SIGNS OF 2008 DÉJÀ VU
As we enter the treacherous beginnings of 2019 with slumped new car retail across almost all makes with a few exceptions, it is hard not to think about the 2008 crash of the auto industry in the US.
Let’s take a look at some latest facts:
FORD’s Hackett claimed that the tariffs on steel and aluminum cost the auto maker north of $1 billion so far.
FORD’S stock is down 23%
FORD is planning to lay off about 25,000 people globally as a part of their re structuring plan and they intend to close about 20 plants in savings of about $25.5 billion.
FORD also recently announced their partnership with VW in primarily building light trucks but also close to expanding that relationship to autonomous and electric vehicles development and ride share programs. This is something Ford needed desperately to catch up with the rest of the world in mobility transformation.
GM debt portfolio has swollen by $10 billion in the past couple of years and almost all of it is to pay for the investment in autonomous technology and ride share developments.
GM intends to close 7 plants, lay off about 14,000 workers and spend $3.8 billion in the process.
GM stock is down by 6% and has slashed its dealer incentive programs to balance debt service and cause a huge crisis in dealer body along the way. Sales were down 1.6% in 2018 and for the third straight year.
Despite record breaking margins in 2018 at 10.2% and ahead of both GM and Ford, FCA has its own set of challenges ahead. They set aside about $900MM for the diesel emission scandal, last quarter they laid off 6,000 people in Windsor and 5,000 in Illinois. In spite of high earnings margin 52 week stock prices went as low as $14 per share.
Still hovering around 17MM surely the retail sales are still on a healthy pace. However January 2019 was the lowest sales rate for the last 5 years where SAAR dropped below 17MM the first time. February and rest of the year does not look great for new vehicle sales as well and are expected to drop by 4-5% for 2019, another 3% in 2020 and perhaps barely edge 16MM sales.
Life time rival luxury giants Mercedes Benz and BMW announced a joint venture project to develop autonomous and electric vehicles and ride share and urban mobility projects to take on Uber and Lyft with investments of $1.13 Billion.
Mass producers of transportation have already figured out the future of mobility and its anticipated impact on conventional car sales and ownership as we know it today. Those of you who still think that all of this is about 20-30 years away need to look at all the facts and developments a little closer. Here is the good news, for those retailers who are buttoned up and up to speed with 21 century business practices are going to experience a prosperous decade ahead and enjoy a profitable auto industry. It has always been a proven fact that during tough times a few astute retailers have enjoyed their most profitable years while some others were bailing out. This time the difference is that rules have changed dramatically…….
Here is what you need to pay attention to when assessing the viability of your dealership going forward:
STELLAR USED CAR SALES:
In 2019 and beyond used vehicle sales in a retail store will make up the backbone of their revenue. Those of you who relied on volume new vehicle sales in the past years will have to have a reality check with lower margins, swollen inventories, fewer incentives and increased flooring expenses. You may have to restructure your operations and put used car sales on the front burners and pull all the stops to move them and fast. You also have to keep in mind that the conventional methods of acquiring, pricing and marketing used cars will no longer get you the results you are going to need. Start with the “Most Valuable” used car manager that you can find and pay them well. Keep in mind that the qualifications of a star used car manager are quite different now. Perhaps you don’t even need a seasoned, conventional used car manager but someone who you can groom to become what the market demands today. Someone who is tech savvy, proactive, price intelligent, competitive, market oriented and outwardly dynamic to spin on a dime and make quick decisions to move product efficiently and maximize returns.
CHIEF TECHNOLOGY OFFICER:
It’s about time to create this job title in a car dealership and understand that it is as important a job title as CEO, COO or CFO. We have come to a point in retail marketing that all of the efforts to integrate various software, manage artificial intelligence resources and data at the highest levels of efficiency must be coordinated. This is the only way you can chase clients with relevance, improve your market presence and become effective with all of your marketing resources and stop wasting money. One of the biggest challenges in today’s auto dealer environments is that it lacks this required expertise and substandard people end up with these extremely important jobs.
Get scientific with you service departments and understand capacity and efficiency problems. Make sure that you service managers, service advisors and the technicians are educated about measuring results and efficiencies. Create attainable benchmarks to produce at a maximum level and reward top performers who help you get there. It is typical of a retail operation that leadership hardly ever spends time or pays attention to their fixed operation performance. If your absorption is below 65% you are missing opportunities.
Make sure that you play by the 80/20 rule. Your expenses cannot exceed 80% of your total gross profits including other income. If it is not, you are not efficient and missing the boat. You are spending the money that does not exist in your bank account. Make sure that you have a business office that provides not just a financial statement every month but all of the backup reports that detail all of your expenses on spread sheets. If your business office does not provide these types of reports you will never know where the money is going to.
The bottom line is, all of these areas to sustain a healthy business need to be addressed in your dealerships. But more so, they also have to be coordinated and managed. We have recently launched our new “Super Star” curriculum that provides all of this with one stop shopping and unmatched in the industry. I encourage you to contact me to discuss.
See you next month…