Dealers Speak!

It was the fourth best sales year on record, but competition, hurricanes, rising interest rates, bloated inventories and desperate incentive measures from the Big Three created unusual volatile market conditions in 2005. Dealers tell Ward's they are optimistic about 2006 as they focus on used cars and fixed operations to compensate for what they say is a questionable new-car market. In our annual

It was the fourth best sales year on record, but competition, hurricanes, rising interest rates, bloated inventories and desperate incentive measures from the Big Three created unusual volatile market conditions in 2005.

Dealers tell Ward's they are optimistic about 2006 as they focus on used cars and fixed operations to compensate for what they say is a questionable new-car market.

In our annual “Dealers Speak” feature, a cross-section of automotive retailers talk about the state of the industry, leadership, the health of their businesses and brands and what they're reading.

“There are some OEMs that may have to cut some brands”

Michelle Primm
Managing Partner
Cascade Auto Group
Cuyahoga Falls, OH
Brands: Audi, Mazda, Subaru, Porsche

How was 2005 for the Cascade Auto Group?

Across the board, we had a good year. Since 2000, we've experienced incremental growth. In 2000, we sold 692 vehicles; in 2005, we sold 980.

The Cleveland market is tough. What is the secret behind your growth?

Part of it was good timing. We replaced some franchises and added Subaru. You could say it just is our time.

And we doubled the size of our service department. So that grew, too.

I also have the best team here. Everybody is committed to the vision and to each other.

What are you expecting in 2006?

We'll sell about 1,020 vehicles. Another area I'm looking at is increasing our service hours and revenue per order. And I would like to take our customer-satisfaction scores up another notch.

Industry-wide, we think there will be some product lines that may go away. You don't have to be a rocket scientist to know there are some OEMs that may have to cut some brands.

What makes a good leader?

The secret is to find the right people. For us, we look for people who are honest and are willing to learn.

We also train our people to follow the rules here. Anytime there is a question on what to do, we just follow the rules and do the right thing.

But as leaders, we also have to be honest and caring about our employees. And we have to trust them.

What was the last book you read?

There were two. I have a book of quotations that is heavily highlighted in yellow. I also just finished the previous Harry Potter novel.

Which magazines do you read?

I read the trade publications, such as Ward's. I also read The Economist and Automotive News.

What would you like to tell your manufacturers?

I would tell them to listen to the people in the field. They need to consult their frontline troops.

The OEMs also should follow the K.I.S.S. formula: Keep It Simple Stupid. They all want to make programs that are complicated. It just bogs the process down.

“I sure do like what I see with the new products”

Clifford Anschuetz
CEO, Cliff Anschuetz Chevrolet-Cadillac
Alpena, MI

How was 2005?

Unit-wise, we did all right. Profit, on the other hand, was not so good. We do have a strong fixed operations department and that does help.

I've been a dealer since 1972 and have been in this business for 55 years so I have seen some slides.

What is 2006 looking like?

Well, once we get through the winter we should be okay. I sure do like what I see with the new products.

You have been in this business for some years. What is the secret to good leadership?

You have to have good people. Most of our employees have been here for 10 years or more, so we haven't had that turnover problem.

Why is that?

There are two things. First, it is the way you treat them. You have to give them that acknowledgment they are doing a good job.

And second, of course, is pay. How you pay them says a lot about how you value them.

What are you reading now?

My son runs the dealership now, so I have a lot of time to read. In fact, I have the Ward's magazine sitting here on my desk. I spend a lot of time reading the trade magazines.

What would you like to tell Mark LaNeve, vice president, sales and marketing for General Motors Corp.?

I'm glad to see we're lowering the sticker prices. But I would like to see bigger dealer discounts, so we could make a little more money.

“Everybody keeps their powder dry”

Bill Minsker
President
Buckhannon Auto Mall
Buckhannon, WV
Brands: Toyota, Chrysler, Dodge, Jeep, Subaru

Was 2005 a strong year for your dealerships?

Business-wise, yes. Toyota, of course, has shown us a lot. I think the mistakes in 2005 were all of the crazy incentives such as employee (discount) pricing.

What about 2006?

Well, if everybody keeps their powder dry and sticks to the fundamentals, 2006 will be a good year. But, you know, car dealers are always optimistic.

