Planning: A Challenging Event for 2010

Dealers Share Plans for the New Year

For many dealers, annual planning is a challenging event. Planning for 2010 will likely be harder than many past years due to the uncertainty that many dealers face. Some will face closing their store, while others may be considering adding a franchise. Capital expenditures, personnel, services providers and more will all be scrutinized, but for most the great unknown is, “Will car sales rebound?” And can dealers plan their year based on their position on that question?

Four successful dealers – three franchise (Bert Boeckmann, president/owner, of Galpin Motors; Steve Hinchcliff, president and CEO of H&H Chevrolet; and Carlos Ledezma, dealer principal Of Cable-Dahmer Chevrolet) and one independent (David Andrews, dealer principal of City Auto) – shared their plans and goals for 2010 with Auto Dealer Monthly.

Are you anticipating growth in 2010?
Boeckmann: I’d say yes, we’re anticipating growth in 2010 because [the industry is] beginning to see some recovery. We in the auto dealer business in California have not felt that yet … I think that [the industry will see] an increase … around 20 percent, and I think California will share in a part of that.

I think Ford, which is our main car line, has a little advantage in reputation going forward because I think they not only have top-quality products today … but I also think that among many buyers, the attitude towards … Ford not taking the [government] loan is a positive … so I think we’ll get a little bit of an edge over perhaps a couple of other manufacturers.

Andrews: I think it’s going to be a very slight amount if any. I would think it’d be – for the used car dealers – flat to possibly five percent growth. [At City Auto], we have just a minimum amount of service, which is mostly our reconditioning and inspection. We are planning on growing that some … but we will not be a full-fledged service department … We’ll be doing more services than we do right now; I’d say maybe 10 percent more.

Hinchcliff: I think we’ll see no more than 10 percent growth in new vehicle sales—on an annual basis, another million cars [nationwide], probably at about 11 million or 11.2 million … We’re a Chevrolet franchise, and the Chevrolet brand has better availability of some good-selling models next year, as compared to 2009. That’s number one. Number two, we aren’t going to have a GM bankruptcy; we aren’t going to have a lot of that negativity going on. And number three, we do have a slightly improved GMAC partner, where they were basically out of the game for the first half of the year [in 2009] … We’re not going to have Cash For Clunkers, so that’s a negative impact.

In used, I think we’ll see a more consistent year with about 15 percent growth. Now let’s remember, Cash For Clunkers cost us used car business, so while that’s going to hurt the new car side, taking that out of the equation is going to help the used car side. Number two, there’s going to be better availability of financing. That was just a real problem in the used car business [in 2009], and while I think we’ll continue to see ups and downs in the used vehicle market like [last year], I think we’ll see a more normalized year in used. The pent-up demand has got to start impacting our industry, and it will impact our industry in the used side first … People are keeping their cars longer. Therefore, at some point, these folks will need to replace transportation. I think based on that, we’re going to see some improvement.

I expect service to grow by four percent and parts by five percent. Parts is a little bit of a combined thing. I think we’ll see a bigger lift in our repair order count than four percent, but I don’t see gross profit growing as much because we will be operating at a lower margin.

We might see a one percent increase in the body shop. The body shop is off dramatically nationwide. The top 25 percent of dealers are up 3.7 percent in profit … My particular 20 group is down 23.1 percent in body shop sales

Ledezma: Yes, I think we are anticipating growth in 2010, both in new and used car sales, but specifically in the fixed operations—parts, body shop and service. We’ve had some good growth now, and we’re looking to continue with that process. We’re anticipating a 10 to 15 percent increase in our fixed and variable.

What capital expenditures are you planning in 2010?
Boeckmann: We have two Saturn stores ... GM has cancelled that franchise … so we’ll be closing those two stores by October. Until then, we continue to handle warranty work, as well as sales for our customers on the inventory we have. We’re also looking at adding perhaps a couple of different franchises, so we have changes that are going on there, some which may require capital expenditures, particularly if you’re changing stores over … It isn’t so much what [franchise] you might like to add. It’s what’s available in the marketplace where your dealerships are going out. What we’re looking at are franchises that might either be available today or obtainable by buying somebody else out.

Also, we wanted to improve the service entrance at our Ford dealership, so we’re spending a fair amount of money to [do that]—making it easier for our customers to get in [and] be waited on, setting up such things as a fast service lane, et cetera. So that’s one of the capital expenditures we have along with new franchises, if we add them.

Andrews: In 2008, we spent about a million-and-a-half on improvements [and] additions, so we’re in great shape on that. It’d just be a computer here, a computer there, possibly a new customer relationship software program, but it’d be very minimal. We spent so much in ‘07 and ‘08, we’re in great shape there.

