It’s a Flat Vehicle Market! Oh the Humanity!
Newsflash: America has been in a relatively flat new vehicle market since early 2016; though apparently this event caught many dealers, the public dealer groups, and the OEMs off guard. Between increases in discounting to reports of some bloating inventories, the growth party enjoyed for nearly a decade is morphing into a hangover that’s created a new normal in automotive retail.
Of course, at 17+ million new units a year, you wouldn’t think a flat market was bad thing, would you?
As market growth always does, the market growth our industry experienced since 2011 covered up a lot of ills. Moreover, it lulled the average dealer (and the below average dealer, for that matter) into thinking they had everything all figured out. “Just keep the ship steered in this direction and we’ll keep reaping the rewards.”
Many of us conveniently forgot that a rising tide lifts all boats, and so we tended to take credit for all of the good the robust market delivered. While the tide was rising, too many were satisfied just enjoying the ride. However, as we are learning (again), if you failed to make real progress (i.e., grow market share) during the rising tide, chances are you’ll find your boat grounded when it recedes.
A Major Course Correction
Though it shouldn’t be required (and isn’t in most other industries), moving from a growth market to a flat market requires a major course correction for most dealers and OEMs.
A flattening market, for those dealers driven by proven processes and good business rules, simply means a small shift in priorities. Unfortunately, the bulk of America’s dealerships still make decisions based on this week, this month, and whatever their OEM is doing. For these dealers, the changes will need to be more profound if they wish to merely hold gross and market share; if their goal is to grow share, then the changes required could feel like a monumental shift in culture.
The good news is there is no reason to panic; provided, of course, that you’re ready to actually make the changes required to grow share in a flat or even declining market. (One good thing you can say about a bad market is that it often creates leaders from those who previously enjoyed following.)
Oh, and you’ll have to admit that you and your team had little to do with the growth your dealership experienced since 2011. If you failed to grow share, then it was the market, not you or your team, that produced the wins you celebrated. This is a tough pill for anyone to swallow, but you’ll have problems growing today if you fail to fully understand what really drove your sales growth in the past. Without this clear understanding, you’ll have no idea where to focus when that sales driver is removed.
Businesses in traditional industries (like automotive) should always prioritize what they do based on a flat-to-down market. This is just smart business, because regardless of the market direction, businesses that prioritize based on having to fight for growth will prosper and grow at a rate greater than the market.
Don’t believe me? Consider this: When do you really start to care about sales processes, training or employee retention? When times are good, or when times are not so good? For most of us, things are only an issue when they’re an issue.
On the surface, a rising tide is everyone’s friend. However, for those dealers operating without solid processes in place, the rising tide reduces your desire to inspect, to hold accountable, to improve. I mean, heck, we’re growing, aren’t we?
Okay, So Now What?
First, you need to dump your strategy of chasing volume. This is a losing proposition in any market, but especially troublesome in flat markets because, as we’re already experiencing, this leads to increased discounting and bad marketing decisions.
Dealers who grow share in any market condition do so by employing solid processes and rules; and by creating a culture of sustained growth. They never “chase volume,” because they know that their processes are moving the metal.
A great example of this was the spectacular growth of Texas Direct Auto over the years (including during the market downturn). Throughout every market – declining, bottoming, growing, flattening – Texas Direct Auto remained true to their processes. Of course, they didn’t just create processes and then play “set it and forget it.” No, they continually improved their processes as better ways were discovered, new information was made available or market conditions dictated.
To this day they maintain a culture of sustained growth that is fully supported (and driven) by their processes and their rules.
Process Sells Cars
The old saying that people buy cars from people they like and trust is most often true, but give me a truly likeable guy selling cars without process and I’ll show you an eight-car-per-month underachiever who’s burning through your Ups. Conversely, every 30+ unit seller I know employs a fairly strict (if just unique to them) sales process that is simple and repeatable.
So, if you agree that process sells cars – but don’t feel you have strong enough processes in place – you’re probably wondering where and how to start. It’s simple if approached correctly; because adding sustainable processes is more about your culture than about writing a bunch of stuff down that no one will ever employ.
Of course, telling someone “you need to improve your culture” is utterly meaningless to most people. Therefore, to help you positively impact your culture in a way that generates simple, repeatable processes, I’ll provide examples of what a great dealership culture looks like.
Wait, Why Culture and Not Just Processes?
The best processes in the world are simply not followed if the leadership hasn’t baked these into everything they do. Moreover, without a great dealership culture your salespeople and managers will simply find ways to work around your processes in an effort known as “box checking.”
In fact, if I had to guess which of following two types of dealerships would survive a market flattening, it wouldn’t even be close:
Dealership “A” would win every time, because lousy processes will be improved in a dealership with a great culture, while great processes are never enforced or followed in dealerships with lousy cultures. (I know, I’ve written plenty of great processes for dealerships and groups unwilling or unable to enforce them.)
How Do I Know if We Have a Great Culture?
A great dealership culture is easy to spot – often by just examining metrics like market share growth, gross profit growth, employee retention, employee morale, customer retention and, of course, customer satisfaction.
When all of these measurements are moving in the right direction, I’ve always found the respective dealership or group to enjoy a great culture. When they are not, my experience has always been that the salespeople and managers find themselves living in a toxic culture.
Beyond metrics, it’s become easy to quickly spot whether or not a particular store has the makings of a great culture when the owner or general manager is highly engaged with their team and their customers. In these stores, the leader is someone who is on the floor every single day interacting with salespeople, mechanics, lot porters, service advisors and customers. You’ll see them walking through service at 7:30 AM and taking the time to greet everyone.
Rules and Culture
Although it may seem counterintuitive at first, stores with great cultures also have a strict adherence to rules and processes. This helps create a great culture, because deep down, great people want structure, order and direction; while marginal performers need structure, order and direction. Moreover, teams that understand what is expected of them happily perform better than teams kept in the dark.
…And the Flat Market?
Oh yeah; about that.
Dealerships and groups with great cultures, sustainable processes and strict rules don’t fear a flat market. They know they’ll continue to grow share as their competitors panic. Their processes drive repeat business, and even as margins tighten, they recognize that their grosses will be superior to the market and that their great sales culture will carry over into great service business.