Building a Winning Strategy in this Economy
By: David Hein
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If you are still in business today you have undoubtedly spent countless hours staring at your financial projections and many sleepless nights making decisions on how to drastically cut expenses just to survive. Business conditions today are difficult to say the least and every dealer has had to rework the financial operations of their dealership.
During this time, I have been called into many conference rooms to advise progressive dealers through these tough decisions. Each time I sit with a new management team to listen to their thought process on the expenses and what needs to be done to make the dealership successful today, the majority of the conversation is on reduction of spending and finding ways to do more with less (staff). This is a great place to start a conversation and build an opportunity to rebuild the way we do business.
Cutting expenses is absolutely necessary. Most dealers have already done that several times over the past year and are running as lean as possible today, waiting for business to rebound. Unfortunately, if you have focused all your efforts on reducing expenses and cutting overhead, you are sitting in a place where you are waiting for a slow and agonizing death of your business. How many dealers in your market cut to the bare bones, only to shut their doors a few months later? It is happening everywhere in the business today.
The problem is not a few months old. It did not start with the housing bubble bursting. It has been building in our industry over the past 40 years. It is just that everything hit at once and is forcing us to define the problem and develop a strategy to overcome the problems that are all around us. The simple problem is that we are spending too much money in relation to our revenue. But how did we get to this point? We as an industry are still spending more and more in advertising and seeing fewer and fewer people walking into the showroom.
Forty years ago, the average dealership was a Mom and Pop organization, and by that I mean that our businesses were small, low key and low volume, but profitable. The typical dealership did not spend any money on advertising, did not have more than three or four salespeople and typically sold (a few) more cars each year than the previous.
Because we did not advertise, the salespeople we hired were people that were actively involved in the community. They were active in their religious community, sat on boards in civic organizations and were involved and visible in everything they did. Because of these interactions, they had many personal contacts, were known and trusted in the community. That created the opportunity to do business and our dealerships grew.
To make our businesses grow more rapidly, we hired more salespeople. Unfortunately, this next group of salespeople was slightly less involved in their community, was less known and had fewer connections so their sales volume was lower. To help build up their business volume, we began to advertise a little, and sales increased. Because we learn from our success, we repeated the process by hiring more salespeople and again they were less involved and had few contacts so we increased our advertising spend and more customers came into the showroom and purchased.
Today, we have repeated this process so many times that the majority of the people we have working for us are not involved in any civic, spiritual, sports or other community activities, and we are throwing so much money into advertising to try and compensate for their lack of a network, that we are fighting a losing battle.
Do you know what happens when you cut a key off of a copy of a copy of the original? It begins to work less and less until it no longer opens the car door.
So, we are spending too much money to try and compensate for problems we created in our organizations. That is the simple problem. The good news is that fixing the problem can have immediate and long lasting benefits to the health of your dealership and the reputation your organization has in the local market.
Dave Hein is CEO of CF Media Group and was previously the founder and former CEO of BDC Management Group, a leading business development center service and consulting firm servicing dealerships throughout North America.
This article originally appeared in the May 2009 issue of Dealer Magazine.
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