Trailer dealers are missing out on a valuable opportunity if they fail to pursue opportunities related to the launch of Compliance, Safety, Accountability (CSA), a Federal Motor Carrier Safety Administration (FMCSA) initiative to improve large truck and bus safety and ultimately reduce crashes, injuries, and fatalities that are related to commercial motor vehicles.
That was one of the key takeaways from the General Manager Workshop given by Allen Phibbs, a CPA for KEA Advisors and former general manager for a large Mid-Atlantic commercial truck and trailer dealer group.
“This creature called CSA: If you're not taking advantage of it in your parts and service departments, shame on you,” Phibbs said. “They want your help. They expect you to have parts so they can comply with CSA to keep their trailers on the road. They want you to be there because they can't handle the volume of work to keep up with CSA.
“You can't have any effect on the first four parts of CSA. But you can on the fifth: vehicle maintenance. You can search and see where they're having violations. Make that proactive call. Ask them, ‘How can we help you keep your trailers on the road so you don't have those violations?’”
Phibbs said the commercial dealership market, as described and defined by the Harvard Business School, is a mature industry — meaning the industry itself has little or no growth and perhaps is even declining, customers are more educated and have a wealth of information available, and there is less and less product differentiation.
“So focus on controlling your cost structure,” he said. “We're talking about the cost of sales and expenses. The other piece is how you serve your customers, and that's selling the value. Why do your customers do business with you? If you had another nameplate on the trailers that you sell, why would your customer still do business with you? That's what we call value. And value and price doesn't necessarily go together.”
How do you measure performance? What are you measuring? Are you measuring what's important? The results or what drives results?
Phibbs cited a theory from British scientist Lord Kelvin: “Measure everything you do. You cannot improve what you cannot or do not measure.”
• Traditional financial accounting measures. “When you get your financial statement sheet, what was our sales, growth, net? Are you measuring what’s important? Are you measuring results or what is driving results? If you are so good that you get your finance statement on October 1 for September, you are already 30 days late. What you’re getting October 1 is giving you information about what happened September 2, 3, 4.”
• Non-financial measures. “They are performance measures. They measure what drives your financial performance.”
Seven characteristics of winning Key Performance Measures (KPM):
• Non-financial measures. “Our belief is that behind every financial result is an activity. So you have to figure out what the activity is and what drives it.”
• Measured frequently 24/7, daily, weekly. “The more frequently you measure something, the more effectively you can make change.”
• Acted on by the CEO and senior leadership.
• Clearly indicate action required by staff.
• Tie responsibility down to a team. “The best definition I’ve heard is a team is a group of people going out of their way to make each other look good. Does that describe your dealership? If not, what is in the way?”
• Significant impact on the organization and affect more than one PSC competency.
• Encourage appropriate action.
He said we should measure what matters, adding that when we deal in generalities, we seldom succeed, and when we deal in specifics, we seldom fail. When performance is measured, performance improves; when performance is measured and reported, the rate of improvement accelerates.
“If you can't measure it and you don't report it, you have no improvement,” Phibbs said. “It needs to be reported. That doesn't mean you report it to the world. If it's technician measures, let them know every single day. If it's turning sales quotes into deals, you need to let sales people know.
“We usually start with The Concept of Fixed Absorption. That's the ability of parts, service, and body-shop operations to generate sufficient gross profit dollars to cover the total overhead expenses of the entire dealership. Absorption does not tell us dollars. It's a percentage. It's cash position information and asset information.
“Our belief is that your managers and dealerships are your asset managers. It's just like money you put into a 401(k) or IRA or any investment. Their job is to give you the best return you can get. We believe the dealership's purpose is to increase wealth of dealers.”
Phibbs cited a quote by noted educator and author Peter Drucker, who invented the concept known as “management by objectives”: “What we call profits, the money left to service equity, is usually not profit at all. Until a business returns a profit that is greater than the cost of capital, it operates at a loss. Never mind that it pays taxes as if it had a genuine profit. The enterprise still returns less to the economy than it devours in resources. Until then, it does not create wealth, it destroys it.”
What drives dealership profit? Variable profit, parts profit, service profit, body shop profit, and lease and rental profit.
Improving profit involves:
• Reducing the asset base. “Have the right inventory (new, used, parts, labor) when it’s needed. Do not allow it to get old. Control receivables and do not allow it to get old. Evaluate existing customers: Are they profitable to the dealership? Profitable enough? If not, why not? How can you improve?”
• Control expenses.
• Increase gross profit dollars.
• Increase sales dollars. “That involves price and volume. What business are you really in? You’re in the business of solving your customers’ problems. Yes, price matters. But surveys recently have shown that customers value getting their equipment up and running. Uptime matters more to your customers than anything else. Why do your customers want quotes when you’re repairing their trailer? They take that quote and add it to the cost of downtime. Fleets estimate $80-100 an hour for a piece of equipment being down. How do they get that? Because it’s lost revenue. It’s not like taking my car to have it serviced. That’s not a revenue piece of equipment for me. If they have a trailer in your shop, it’s not hauling goods.”
• Wallet share. “Sell more of existing products and services to existing customers.”
• New business opportunities. “What are the opportunities you are missing?”
Traditional Results Measures (RM) involves the balance sheet; inventory turns/aging; receivables (days aging?); floor plan trust position; income statement; unit and dollars sales; gross profit percentage; gross profit percentage and dollars per unit sold; expenses as a percentage of gross profit dollars; used truck policy; and net income.
Performance Measures (PM) involve:
• The number of contacts per advertising dollar.
“What’s the purpose of an ad?” Phibbs asked. “To generate sales? No, to generate contact—a call, email, something. You want them to contact you and then you want the professionals in your sales department to take that contact and turn it into a sale.
• True turns. “Measuring your stock order performance as opposed to gross turns, which is total inventory.”
• Order acceptance rate.
• Cost of sales per person. “We believe cost of sales is more level across the board. Sales prices can be dictated by the market. Cost of sales is going to more level from location to location.”
• Lost sales. “The misconception is that lost sales is a bad thing, but it’s even worse if you don’t record it.”
• First-time fill rate.
• Parts numbers with no demand and inventory quantity. “If there’s no demand, why do you have it in inventory?”
• Stock parts numbers special-ordered. “Then why is it stock? Special order parts is the #1 reason for obsolescence in your parts department. It’s not recording demand that creates your obsolescence.”
• Upfront estimates. “The #1 cause for technician inefficiency.”
• Single operation ROs. “It’s becoming more important as equipment gets older and there’s more opportunity for maintenance and repairs. So are you just doing what the customer comes in and asks for? Do you expect your service advisors to up-sell? If you expect your service people to be sales people and you haven’t retrained them to sell service, shame on you. It’s not their fault they’re not up-selling. Are you doing complimentary inspections, CSA inspections?”
• RO cycle time. “From the time the RO is open until you collect the money.”
• Warranty performance.
• Technician proficiency.
• Return on technician investment. “We get a return on inventory and parts and return sales. Why not do a return on technician investment?”
Phibbs said it is possible to make trailer dealerships more profitable for the owners and a more rewarding place to work for dealership employees. “Celebrate successes all the time along the way,” Phibbs suggested. “It doesn't have to cost you a dime.”