Fixed Operation

Prepare for a Bad Economy – A Recession is Coming

By August 16, 2016 No Comments

A recession is coming, learn how dealerships will survive the bad economy.

I don’t like talking gloom and doom when it comes to dealing with a bad economy. On a personal level, I work very hard to be upbeat, to see the positives, and to stay focused on what is good. That said, as a person running a business, I have to research business indicators to help me predict what the future economy is likely to be. Like a captain sailing turbulent waters, I have to make plans to prepare for the future appropriately. Currently, the signs are showing stormy seas ahead. Our economic future is not going to be smooth sailing. In order to successfully navigate, the captains of the vessels are going to have to make the proper adjustments in order to weather the storm. The following is some information that supports my predictions and hopefully provides you with a map to help you steer you way clear of trouble.

On July 29th, the Commerce Department stated that our national economy is tracking at just 1% growth for the year and may fall even lower. This means that the average American consumer has little faith in their financial future.

In the United States we have record debt. Depending on who is elected President and what immediate actions are taken toward the economy, the economic the bubble will either be managed down or left to pop. Americans are smart and they know that to continuing to ignore it will only lead to hard times.

Speaking of the presidential race, historically the economy almost always slows right before an election. It does not pick up again until at least two months after the new President takes office. This is also dictated by what the new President does or does not do.

Although the stock markets are doing well and big business is doing well, the average American is not. Their wages are stagnating and their ability to save has been greatly reduced, and in some cases is nonexistent.

The Wall Street Journal recently reported that most corporations are currently not investing in the future but rather are taking as much of their profits out of their companies as possible. This means they do not have faith in the immediate future of our economy.

In the automotive industry, most are predicting that we are going to have a year that nearly matches auto sales from the record year of 2015. Although most are starting to back off of that prediction slightly, I think they are wrong and are not backing down enough. They are basing their predictions on what they have seen so far this year in auto sales. From what I can tell, they are not considering what is happening in the economy in general and not considering what history tells us is likely to happen in an election year. I will even go a step further. With the uncertainty of the candidates and based how unexcited most Americans are about either candidate, this is likely to breed even further caution. This is one instance where I truly I hope I am wrong, but I do not think that I am.

So what does all of this mean? It means that now is the time to prepare. If the economy does indeed slow and vehicle sales start to stagnate, then where can the dealership income be made-up? Where it has always made-up income – Fixed Operations.

In 2008 when the big recession hit and many dealerships were boarded up, I had a unique opportunity to see the final business statements from hundreds of these dealerships. Although they had several things in common, the most significant similarity was that they had no fixed operations to speak of. They had low sales, even lower upsell penetration, and low survey scores. In short, they had nothing to fall back on.

That being the case, let’s now turn our heads toward the sun and see how we can prepare ourselves for what is likely to be uncertain territory. In doing this, I will discuss some smart things dealerships do to prepare themselves. I will also discuss the things that others do, which do little or nothing to get them prepared.

Technology: The smart dealerships invest in and take advantage of the latest technology. They use things like I-pads, apps, online reservation systems, CRM’s, and electronic multi-point inspections. Notice that I said they “invest in” and “take advantage of”. This means that they actually use these products the way they were intended and designed to be used. They hold their staffs accountable. There is a big difference between having technology, and actually using it.

Equipment: The smart dealerships invest in the latest tools for their shops. They invest in the most efficient lifts, alignment racks, battery testers, and electronic tire gauges. These tools engage the customer and leave no room for doubt as to the needs of the vehicle. To understand what I am talking about here, call your local Hunter Engineering rep and look at the many solution-oriented products offered. But again, having these wonderful machines means nothing unless you are actually using them and holding your staff accountable.

Training: The smart dealers and businesses never ever, ever stop training. It is not simply that they train, it has more to do with the type of training and why they use it. The best businesses usually use some form of outside training and they use it to get maximum results. They settle for nothing less. If you are dependent on factory or vendor product training, you may be better off not to train at all. Now I know I am treading in dangerous water when I head down the path I am heading down, but let the facts speak for themselves. If the factory and product vendor training is so great, then why are your numbers so low? This especially applies if you are dependent on just the factory. To support what I am saying, let’s take a look at the numbers:

Customer paid hours per repair order. For the first time in fifteen years we are seeing some movement here and it’s not good. For years this number hovered around 1.67 hours per repair order. Over the past 24 months it has started trending downward and inching ever so closely to 1.5. This is one full hour below where ANY dealers service department should be, keeping in mind that most can and should be doing even higher than that.

Effective Labor rate is taking a hit as well. It is down in the same time period about the same 9%. Why? My guess is the non-stop coupons that the factories send out. It’s one thing to send out a coupon, as many successful businesses do. It is an entirely different scenario to actually train someone to upsell from a coupon offer, which is the whole point of a coupon. Last time I checked, not one factory or product vendor program I saw offered training in his most critical area.

Survey Scores: Again, there has been little to no movement here. In my opinion, until as a nation, we can get over 95% of all our customers to tell us we are the best, we have failed.

