sewells group benchmarker global edition

BenchmarkerGLOBaL editiOn

Auto Retail Best Practices from Across the Globe

IndexEditorial

Key Industry Indicators

Balance as a Driver in Auto Retail

Capitalising on Social Media

Sewells Group MRA App

News Bites

US Market Report

Rewarding Excellence

A Note from Paddy O’Brien

Contact Us

2

3

4

9

11

13

16

18

20

21



2Edition: October 2013 | sewellsgroup.com

A Spread of Essential Reading

editOriaL

Manish JarGroup Managing Director

For Everyone in Motor Retail

Dear Readers,

I am excited to present to you the first Global Edition of the flagship publication of Sewells Group; The BenchMarker. It is an exciting moment for us and nothing better explains the reason for this excitement than the “Purpose Statement” of our organization:

“We aim to be a key catalyst in the transformation of the global motor retail industry into one of the most admired (by customers and by peers) retailing businesses in the world.“

We believe that The BenchMarker-Global Edition will take us closer to our purpose. Sewells Group today covers global markets that are responsible for more than 50% of world’s automotive sales. This gives us a unique perspective into the dynamics of diverse markets whether developed or emerging. As you consider the data presented in this issue, you cannot help but notice the range of differences in the mix of returns being generated at a departmental level at dealerships. However, what is refreshing to note is that despite the variances in the mix, the smart operators are able to find the balance across the entirety of their businesses.

Sitting behind these numbers is another common reality – so much of the success is now hinging upon ‘the organizational capability’ within dealerships. At Sewells Group, we see this as an important challenge that deserves a significant attention on the OEM side.

From Tokyo to Mumbai to Sydney to Seoul, there is a new (or is it old?) urgency rippling through the industry – how to create a signature experience that differentiates and retains loyalty of the consumer? With the proliferation of online information, the very purpose of the retail store is being brought into question, particularly the role of the sales teams. Customer Engagement is moving from being a discrete function to a continuous function. While everyone is busy forecasting the future, customer remains the central point of attraction in this debate on “Technology Vs Human Touch”. This issue offers some insights on this topic as well.

“We aim to be a key catalyst in the transformation of the global motor retail industry into one of the most admired (by customers and by peers) retailing businesses in the world”Lastly, I would encourage you to enjoy and learn from the wisdom of the dealers we have featured in this edition. Technology or human touch; Best practices sharing and benchmarking remain business world’s favourite method for performance improvement.

Happy Reading.

Manish K Jar

Manish Jar is the Group Managing Director

of Sewells Group.

Other than managing the general affairs of the company,

he consults with strategic clients. His areas of interest within auto retail domain are network strategy and leadership development.

He can be reached at [email protected]

Send me a message on Linkedin! Click here

Any Questions?

http://www.sewellsgroup.com

mailto:manishj%40sewellsgroup.com?subject=

http://www.linkedin.com/in/manishjar




Key Industry IndicatorsThis specially compiled table presents the key performance indicators for franchised motor dealers in the listed countries.

insiGhts

These have been assembled by the Sewells Group operations in the listed countries and represent current ‘Best practice’ norms in these markets. Each line item is an independent key indicator.

Sewells Group believes in measurement as a critical business management practice. If you measure your performance and can compare it to an industry indicator, you are in a position to evaluate and potentially improve that area of your business.

You will then be able to create a collective discussion with your management team around why your performance should be better than the given indicator and delve into the factors, which might be restricting your business from achieving these levels of performance.

“Sewells Group believes in measurement as a critical business management practice.”Finally, when conclusions are reached, the key points of these discussions can be converted into actions for the management team with clearly defined targets to be achieved.

Dealership Overall Australia New Zealand China India South

Africa Indonesia Philippines Thailand

Total Dealership Gross Profit % of Sales 14.75% 14.21% 9.37% 14.33% 15.04% 12.50% 10.60% 8.52%

Total Expenses % of TDGP 80.93% 74.65% 76.42% 77.50% 74.81% 89.10% 76.10% 62.80%

PBT % of Sales 2.86% 2.88% 2.31% 3.06% 3.37% 1.40% 2.50% 3.20%

Asset Activity 6.27 5.41 4.83 4.02 7.5 3.4 4.1 4.2

Return on Average Operational Assets 17.87% 15.70% 11.52% 11.09% 22.22% 4.63% 10.39% 13.31%

Brought to you by eSOS, the global dealer financial reporting system of Sewells Group





Balance as a Driver of Sustained Retail Automotive Performance

Greg StrydomGlobal Retail Consulting Lead

The pursuit of automotive retail excellence is an ongoing and multifaceted task. It relies on bold leadership, confident management and above all a clear grasp of the key drivers and enablers that form the basis for performance enhancement. One of the primary drivers in this regard is balance or Mix. In other words, the contributions that are made across all business units and in particular, from fixed operations.