Chrysler has done well, but it is feeling some heat and needs to get rid of some of that inventory, so I don't know how it will avoid some of those incentives.

For us, I want to improve our used-car operations. I just returned from a 20 Group meeting in Dallas, and used cars were the big topic of conversation. They have to be because there are some questions about new-car sales.

We're looking at extending our Internet sales, doing more with certified pre-owned, getting more efficient with our inventory and how we advertise.

It's important that you have the right people, the right inventory and the right advertising.

What makes a strong a leader?

In our business, a good leader has to be a strong motivator. Good leaders are concerned about their people and take time to learn about their families.

Effective leaders also have to be upbeat and positive all of the time. It's easy to get down when things are tough.

Yet leaders do not need to be super-dynamic personalities or great sales people. It's about having good systems in place and the right people.

Your community recently suffered a tragic loss when the 12 miners died. What are ways dealers are important to a community in times like that?

I will tell you that everybody seems to come together when there is a tragedy, and we get to see the best in people.

Dealers are an important part of their community, although, we really are just another citizen. We've been part of a community-wide effort with other organizations helping with fundraising.

What was the last book you read?

Micheline Maynard's The End of Detroit — How the Big Three Lost Their Grip on the American Car Market.

It is a spooky book. But for anyone who has been around this business for a long time, the challenges are nothing new.

I think the domestics have a lot of opportunity here to come back strong.

“As tourists relax, we've got to work hard here in paradise”

David Chun
President and General Manager
Honolulu Ford
Honolulu, HI

Many Ford dealers had a difficult 2005. Are you reporting the same?

Well, it wasn't easy. After the hurricanes, we were hit harder than most with high gas prices — we were at $4 a gallon for a while. It has now leveled off to the $2.90-$3 range.

We have a gas-cap law here, but don't ask me to explain it. It's pretty complicated.

I also have to wonder about all of those financing and incentive deals last year.

Last year was tough on everybody. But that is kind of unfair because business has been so good to us. We've been spoiled the last several years.

Will 2006 be better?

I hope to improve about 10% this year. I'll be happy with that. Ford has some new products — the SportTrac (part pickup truck, part SUV) should be good and with the Fusion just being launched, we have something to work with. Thank goodness we have our trucks, though.

We have a brand new facility on the other side of the airport. We have a bigger service facility that will allow us to work on bigger trucks, such as the diesels. The new equipment in the fixed operations area is going to help us become more efficient.

We also have a quick lube business thatis bringing in more customers.

I just returned from a parts and service meeting in Los Angeles. Parts and service has been good to us, and it is a good move that Francisco Codina (head of Ford's customer-service division) will be Steve Lyons' replacement (as group vice president-North American marketing, sales and service). Cisco knows the dealership business.

Do you have any plans to grow?

It is tough to add new points here because land is so expensive. For example, our new facility is on 5.5 acres that is costing us $9.5 million — and I don't even own the land, I have to lease it.

So while all of the tourists are at the beach relaxing, we've got to work hard here in paradise.

What was the last book you read?

I have to be honest. Most of my reading is for pleasure. I enjoy westerns and fictional thrillers with cops and robbers.

I also read the golf magazines and Sports Illustrated. I hoped by reading those, I would improve my golf game, but that hasn't worked.

Describe what good leadership means to you.

Find good managers — in both fixed operations and sales — and let them run wild. At least, let them try their ideas. Many of them have great ideas on how to run the business.

I tell them, “No matter how good you are, there is always someone better.” And that goes for me too.

“Roller coaster year got better, thankfully”

Tom Ahl
Owner
Tom Ahl Family of Dealerships
Lima, OH
Brands: Chrysler, Dodge, Jeep, GMC, Buick

Describe how 2005 was for your dealerships.

It was a roller coaster year. It got better, though. And I'm thankful to the Lord for that.

We do a big pre-owned business, and Katrina has affected that some. We've seen that it's more difficult now to procure used cars. And with new-car sales being so slow, we don't get as many trade-ins.

Our “Ahl Under 10” store where we sell cheaper used vehicles was a good idea and has been helpful to us.

Name one process or practice you implemented in '05 where you look back and say that was a home run for us.

I don't know if it was a process, but we bought a bunch of hail-damaged units from Chrysler and did real well with those.

What do you expect in 2006?

I'm looking for a more stable year. And I'm hoping we'll be able to keep the interest rates down.