Customer Retention: Knowing that this is the number one issue in the auto dealership world, you would think that this would be the one area where the factories themselves would be able to offer some concrete training. But here are the facts: According to the NADA, in 2014 the average customer retention for service customers rested slightly above 40%. In 2015, for the first time in automotive history, customer retention dropped below 40%, to a new low of 37%. That is a number that would put most businesses out of business.

So again, if you are depending on factory or vendor product training to help you secure the highest sales, survey scores, and customer retention, then you likely have a hole in the hull of your boat and you are definitely taking on water, big time.

This is an area where you should be diligent. Make sure that your staff is getting training that is engaging, fresh, and results oriented. If your staff is inflicted with training that is boring and in the end, produces poor results, they will quickly disengage and view the training as a waste of time.

Take a look at some of our biggest sports heroes. Most of them embrace training and their trainers. I remember a reporter asking Peyton Manning about why he never complained about training camp and practice. His answer was revealing. Paraphrasing, here is how he replied, “Why would I complain about something that is designed to make me the best I can be, so that I can lead my team to the Super Bowl?” It was obvious he liked the training because he saw the benefits of the training. I can only imagine what the owner of the Colts paid for his trainers and coaches. Those coaches were presented with task of sending Peyton and the other Colts to a training camp that had to deliver results. If the training camp was being run by the local high school, Peyton’s opinion would probably have been very different. My point is that if your training is getting results, your people will recognize it and commit to the training. If not, they will quickly lose interest, not only in that training, but all training. This is an area where you will be smart to step away from the run of the mill factory and vendor product training and invest in quality training that your whole organization can get behind.

I know that the factory will tell you that they have success stories. They may have, but you cannot hide the facts, and the facts are that with their training, the numbers have fallen backward on a national level. Facts are facts and numbers do not lie.

So where should your numbers be?

Customer paid hours should be at least 2.5 and probably higher. Customer retention should be above 85%. Survey scores should report that at least 92% of your customers are willing to give you a perfect score. You should also have an effective labor rate of at least 85% of your door rate.

Do not let your employees tell you otherwise. If they are not getting you these kinds of numbers, it is clear that they either do not know how to get them, do not believe they can get them, or simply do not have the time to develop real processes that will get you those numbers. If you approach them with the idea of going to a fixed operations expert outside your business to help and they tell you they can do it without outside help, take that challenge. Give them no more than 45 days to get at least the sales goals I have listed above. If they get those numbers, you just saved yourself having to make an investment with an outside firm. If they don’t deliver the numbers in that time frame, they never will.

I do believe there is a recession coming in the fourth quarter of this year that will likely last through at least the end of the second quarter of next year, if not longer. Most economist agree. We also agree that it will not be nearly as bad as the one in 2008. But make no mistake, there will be one. Prepare yourself. Get the technology. Get the equipment. And especially, get the training. As an industry we are pretty good on accomplishing the first two. It’s the training that will make the difference. You can give your people all the tools, technology, and equipment in the world, but if they do not know how to communicate the value of those tools to the customer in a way that results in maximum sales, maximum survey scores, and maximum customer retention, it will all be for nothing. Training is the missing link. It is the one thing that will provide the greatest advantage in helping you navigate the upcoming recession. Training will make the difference in whether or not you protect your dealership and your customers. It will give you the competitive edge and allow you to prosper rather than to simply fall into survival mode and barely get by, as so many did in the last recession.

In closing, I can tell you this: I have expanded in a big way into the aftermarket service center business. I can tell you that the aftermarket segment gets it. You can liken it to steering a sailboat through rough seas. Like a captain, managers are diligently training their crew nearly nonstop in order to stay the course. They are taking the necessary steps and precautions. While we were crying as an industry about how our customer retention dropped several percentage points to 37%, they were celebrating the fact that they were up to 63% customer retention. They are doing everything in their power to drive that number even higher. They know that it is their people that make the difference, not the tools and equipment. The sailboat may be a beauty, but without the proper handling in a storm, it will succumb to the sea. Now is the time to act. Start by preparing today and you will actually grow your business through the next recession. Don’t act and you may have to sell your boat, or worse yet, you may just sink.

About the author: Jeff Cowan, in his 29th year of  Service Department Sales Training, is recognized as the creator of the modern-day, walk-around and selling processes for dealership service departments and after-market auto service repair shops.  Jeff is the nation’s authority when it comes to training service advisors and service support staffYou can see him on a weekly broadcast of CBT News and read many of his published articles on various automotive publications. Currently partnered with NADA, EasyCare, NCM, Marellen, Elead1One and other vendors and manufacturers.

Visit his website at AutomotiveServiceTraining.com get info on On-Site Training, Public and Private Workshops, DVD Training Program, Webinars, and a FREE trial of Virtual Training! For more great tips and advice, follow Jeff on Twitter at@JCowansProTalk. He’s also on Facebook, and Google+. You can also watch Jeff Cowan’s videos on YouTube! 

For more information call (800) 248-2931 or from outside the U.S., call (949) 713-4469.