Cutting the Head Count

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THREE DIFFERENT PEOPLE called me in the last month, all wanting to talk about the same topic: how best to downsize a dealership. One caller was the editor of a powersports trade magazine, another was a Harley-Davidson dealer, and the third was a multiline metric dealer. Each wanted my opinion of how and where to cut heads. Which department(s) do you cut first? Which departments, if any, should be left alone? How do you do this difficult and gnarly thing right? As I said to each of these folks, it's not how to do this thing right — it's how to do the right thing.

The Harley dealership is pretty profitable, even in today's market, but nowhere near where it used to be a couple of years ago. The multiline dealership is marginally profitable at best. Both owners had already concluded that to survive in this down market they would have to cut their biggest expense: people. It sounds reasonable, for it seems as if everybody is laying off staff or considering layoffs.

I believe both of the dealers are a bit scared. They don't know exactly what to do, and are not thinking strategically. Look, I worked 20 years at Chrysler Corp., and we made laying people off an art form. Every CEO who took over while I was there (each one from our CPA firm, incidentally) believed you could save or cut your way into profitability — that is, except for the last CEO: Lee Iacocca.

Expense control is a critical aspect of any business. But if a business is to survive, it must also grow. And a business will not grow without investment spending, even in a downturn. What Iacocca did to save Chrysler was historic. Chrysler was going broke; yet he nevertheless invested in product, marketing and training.

So before you cut the first head, carefully study where you are financially. Don't make downsizing decisions out of context or in a vacuum. Look at your entire financial picture from the 5,000-foot level. And while you're at it, avoid cookie-cutter, popular approaches used by other dealers or companies mentioned in the media. Your industry, your market, your brand and your dealership are all unique.

THE ALTERNATIVES

For example, both of my dealer colleagues acknowledged that their surrounding competition had already cut back advertising spending, as had many other businesses, according to their media ad reps. Having also been in the ad agency business, I can tell you that when ad revenues are down, an agency, radio station, TV station, newspaper, any media outlet will do anything to get your business. You can buy spots for pennies on the dollar, and get better positioning, better times, better on-air mentions and better deals all around — if you ask and negotiate for it.

Think about it: Even if the industry is down 15 percent, that means the remaining 85 percent will still buy a bike or other powersports product from someone, and that someone might as well be you. But people will buy only if you let them know — frequently — what you offer and why they should shop with you. Reconsider cutting advertising budgets, unless you're really going broke.

If you need to trim expenses, consider having a "Payables Party." It's a great idea I adopted from my favorite 20 group and something you probably should do monthly, anyway, in good times or in bad. A Payables Party involves getting all your department heads in your office around your desk each month to go through your stack of payables.

For each payable invoice, ask two questions of whoever ordered the merchandise:

  • Do we absolutely need this item?
  • If we need it, can we get it for less?

Show your people that you are watching expenses like a hawk. Make sure your employees see you turn the lights off when you leave the restroom. Sweep the showroom floor yourself while others are there. Set an example.

Even after all your efforts, you still may have to cut some overhead. If that's the case, be considerate. Rather than target a specific department first, look at the least productive individuals company wide instead. Now is the time to get rid of that person who comes in late and leaves early, and has a bad attitude to boot.

If your salespeople, F&I manager and technicians are paid on commission/flat rate, they aren't costing you much unless they produce. But you could still cut the low person on the totem pole, based on that person's productivity year to date. But remember: These are your bread-and-butter people. Their attitude, pace and performance are critical to your future success. Making them feel as though their jobs are always in jeopardy, without warrant, will not inspire them to upsell the next sale or repair job with the most positive attitude.

The same goes with service technicians, clothing associates, parts specialists and administrative personnel. If you have to cut back on people, cut the least productive individuals with the poorest attitudes. And then, explain your moves in a thoughtful manner; your remaining team will recognize that your efforts are warranted, and they should understand and appreciate the position you are in.

There's no magic bullet here. Only you can decide what's best in your specific situation. The key is to think it through carefully. Don't accept the logical or most expedient path, but choose the right strategic path.

Clark Vitulli is a Harley-Davidson dealer in St. Augustine, Fla. Contact him via editors@dealernews.com.