Gears of Profitability
by Justin Osborne
Justin will be speaking at this year's TIADA Conference.
At 14 years old, I learned to drive in a manual Isuzu, regular-cab, truck. I can recall sitting at a stop sign, atop a hill with the clutch and the brake mashed to the floor. Sweat began to bead on my forehead as I watched a vehicle pull up behind me in the rearview mirror and stop. I was worried once I released the clutch my truck would roll backward and hit them. Fortunately, I didn't hit them and over the next few weeks I mastered the art of driving a manual.
In a manual vehicle, there is a required transmission progression to reach the top gear and top speed. Choosing the wrong gear or sequence results in driving failure. If you go in reverse… well, sometimes we have to back up to get where we want to go, but reverse is typical the wrong direction. If you put the vehicle in a higher gear prematurely it can kill the engine. To successfully move from a lower gear to a higher gear requires the operator to activate the clutch, accelerator and stick in harmonious balance. That capability requires some experience.
At the lot, there are also sequences to growing a profitability dealership. A long-term, stable yet growing operation must also transition through various gears to successfully reach its desired speed.
Gears of Profitability
1st Gear = Interior Condition
2nd Gear = Employee MPG
3rd Gear = Exterior Condition
4th Gear = Customer Loyalty
5th Gear = Maximized Profitability
The first gear to profitability is the operation's interior condition. Interior condition is everything a dealer institutes to create an organizational environment that brings out the best in the current and future team (employees). Does your culture breed positive, productive team members who don't want to leave? Ideally, your interior condition will catalyze happy employees, and believe it or not, we do want employees to receive the great gift of satisfaction. Recognizing efforts and achievements, innovative ways to improve working conditions and making team members feel like VIPs is the start of great interior condition. But its not just about giving, it has much to do with high organization and structure. 1st Gear is about providing clear job descriptions and expectations, empowering staff to be included in the evolution of processes, hiring and attracting the right peoplefor the right jobs and then offering them the support they need to excel. Organizing any small business takes time and effort but will ultimately result in exponential rewards.
When interior condition is improved, it bolsters team happiness. Strong interior condition provides opportunity to recruit higher-level performers. More capable performers find interest in an environment that supports and empowers them to flourish. They thrive at the dealership because they know what their job is, how to do it, what the expectations are, they are encouraged to improve the “interior” and trust their ideas are always welcome and matter. When employees are satisfied, they stay! You have heard the old saying, “great employees don't quit their job, they quit their boss”. Its true, satisfied employees rarely quit their job.
The effect of a happy team is retention. We are infamous in the car business for recognizing our high turnover rates, it is a common joke. However, it's a reality and overdue for an industry adjustment. The primary reason why people leave the car business is the interior condition does not harness, create and maintain happy employees. So they leave, and the dealership will just sit on the road, never reaching first gear.
Those that do reach great employee retention have a new result and that is what I call Employee MPG (2nd Gear)! Achieving high Employee MPG simply means the dealership is maximizing the cost of great people with real results from their labor. They are efficient and optimal. Team members become invaluable resources for our business growth when they know their job, customers and product. Time on the job creates an individual who becomes familiar with the macro and micro of your dealership and industry. Ultimately, they are on the path to become an expert. How many long term, happy experts would you employ?
Once a team member has high Employee MPG, a very special thing happens. Their work begins to evolve your dealership's Exterior Condition (3rd Gear). Exterior Condition includes how your team creates an experience for your customer. Every customer has an experience at your dealership, but what is it? This is a difficult accomplishment for those stuck in 1st gear with unhappy, short term, non-productive staff members.
Many small dealers engage directly with customers in the beginning, and experience rapid growth. They offer a high Exterior Condition because they AREthe happy, long-term productive staff. They start the business in 3rd Gear. Through the growth, they higher a few employees, the owner is no longer touching the customer experience and frustration and confusion sets in when the growth stalls out. This is literally the same thing as a car traveling optimally in 3rd gear and you downshift to 2nd gear. The business jerks, shutters and makes odd noises.
Once optimal Exterior Condition is achieved, it results to happy customers. When customers are happy, that leads to premium customer value. We are able to maximize our relationships with our customer base with a happy team and happy customers. Once here, we shift to 4th Gear - Customer Loyalty. The customers are so satisfied and receive so much value from doing business with your dealership, they want to come back and tell others. There is strong trust and respect between the dealership and the customer base. That loyalty ultimately leads to what we were after in the first place, Gear 5 revenue growth and Maximized Profitability. It would be easier if we could just jump to 4th Gear - Loyal Customers, that would be less painful for us. Unfortunately, there are 3 Gears we have to get through to truly create the fertile ground to produce Customer Loyalty. Understanding this gear progression assists dealers in designing a work-flow with priorities. A strategy that identifies what gear the dealership is in, and exactly where it needs to improve to move to the next gear.
Not knowing the gears can lead to confusion. Unknowingly, business operators work hard in every area of this progression, wearing all the hats and get frustrated because they are spread so thin and feel some days they are making little progress. Start with 1st gear and get great at the interior condition and grow, grow, grow from there.