Let us see why grasp on key drivers is important. A typical new vehicle sales department will contribute upwards of 80% of a dealership’s total turnover while only producing 35% of its gross profit. On the

other hand, a service department will contribute a similar amount to gross profit with only 15% of turnover. It clearly highlights that dealers who focus on enhancing their workshop performance will boost the performance of the total dealership.

To understand how this works in practice, we hold up the example of a group of 20 dealerships who participated in a focused service improvement program. Dealers were selected from a broader franchise group of 180 dealers and represented a spread of locations and sizes.

As a starting point, Dealer Principals and Fixed Operations Managers were invited to attend a one-day performance management workshop.

Objectives of this interaction were to introduce and map out a blueprint for business performance (based on the Sewells Group MRA model) and to establish the key drivers that form the basis of performance improvement.

In a bid to ascertain the issues on the ground, each dealer then underwent an on-site review of their performance and processes. This included an initial desktop analysis and an interactive one-day visit by a Senior Consultant.

The outcome of this analysis was the production of a comprehensive performance report, highlighting the current status and identifying future opportunities.

The final formalized phase of this initiative included engagement of the senior dealership management team in a structured feedback and action planning session.

This facilitated process served to clarify findings from the dealership assessment, provided an opportunity for debate and the formulation of strategies to address the issues that were presented. The outcome of the session was a set of actions that would be pursued by the management team.

The program consisted of three primary phases:

The overall aim of the program was to improve bottom-line service performance and to contribute towards a better, balanced and more sustainable dealership model. The key methodology lying in the encouragement of senior dealership managers was to take responsibility for their own results and to support them by providing perspective and focus on the fundamental drivers.

1. enGaGement & educatiOn

2. deaLership assessment

3. manaGement team feedBack & actiOn pLanninG

Greg is the Head of Global Retail Consulting Practice and Head of Solutions at Sewells Group Australia. He is based

in Melbourne.

Greg works with a wide range of OEMs and dealers across the globe. His focus areas are retail

performance and after sales.



Any Questions?


mailto:gstrydom%40sewellsgroup.com?subject=

http://www.linkedin.com/in/gregstrydom




Intuitively, performance can be driven by one of the three ways or via a combination of all three. An important consideration is how these results were achieved.

This includes improving throughput i.e. focusing energy on selling more, by improving margins i.e. focusing on Mix, or by reducing expenses. Ultimately, how these factors are manipulated in relation to each other plays a significant role in determining the end result.

“Intuitively, performance can be driven by one of three ways or via a combination of all three.”Consider Table 1 below, which reflects the performance of pilot versus control group in each of these areas and in particular, how this affected their overall result.

Results

With bottom-line service performance being held out as a success factor, an assessment was made of average monthly service performance for the 12 months before program commencement (FY June 2009) and again for the 12 months post program conclusion (FY June 2011).

The results reflected in Figure 1, illustrate a marked improvement in performance for the pilot group, with a monthly percentage gain of 30.3% versus a variance of -6.2% for the non-participating control group.

The percentage change in Operating Profit is significant. The actual change in Dollar terms provide more clarity on this. The impact for dealers participating in the program was on average, a net gain of $65,496, while the control group suffered a market driven reduction in profit of $14,916. Hence, the result translates into a variance of over $80,000 for each participating dealership (see Figure 2).

The impact of this result on the overall sustainability of the business, positive consequences related to incentive plans and increased resourcing capability is notable.

Figure 1: Change in Bottom-line Service Performance

Table 1: Percentage Change in Service Variables

Figure 1

Table 1

$18,003

$23,461

$20,012 $18,769

$27,000

$22,000

$17,000

$12,000

$7,000

$2,000

-$3,000Monthly Service Operating Profit at Commencement

Monthly Service Operating Profit at Conclusion

Pilot GroupControl Group

Pilot Group Control Group

% Change in Service Turnover + 1.42% + 1.08%

% Change in Service Gross Profit + 5.02% + 1.06%

% Change in Service Expenses + 1.42 % + 2.56%

% Change in Operating Profit + 30.3% - 6.2%





Focusing on improving the Mix of the business goes a long way towards driving these results. Mix in the service department translates to the ability of the department to generate and sustain gross margin. The increase of 5% in Gross Profit versus an increase in Turnover of 1.4% enables the dealership to actively grow the bottom line without necessarily requiring any investment in infrastructure or additional resources.

