A Recession is Coming
By: Jeff Cowan
I don’t like talking gloom and doom. However, as a person running a business, I research business indicators to help predict the future economy. Like a captain sailing turbulent waters, I prepare for the future appropriately. Currently, the signs show stormy seas ahead.
In order to successfully navigate, the captains of the vessels have to make the proper adjustments. The following supports my predictions and hopefully provides a map to help you steer your way clear of trouble.
Recently 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.
We have record debt. Depending on who is elected president and what immediate actions are taken, the economic the bubble will either be managed down or left to pop. Americans are smart. They know that continuing to ignore it will only lead to hard times.
Although the stock markets and big business are 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 reported that most corporations are currently not investing in the future but rather taking as much of their profits out of their companies as possible. Again, they do not have faith in the immediate future of our economy.
In the automotive industry, most predicted that we would have a year that nearly matched auto sales from the record year of 2015. Most are backing off of that prediction.
Surviving an Economic Downturn
So what does all of this mean? It means that now is the time to prepare. Where can the dealership income be made-up if the economy does indeed slow and vehicle sales stagnate? Fixed Operations.
In 2008 when the big recession hit and many dealerships were boarded up, I saw 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. They had low sales, low survey scores and even lower upsell penetration. In short, they had nothing to fall back on.
Let’s now turn our heads toward the sun and how we can prepare for an uncertain future. Let’s see the things smart dealerships do and the things that others do, which do little or nothing.
Technology: The smart dealerships invest in and take advantage of the latest technology. They use iPads, apps, online reservation systems, CRMs, and electronic multi-point inspections. Notice I said they “invest in” and “take advantage of”. They actually use these products the way they were intended and designed. 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 — 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 vehicle’s needs. But again, having these wonderful machines means nothing unless you actually use them and hold your staff accountable.
Training: The smart dealers 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 outside training 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 am treading in dangerous water here, but let the facts speak for themselves. If the factory and product vendor training are so great, then why are your numbers so low? This especially applies if you are dependent on just the factory.
Reality is in the Numbers
Let’s take a look at the numbers:
Customer paid hours per repair order- For the first time in 15 years we see 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 trended downward and inched ever so closely to 1.5. This is one full hour below where ANY dealers service department should be and keep in mind that most can and should be doing even higher.
Effective Labor rate is taking a hit as well. It is down about 9% in the same time period. Why? My guess is the non-stop coupons that the factories send out. It’s one thing to send out a coupon. It is an entirely different scenario to actually train someone to upsell from a coupon offer, which is the whole point. Last time I checked, not one factory or product vendor program offered training in this most critical area.
Survey Scores: Again, there has been little to no movement. Until we can get over 95% of all our customers to tell us we are the best, we have failed.
Customer Retention: Knowing this is the number one issue in the auto dealership world, you would think that this would be where the factories offer some concrete training. But here are the facts: According to 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 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 your boat’s hull and definitely taking on water — big time.
You should be diligent. Make sure that your staff gets 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.
The factory will say they have success stories. They may have. But you cannot hide the facts, which are that with their training, the numbers have fallen backward on a national level.
Making it Happen
So where should your numbers be?
Customer paid hours should be at least 2.5 including oil changes and probably higher. Customer retention should be above 85 percent. 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 employees tell you otherwise. If they are not getting you these kinds of numbers, 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. If you approach them about going to an outside fixed operations expert and they tell you they can do it without it, take that challenge. Give them no more than 45 days to get at least the above sales goals. If they do, you just saved yourself making an investment with an outside firm. If they don’t, 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. The training will make the difference.
Train, Train, Train
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, survey scores, and customer retention, it will all be for nothing.
Training is the missing link. It is the one thing that will provide the greatest advantage to help you navigate the upcoming recession. Training will make the difference in whether or not you protect your dealership and customers. It will give you the competitive edge. It will allow you to prosper rather than simply fall into survival mode and barely get by, as so many did in the last recession.
In closing, I can tell you this: The aftermarket service centers get it and 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 that they had captured 63% of the customers – your customers. 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.
