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Group 1 Recovering, Along With Its Customers

CEO Earl Hesterberg says the auto industry could have averted many of its major problems of the past.

Special Report

MegaDealer 100

Like its stunned customers, Group 1 Automotive is recovering from a horrible year.

Among the top-ranked on the Ward’s Megadealer 100, the dealership chain saw its revenues drop from $6.2 billion to $4.5 billion as the recession took root, Group 1’s CEO Ed Hesterberg says at an automotive conference put on by the National Automobile Dealers Assn. and IHS Global Insight.

Customers, facing hard economic and credit issues, were “stunned but are now recovering,” he says. “You could say the same thing about CEOs.”

He foresees pent-up demand driving near-future auto sales, which so far are 13% better this year compared with like-2009.

Hesterberg says the auto industry could have averted many of its major problems of the past.

“If manufacturers had done as much with vehicle-inventory control as with parts-inventory controls, we wouldn’t face some of the structural cost issues,” Hesterberg says.

Although auto makers have been asking their dealers to improve facilities and expand their service departments, he says that is too costly and unnecessary.

“You don’t have to buy land and build new service bays; you add a second shift,” he says. “We have to get manufacturers to acknowledge that.”

Most dealership facilities were geared up for times when annual vehicle sales were 15 million to 17 million units. That has hurt them financially, because “land and buildings acquired in the first eight years of the decade are likely to be worth 25% less now, Hesterberg says

What can auto makers do to help dealers? Hesterberg has a list.

“Hold supply; put some trading margin in cars; when in doubt, make the incentive dealer cash not customer cash. And if you don’t have a captive credit company, get one.

He says he understands why General Motors Co. divested itself of General Motors Acceptance Corp., but contends GM’s decline started when it did that.

What can dealers do to help the industry? Primarily, upgrade the professionalism of employees, Hesterberg says. “It is a never-ending battle.”

It starts with some basic things, such as phone skills.

“We are so bad on the phone,” he says, describing his frustration when he hears conversations recorded for quality purposes. “I need an oxygen tank by my desk when I listen to some of these. If we are bad on the phone, we are likely bad in person.”

Training is vital, “but we are among the worst offenders; the first thing cut in a downturn is training,” Hesterberg says.

Dealerships also need to get better at using their customer-relationship-management systems to maintain customer contacts.

Another area where there’s room for improvement: taking Internet leads seriously.

“Today’s Internet lead is yesterday’s showroom ‘up,’” Hesterberg says referring to an in-person sales prospect. “We don’t treat Internet ups like we do a human being walking through the door.”

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