Reflecting on the results presented there are both tangible and intangible factors, which lead to improved performance for any department. The tangible components of success relate to the logical or rational financial drivers.

We know, for example, that if we sell or gross more, our performance will increase. Likewise, we know that if we trim expenses the bottom line result will be better. The key with these factors is two-fold. First, to ensure that the objectives sought are clearly quantified and articulated to all stakeholders (a fundamental requisite of any robust action planning process). Second, the dynamics of change must be clearly understood and managed.

Simple rules apply in this regard, fundamentally any percentage change in Gross Profit must exceed that for Turnover and similarly any percentage change in Gross Profit must exceed that for Operating Expenses.

“...the dynamics of change must be clearly understood and managed.”Businesses, which comply with these conventions will inevitably experience positive growth on the bottom-line. Bearing that in mind, it was interesting to note that the pilot group managed to grow their service contribution in spite of market conditions.

Figure 2: Impact on Monthly Service Performance

Figure 2

$3,354

$5,458

$7,618

$1,979

-$1,243

$1,239

$9,000

$7,000

$5,000

$3,000

$1,000

-$1,000

-$3,000

Change in Monthly Service Turnover

Change in Monthly Service Gross Profit

Change in Monthly Service Operating Profit

Pilot GroupControl Group Essentially, it is about focusing energy on added

customer value, the effective utilisation of resources (as reflected in workshop productivity and technician efficiency) and service quality.

These factors are inevitably reflected in line items such as sales, gross profit (GP), parts and hours per repair order (see Figure 3).

Results





Figure 3: Impact of Improved Mix on Service Performance Discussion

While turnover increased marginally over the period under consideration, the number of retail repair orders actually processed declined (see Figure 4). The ability of a business to add value ‘against the run of play’ can only happen if the dynamics of growth are understood.

Intangible success factors are by nature harder to explain and pin down. What were the underlying factors beyond the simple financial realities that contributed to the pilot group producing superior results to non-participating dealers?

The answers to this question are drawn from direct experience and observation.

“Intangible success factors are by nature harder to explain and pin down.”The process undertaken by each of the dealers included an on-site assessment of their operation and a subsequent management feedback session. This process provided consultant access to the innermost workings and culture in each dealership and provided some interesting insights.

Figure 4: Change in Retail Repair Orders Processed per Annum

Figure 3 Figure 4

11.6%

9.0% 9.1%8.4%

6.5%

1.8%

13.4% 13.0%

16.0%

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%% Change in Sales per Repair Order

% Change in GP per Repair Order

% Change in Parts per Repair Order

% Change in Hoursper Repair Order

Pilot GroupControl Group

5651

5163

4186

4644

6000

5500

5000

4500

4000

3500

3000Pilot Group Control Group

Annual Repair Orders at Commencement

Annual Repair Orders at Conclusion

Results





cOmprehensiOn Of the mra Business mOdeL

fOcus On perfOrmance drivers, in particuLar miX

manaGement team enGaGement & Ownership

The Sewells Group MRA Performance Model provides a proven framework for retail automotive performance enhancement. As such the degree to which it is understood, embraced and integrated into the dealership management environment provides a tell-tale sign of the probability of success. The model provides clear direction on the drivers and enablers of bottom-line performance, focusing management efforts on three

key factors, namely margin management (Mix), expense management (Retained), and asset management (Activity). Introduced to the pilot group during the initial education session, its value and deployment as a benchmarking tool was evident in all pilot group members and degree of integration across top performing group members was unmistakable.

The results outlined in this commentary have shown that the degree of Mix or balance in an organisation is a clear determinant of bottom-line performance. Gross Profit or margin management as an indicator of Mix was found to be a point of focus throughout the pilot group. Evident in issues such as customer value-add, minimization of rework and maximization of technician efficiency, the focus on Mix (in relation to both turnover and expenses) serves as a catalyst for profit maximization.

