failure! They fail, they leave the business, and the beat goes on...Sales people aren't all bad; most of what they're taught to do and say is bad. The industry's frustration with sales people is a product of the training they get and the process they work, not he sales people themselves. (Show that sentence to any sales person and you'll get an "AMEN!") A sales process shouldnt require you to disregard all youve learned about how to treat people, it should require you to apply it! The "car salesman's" reputation is a "learned skill," it's not a trait.

My issue (as well as the consumer's) is with the process that brings people into the business and trains them to fail; my issue is with the stereotypical desk manager that manages numbers and deals, not people and subtracts value from the sales equation.

As regards the observation that the "rest of the business world doesn't have negotiable products with the costs of such products and incentives to the dealers posted for all eyes to see - that sounds suspiciously like we have a unique business. Thats not completely true, the retail automobile business has unique properties, yes, but many of them are self-inflicted. Any business to business transaction involves price based negotiations, transparent of identifiable costs and an automobile purchase is much more of a business to business purchase than buying a pair of shoes. Consumers can buy nearly everything any retailer sells cheaper somewhere else. Profit? - Most people know a $2,000 mens suit has more mark-up it than most auto dealers make on the sale of a $30K vehicle! In fact a survey done by ZAG suggests dealers leave money on the table. I quote, When Zag asked 1,000 consumers what they thought a fair profit would be for the sale of a $40,000 car -- with all marketing and overhead costs considered -- 72 percent were willing to give dealers more money than the typical return, which is less than $1,000 in profit per new car sold.
The largest group of respondents -- 21 percent was willing to part with $2,000, while 18 percent upped that to $2,500 and 17 percent were prepared to go higher than $2,500. Another 17 percent put the figure at $1,000; 16 percent pegged it at $1,500. Just 11 percent of respondents said $500.

Why do dealers makes less? To paraphrase one of the most successful political slogans in US election history, Its the process stupid!!!

There is a solution, practical, practiced, consumer embraced, and welcomed by automotive sales people, coast to coast. Everybody parrots the phrase build value in your product and the customer will pay you a better profit. Thats crap. There is one primary reason grosses are low and vehicles are treated like commodities, the sales strategies and tactics taught by most trainers and managers do nothing to help the sales team create value in the numbers themselves. The numbers include price, discount, trade-value, payments (lease or purchase), initial investment or rate. Sales team member are taught the WRONG way to present, defend and justify the numbers. The negotiation tactics employed by 95% of the dealer body, including the publicly held companies and Ive shopped Penske, Asbury, Sonic, AutoNation stores all in the last week, ruined any trust or credibility the sales people built with me (and I only met one sales person who didnt seem to be intelligent and well-meaning).

My expertise is justifying and creating value in the numbers, incidentally, the failure to justify the numbers is the main reason the one-price concept has failed in most instances. I sell cars, and I didnt learn how to do it right until I sought help from outside the industry. When it comes to negotiating; my interaction with the consumer is faster, more effective, and more pleasant for the consumer. It is simple stuff, but its not the way weve always done it. It takes about 45 minutes to demonstrate to anyone how much more effective it is for all parties involved.

But an industry that has a monopoly on selling the most popular product in the history of mankind, run by very rich people, has had no reason to change. Maybe the present catastrophic nature of the business will change that? Well see. Merry Christmas to you both and heres to wishing you an awesomely successful New Year. Steve


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[This message has been edited by Steve Richards (edited 12-21-2008).]

[This message has been edited by Steve Richards (edited 12-21-2008).]

Steve

While I don't doubt your "process" works in theory, I do question whether or not the concept has true merit. Here's my point - you suggest that if salespeople create (based on an internet survey that says we "should or could" make more money) value in the numbers we'll get more profits; is in itself "crap". How do I know? Let's look at several 'consumer driven' websites that talk about what one can buy a new Honda CR-V for - nearly $1000 under net-net! How did they arrive at that? Some weak dealer allowed his/her internet team to relieve their inventory at a loss. That compounds the issue...does it not?

Look, I get the concept and idea of validating the price but to assume that dealers and salespeople don't try to validate the pricing is ridiculous! Customer's have all the information available to them including incentives, holdback and contests...and they still don't believe it! That's where good salespeople make all the difference. They can and sometimes do effectively overcome the ridiculous pricing strategy of weak-minded dealers but the simple truth is - "the customer will go back to that low-priced dealer quote" - almost every time.

Lastly, I don't know whether or not your trying to sell something - or trying to be an advocate. But, you haven't defined what your "process is". Sure, you outlined it but, you didn't offer a clear viable solution.

Thanks for the debate, which is what I tried to provoke from the posting. Happy holidays and prosperous New Year!

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"focus on the purpose, not the outcome."

Steve,

First off let me say that I agree that the sales, and sales management systems are archaic, outdated, and nolonger effective. I believe you and I can agree on that. calmgm988 has made in my opinion a true statement, you have effectively identified a serious problem with our industry, a feat not difficult to accomplish, but as of yet have not offered a more effective system model from which any of us can work!