If you could go in front of your OEMs' leadership, what would you say them?

I would like to see a more honest retail price. Let's get rid of those rebates and try to put some pricing packages together that we can sell.

“This certainly is an interesting industry”

Tom Vann
Owner/General Manager
Hillsdale Chrysler Dodge Jeep
Hillsdale, MI

Last year was a difficult year for many dealers. Did you have a similar experience?

This certainly is an interesting industry, especially with all of the incentives and pricing strategies, it can get crazy.

Our business is good, but industry-wide it is difficult. One of the things we're fighting is incentives and the environment they create. They can cause dealers to do some crazy things to keep up profitability.

We're outside of Detroit, but I think you could say the Detroit area is an ugly battle zone. The dealers there have a good relationship with the zone and we have to deal with that. That's just the reality of the market here.

Being a Chrysler dealer has always been a good deal for us. And I'm always surprised there isn't more positive coverage of DaimlerChrysler. That Chrysler bunch — as a pure design and manufacturing company — is a great company.

What about 2006?

We want to increase our used-car profitability. If you're a small-town dealer and you're not good at used cars, you'll be out of business.

We're also getting better at inventory control. In fact, we actually made money on wholesale last year.

When you look back on 2005, is there one new thing you did that you can say was a homerun?

For us, it was the development of a client relationship center. We hooked up with BZ Results and that was good for us.

We re-contacted all of our service customers who had not been back in 90 days and we had a 22% response rate. People were introduced to stuff in our dealership that we thought they already knew.

We also built relationships with other companies in the community offering things such as gift certificates to restaurants if the customer does a test drive.

As we've gotten better at the follow-up, our CSI scores have skyrocketed.

If you could have an hour with Chrysler CEO Tom LaSorda, what would you tell him?

The middle-management support has been poor. I have a lot of respect for the company and believe senior management is trying to build an incredible company. And I don't think we can say the same thing about Ford or GM.

For Chrysler, the bunch stuck between the corporate world and the retailers end up not helping, but hurting communications. I'm not sure what the fix is.

We haven't seen our district manager in three years, but we have seen the auditor three times.

I would like to see Chrysler create whatever it is that would be a true support mechanism that helps dealers figure out how to increase profitability.

“We try not to get caught up in all of the other stuff”

David E. Auge
President
Teton Motors Inc.
Jackson, WY
Brands: Chevrolet, Buick, Pontiac, Jeep

Did you have a good year in 2005?

It was a decent year. It wasn't our best, but it certainly wasn't our worst.

Like everybody, I think employee pricing was a mixed bag for us. I was real heavy in inventory going into the summer, so I was nervous. Obviously, I was not alone in worrying about that.

But employee pricing cleared out our inventory, so mission accomplished. But I knew good and well that the next quarter would be tough.

The thing that's interesting here in Jackson, is the difficulty we have in finding people to hire. The biggest city around is Salt Lake City in Utah, and that is 270 miles away. There is a limited pool of people out here, so we did have a hard time last year getting some job positions filled.

Supposedly, per capita we are in the richest county in the country. There are several retired CEOs that live here. In fact, Dick Cheney lives out here.

So getting people to stay and live here is a challenge. If you want to own a home in Jackson, you're not going to work here — and I pay pretty well. So we have people working for us that live 35 to 50 miles away.

What about 2006?

I don't think my thoughts are unique. I am pretty optimistic about this year. Fortunately, in the last couple of weeks, I was able to put some people in place on the fixed operations side. That was important.

When you look back on 2005, did you do anything new that was a homerun?

That's tough to say. I don't think we hit any homeruns last year. My brother is my partner and we just come into work every day. We keep our eyes on the ball and focus on the work.

We try not to get caught up in all of the other stuff going on. We don't let the GM bankrupt rumors get us down. And I don't think there is much danger of that anyway.

It helps that I do have great employees that are very committed.

I belong to the 20 Groups and endorse that heartily. It helps you keep your focus.

One big change we made in 2005 was to go with a new dealer-management system. After 31 years with one of the larger providers, we switched to Arkona. We're getting more. So that has worked out for us.

Are you looking at anything new in 2006?

I am signed up for the General Motors Standards For Excellence program that combines sales, CSI (customer satisfaction index) and training. And I think we have a real good start there, especially in our fixed ops department.