This is enhanced by broadening the focus across practical service department issues such as the retention of sublet margins, effective labour rates and the balance between retail, internal and warranty work. The key takeout of this is the undeniable fact that dealers who prioritise the accumulation of gross across the dealership, tend to be far better positioned to capitalize from any associated growth in turnover, thereby laying a solid platform for growth.

Possibly the most interesting and important of the observed insights was the degree to which the management team connected with the process of change and embraced the opportunity for improvement. In a business environment cluttered with ‘performance elixirs’, quick fixes and day-to-day operational distractions limit the ability to stop, reflect and identify where the business is headed. Without exception those successful dealers within the pilot group who excelled, demonstrated a

level of undistracted devotion to the task at hand. Identifying challenges and quantifying objectives and tasks is one thing, but the execution of actions can be held out as an essential ingredient. Certainly, knowing what to focus on and how to achieve it is shaped by the business model and process at hand, but ultimately success lies in the ability to get the job done.

While not present in every participating dealership, three factors distinguished pilot group dealers from the control group.

The notion of enhancing retail performance through considered processes and the application of a structured business model lies at the core of the Sewells Group offering.

Our experiences reflected in this document provide evidence of this approach. Assigning credit for results achieved is a complicated and precarious endeavour and ultimately something, which can

only be claimed by those who achieve it. That said, observations regarding success are easier to offer and factors such as the focus on organizational balance and the belief of management team sit comfortably. The results speak for themselves.





Capitalising on Social MediaGood CSI first; then enhance through well managed Social Media

time tO Get sOciaL

By 2013, many dealerships now achieve results and a financial return from their social media initiatives.

Specifically, the fixed operations of dealerships have seen an increase in repair orders through offers on Facebook – a relatively new feature that allows businesses to publish and distribute online coupons to Facebook users within their PMA’s. Savvy dealerships complement their publication of such offers with targeted Facebook advertising to enthusiasts of their brand.

For example, a Ford dealership can easily target enthusiasts who live within their PMA on Facebook. Because this advertising is so highly targeted, the ROI is almost always positive.

Facebook is now also proving to be a fantastic platform for the resolution of customer complaints. Often, customers will take to Facebook to air their grievances, having not received the appropriate attention in person or on the phone. Most complaints are the result of a breakdown in dealership processes and the vast majority are resolved favourably.

It is by no coincidence then, that dealerships with high CSI scores (customer satisfaction) are also the one’s who benefit the most from having a well managed Facebook page, which naturally amplifies the positive

word of mouth already existing within the local community. Social media remains an enigma wrapped in a riddle for many dealer principals, particularly those not privy to the best practices now emerging around the world.

The growth of social media within the automotive landscape is hard to fathom. Five short years ago, Facebook was still a start up and Twitter had less than two million users. But, for car buyers, social media was a new way to share real-time photos of their car with their social network.

There was a sense of validation from your peers as the compliments and salutations materialised on your phone. Dealerships took to Facebook and Twitter as a new opportunity to sell more cars and promptly began uploading photos.

Users quickly grew tired of the intrusion and unsubscribed from the communications. As one user puts it: ‘the practice jarred with the way people used Social Media’.

No cars were sold and dealers stopped the practice without examining the causes of this misadventure. It was still 2008 and five years would pass before many tried again.

Online Coupons Generate Measurable New Business

Good CSI & Facebook Pages

Follow Sewells Group!

facebook.com/sewellsgroup

twitter.com/sewellsgroup

linkedin.com/company/sewellsgroup

Dimitri KotovHead - Social Media Solutions

Dimitri Kotov is the Head of Social Media Solutions at

Sewells Group. He is based in Melbourne, Australia and

works closely with many motor dealerships showing them

better use of social media to increase brand awareness, customer loyalty and sales.



Any Questions?


https://www.facebook.com/SewellsGroup

https://twitter.com/sewellsgroup

http://www.linkedin.com/company/sewells-group

http://www.linkedin.com/company/sewells-group

mailto:dkotov%40worldmark.com.au?subject=

http://www.linkedin.com/in/dimitrikotov




Four Social Media Myths Debunked

You can’t stop people from expressing their views about a new model launch or their experiences with the manufacturer in the past. That said, you can set the tone for the type of commentary you will receive by selecting content that is easily likeable and in accordance with the views of your target customer.

But, wouldn’t you rather know about them so you can help the customer come to a resolution? I have heard on several occasions, Mike Ewing, a Professor of Marketing at Monash University, speak of customer resolution as a key driver of customer loyalty. As long as you have processes in place for regular monitoring of your social media sites, the majority of negative comments will be resolved.