Hinchcliff: None. We finished a $1.4 million remodel earlier in 2009. We remodeled the service department two years ago. We remodeled everything else in this most recent year—all offices, show room, sales offices, conference rooms, everything in the store. That took quite a while to get through.

Ledezma: We’re just going to do the normal maintenance to keep the buildings up to speed, making sure that we maintain a good facility, asphalt, make sure we do the pavement, pay attention to the roof—those types of items. When you have buildings that are getting older, you always have to pay attention to that.

What modifications will you be making in your sales operations?
Boeckmann: We have some things going down while others are growing … As an example, the people that will be leaving and have left Saturn, we’ve been able to absorb into the Ford, Jag and Mazda stores and Honda stores. So far, we haven’t needed to layoff any employees, and I think that will continue until such time we add franchises, at which time we may have to increase personnel.

And during all of this, of course, you’re continuing to evaluate your profit centers because as your business changes, your people change. Emphasis on certain products may change depending on the car line you’re selling.

Andrews: We’re constantly upgrading our software and all. We want the best everyday … We’re always looking for better software and training available.

Hinchcliff: We’re looking towards simpler, more individualized training. Our focus is on fewer salespeople who make a better living. Because we have fewer salespeople making a better living, we have the time to be able to focus on more individual training. More importantly, because they’re more experienced now, you aren’t teaching fourth- and fifth-grade selling. You’re teaching upper-level selling, so you need to customize that to their particular ability levels. We’ll continue to not back-fill open positions. We’re expecting more from less … in all departments.

Ledezma: We continue to train on a consistent basis … The intent would be to continue doing training just like we normally have in years past. Our philosophy was to keep as many people as possible and not lay off anybody if at all possible, and we have continued with that … and it seems to be working pretty good.

What changes are in store for your advertising/marketing strategy?
Boeckmann: Internet and social networking are continuing to grow, and we’re more and more active in that area in what we’re doing.  

Andrews: You know, right now we’re real happy. Depending on sales, we might increase [our ad budget] as much as 10 percent, but [for now], we’re going to stay the course. [If there is an increase, it’d be] in television and Internet. [City Auto was] a pioneer on the Internet. It’s the backbone of our sales strategy. We’re on social networks—Facebook, Twitter and things like that. We’ll constantly monitor and upgrade that as we can. That’s just a work in motion; that’s everyday. It never stops.

Hinchcliff: I plan to continue to make changes in advertising/marketing. It’s more like evolutionary changes than revolutionary. We’ll totally eliminate print, reduce TV and direct mail, and [closely monitor our] digital. We’re staying with strong digital, but … when we see something in the digital arena that isn’t working, we terminate it and put our money somewhere else. Bottom line, we’re holding digital accountable for its ROI.

A lot of car dealers are spending money [on digital], but not paying attention to if it’s worth it. We’re constantly trying new things. To that end, we have a constant, revolving list of three to five things that are new and different in digital. We give them time to work, but we don’t give them too much time. The next thing on the list is behavioral targeting. One of the things before that which didn’t work very well was a higher-level search engine marketing concept. It was an upper-level SEM company using a landing page concept, and we’re not happy with the ROI on that. We’re probably going to let it expire.

Ledezma: We currently have a good marketing strategy. Our philosophy has been very simple, and that is your unit sales to total advertising dollars is what your benchmark should be and that’s what we’ve continued with. We are heavy into TV and very involved with Internet.

What provider changes will you consider and/or make in 2010, and why?
Boeckmann: Unless we are talking about the dealerships that I just mentioned, none that I know of at this point.

Andrews: We haven’t gotten started on [evaluating new CRM providers] yet. That would be one of our 2010 goals … I’m going to the NADA convention in February, and that’ll be on my shopping list. We just need to upgrade. I’m not sure what I’m looking for; I’m just not happy with what I’ve got. It’s just not the system we want to stay with long-term. It’s not doing what we want it to do. We want to maintain a long-term [relationship] with our customers. We’re trying to do that, but we’re not happy with where we are. That’s just one of our processes that we’re trying to … constantly do better at.

Hinchcliff: We’ll continue to review contracts, but plan on no major changes.  Again, we are very ROI-focused in all areas.

Ledezma: A DMS, our CRM and our Internet partners. [These decisions will be based on] efficiencies—efficiencies of what we’re currently utilizing, making sure that our efficiencies continue to improve. That’s what we’re looking for. What we’re looking for is more throughput. We have a lot of traffic on the Internet currently, but we feel like we need to get more conversion.

Vol. 7, Issue 1