I would like to lead my district in CSI scores this year. We had the trophy two years ago and I would like to get that back.

What's the last book you read?

I'm a big magazine and paper guy. I've refereed high school basketball for seven years so I read Referee and Running World.

I'm half way through Lance Armstrong's book, It's Not About the Bike.

An hour with Mark LaNeve (head of GM sales and marketing), what would you tell him?

Right now, I would tell him to stay the course. And I would commend him for finally getting off the rebate addiction.

It will be painful, but it is the right thing to do.

I'd also tell him to remember they build the cars and we sell them, although GM has been pretty good. There were some rumblings a few years ago but at least they didn't get into retail like Ford did.

It really is about the product. I guess they hear it, but you have to wonder sometimes when you see what has come out of Detroit the last five or six years.

I think I would also remind him that a few years ago, GM told its dealers that VOMS (vehicle ordering management system) would be reactive and flexible.

They told us they wouldn't force products onto us, but that hasn't been the case.

I might ask him if he's ever sold a car. I don't know how many of those guys have ever had to sell a Chevette or sit across from a customer with a Citation after 32 recalls.

That is the cynic in me, though. The reality is, they need us and we need them.

“The market certainly has gone kind of goofy”

Ralph Martinez
Chief Executive Officer
Town and Country Dealerships
Milwaukie, OR
Brands: Chevrolet, Chrysler, Dodge, Jeep, Mitsubishi

Was 2005 a good year for you?

Well, the market certainly has gone kind of goofy. As a result, we're trying to create a greater gap in pricing between the new and used vehicles.

We're changing our used-vehicle mix to help with that. We're trying to stay out of the '04 and '05 models and move more into '02 and '03 vehicles. And we're looking at creative ways to maintain that profitability.

For us, fixed operations have been strong. We've put a lot of units on the road in recent years and that has created some service and parts business.

Did you implement any new processes or practices that helped the dealerships?

Yes. We started marketing our service departments on television and radio. We have a great staff and great technicians. I'm giving it 100% of our attention now, instead of putting it on the backburner.

We also partnered with AutoRevenue, which did a great job using e-mail marketing to drive traffic back to the departments. And we're focusing on capturing e-mail addresses, phone numbers and street addresses.

I also instituted a menu-value pricing that helped increase our closing ratios.

What is your goal in 2006?

We want to get our inventory in line and stick with 60 days because the interest rates are going up. I think a lot of dealers are getting off the dope, even if the OEMs aren't.

What makes a strong leader in the dealership?

I know there are all types of dealers — some harder than others. I try to keep my team passionate and inspired. I want to give them a positive example with my experience. I'm just a poor kid from the Bronx, and yet here I am.

I could make more money by being more stringent and hardcore, but that's not our style.

What are your thoughts about the manufacturers?

With GM, I am pumped about their product. And the Chrysler products are light years ahead of anything else. I'm driving a Jeep Commander right now and it is phenomenal.

I do think some of the OEMs have a disconnect with dealers. And they don't give the dealer a sense of confidence — sometimes the attitude is condescending.

“Getting prices more in line helps the residual values”

Robert Martinez
President-Owner
Desert Sun Motors
Alamagordo, NM
Brands: Toyota, Chevrolet, Pontiac, Buick, GMC, Cadillac

How was 2005 in Alamagordo?

It was tough. Our profits were down 20% even though our units sold stayed the same.

I would say increased floor-plan interest cut into those profits.

What do you expect in 2006?

I think it will be a mirror image of 2005. It will be interesting to see what GM's new pricing strategy will do. Obviously, some of the margins have been cut, and it's already tough enough to make money on those sales.

There certainly are some positives, though. Getting prices more in line helps the residual values on the vehicles — at least from a long-term perspective.

Of course, Toyota just keeps rolling along.

So how do you compensate for the negatives?

We realize we have to cut expenses — especially the floor-plan interest.

Out here, the used-car market is strong and this year it will be the department that will make or break many dealers.

So we're working on controlling inventory better and focusing on the certified pre-owned vehicles. And we're also advertising our used cars more than before.

What is your leadership style?

A good leader has to be involved in every facet of the business. I try to keep my door opened and stay easily accessible. I also communicate with all of my employees.

What was the last book you read?

The World is Flat, by Thomas Friedman.

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