I am also of the opinion that there are few true "Sales Managers" in our industry, and those that try to make a move into retail auto do so without a real understanding of the performance pressures of our industry, and consequently have great difficulty developing a model from which they can work.

As anyone that is familiar with my posts will tell you I have no fear of attacking anyone as I feel necessary, and I think some is in order now. The opportunity to reform the sales side of our industry was within reach of the "big boys" (Auto Nation, Republic, etc) and has been squandered and lost as the economy has tanked. Now necessity will force it upon us in many ways most of which will be dictated by people and institutions that know nothing about our business. You used a very interesting and very true word, "comodity". The life blood of our business the new automobile has been commoditized.

New vehicles will be now and far into the future sold for essentially no profit. The Dealer Body as concession for the bailout, and more importantly for the viability of our industry as a whole will voluntarily abandon the concept of profitable new vehicle sales, choosing instead to function as distributors seeking to improve the financial health of the manufacturers. Painful as is to admit new vehicle pricing will soon be dealt with as a variant system of commodity pricing, with further tranparency to the whole pricing structure. The current franchise purchasing system is not well suited commodity price fluctuations. Imagine writing down or up whole segments of each Dealers inventories on a daily or weekly basis! Mark to market at its finest. Our current system cannot adapt readily to this! The alternative is to abandon the new vehicle business to the manufacturers who believe it or not are better positioned due to scale and control of the manufacture and supply could concievably profit from a modified commodity system.

All is however not lost, YET! If the Dealer Body does not recognize this truth as a sign of what is yet to come. The Dealer Body must take steps now through focus on the balance of the dealership environment. Concessions must be won from the manufacturers on new vehicle wholesale pricing to allow for greater F&I profitability. Dealers as a group must take steps to handle used vehicle valuation and procurement in a more systematic and efficient manner. NADA must be brought under actual Dealer Body control as a servant to those that support it, and most importantly Fixed Operations must transform themselves into the primary profit center for the new dealership business model.

There is much work to do, and little time to acomplish it. Yes sales management must change, you and many others have identified this. Do you have a plan? Or even a basic framework, or simple idea from which we can all begin the process?????

TheOne
I'm curious what you are referring to when you mention that "Concessions must be won from the manufacturers on new vehicle wholesale pricing to allow for greater F&I profitability"? Are you suggesting that we negotiate the wholesale price of a product based on "mark to market?" It's an interesting point.

Its useless to regurgitate the past postings. I couldn't agree more to the point about NADA. They should be the driving force for devlopment, training and customer education. We can accomplish a lot together.
Thanks

Exactly! What we are really facing is a new system. If new vehicles are truly viewed as a commodity (as I believe they will be) then they MUST be marked to market. In doing so inventories must be controlled, and wholesale prices must be allowed to float. If the manufacturers take the approach of over-building a particular product as they have for many years, then the price cannot be propped up by shear dictate. It must be leveled in the market to provide real value. The counterbalance that has gone out of skew in todays market is the life cycle of the product, the price, and consequently the financed amount are out of balance. We have perpetuated a system that over finances an over valued product. Car payments should fit into a budget as a cell phone, or utility bill do. Over allowance on a vehicle loan is problematic for three reasons. New vehicle prices are too high per mile driven, initial depreciation is excessive, and customers do not like to drive the same vehicle long enough to beat the depreciation/negative equity race.

When new vehicles are valued and marketed properly lenders will be far more interested in carrying the loans. Then it becomes a race to properly manage the used vehicle side of the equation.

Please keep in mind these are ideas that have occured to me based on the conversation at hand, and I haven't even had opportunity to think them all the way through. I am quite certain that they are full of gaping holes which I am sure that some will be happy to point out. Yes they will be interesting to see, but far more interesting would be thoughts that build on the idea.....

TheOne,

You are on to something here, I think. However, the "profitless" new car sales may not be a requirement.

Let's assume vehicles become commodities. Most commodities are sold to the ultimate consumer at some level of profit. For example, wholesale gasoline on CNBC is about $0.90 per gallon but my local gas station charges about $1.70. The difference is in transportation, distribution and retail all of which have to work on some sort of markup.

Same can be said of food. Rice wholesale is about $16 for 100 lbs but the grocery sells it for $2 for one lb. The difference is packaging, transportation, distribution and retail.

There were some experiments (by GM and maybe others) in the late '90s called "California Value Selling". GM tried to set non-negotiable prices for vehicles with small profit margins. The thought was to improve the consumer experience and to improve volume. It didn't work very well.

I'd be interested in a business model that provides the proper markups along a value-added stream in the vehicle sales process. It has to be enough to justify the risk of capital, but with real interest rates near 0%, you really only have to make back the costs to stock and sell. The rest of the business can rely on the fixed operations. The model would also justify a much smaller amount of on-ground inventory.

In any case, there has to remain a profit opportunity in the system. Even the public car companies know this.

Merry Christmas to everyone

s