If your objective is to increase customer engagement, drive traffic to your website and promote specials, then all of this can be easily measured. For example, Facebook provides easy to understand analytics that will show you how successful your dealership has been with engaging local customers in your PMA and promoting specific offers. Paying attention to your Google and Bitly analytics will also help you to easily determine the amount of people clicking though from your social media sites to your website.

Dealerships can sell cars if they link their promotions to existing behaviours on social networks. For example, on Facebook, the ‘Offers’ feature for Pages has been used by dealers to sell cars, accessories and more recently to drive repair orders. Another way to promote sales events and specials is to add Bitly links on all content published on social media. Your dealership will receive additional sales leads by having the Bitly links to direct users to enquiry forms and landing pages on your website.

I can’t sell cars through social media.False.

I can’t measure the impact of social media.False.

I’ll get lots of negative comments.Maybe.

I’ll lose control of my marketing message.Not Really.





To support the ongoing evolution of the Sewells Group MRA model and its application at dealer level, the Sewells Group is excited and pleased to announce the launch of the official Sewells Group MRA App.

The Sewells Group MRA Performance Model has changed the way dealer management teams look at their financial results. Its ‘performance-driver’ based structure supports a cause-effect mindset which translates into practical action across the dealership. The maximisation of Return on Operating Assets is held out as a key metric and ensures the strategic and tactical decisions made contribute to the overall value of the business.

“..technology enables this great resource for all dealers & it’s FREE to download..”The App has been designed to serve as a practical tool and reference resource for the MRA model. It was launched on 1st July 2013 for Apple platforms and is scheduled to be launched for Android devices later in the year.

Its functionality is threefold:

1. It provides a basic MRA calculator allowing dealer managers to calculate high level MRA scores for their overall dealership and individual departments.

2. By drawing on an extensive database of financial results, it provides market-specific ‘performance indicators’ across the whole dealership, including definitions and trends.

3. It provides a high level overview of the MRA model and its key objectives.

Technology enables this great resource for all dealers & it’s FREE to download. Sewells Group Chairman Paddy O’Brien says: “We have watched with great interest how dealer management teams around the world have embraced the MRA model and embedded it across their organisations. The MRA App is a great addition to their management toolkits and we are sure it will be a great resource for all dealers.”

Launch of the Sewells Group MRA Performance Model AppA Management Toolkit Essential

Download FREE from the Sewells Group website.click here

feature stOrY

Wherever you are. The power to stay ahead of the game is in your pocket.

Introducing the new Sewells Group MRA Performance Model App.

The App is available for free download from the Sewells Group website.






Click here

Effortless PerformanceAssessing a dealership’s financial performance can be quick and easy!

The MRA App is designed to support dealer management teams and Sewells Group consultants as they assess and interpret high level financial results, anywhere, anytime. As such, it places the power of performance comparison, benchmarking and assessment in your very own hands.

How do I download the app?The App can be downloaded from the Sewells Group website.

What device is the app compatible with?The app is compatible with all web-enabled mobile platforms including Apple, Android and Windows, in both mobile and tablet formats.

Access Results Anywhere, Anytime

Share your results!Calculate dealer MRA scores at both - departmental and

dealership level

Compare dealer MRA scores against the top

Performance Indicators in the market

Drill down on specific Performance Indicators & analyse recent trends

Calculate Compare Drill Down Share

At your fingertips.

Learn more about the MRA App by watching the virtual tour!Click here

Take the TourFAQ’s

Click here


http://www.youtube.com/user/sewellsgroup


http://www.youtube.com/sewellsgroup




News BiteskeepinG aBreast

Periods of change invariably spawn open debate running alongside. In the automotive world, the forum surrounding the introduction of viable alternatives for the internal combustion engine has varied only in size and intensity over the last three decades.

Now, as real examples of the new genre enter the market, the comment ramps up and different lobbies emerge, largely dependent, it seems, from which part of the globe they come from. BenchMarker Global’s News Bites looks at some of them.

Electric vehicles are still a decade or more away from becoming mainstream, according to experts participating in the Megatrends auto conference in Dearborn in the United States – mainly because of continuous improvement of hydrocarbon-fuel engines.

One of the key speakers at the gathering, Michael Omotoso of LMC Automotive, said that the improved efficiencies of gas engines ‘… will continue to push plug-in hybrids and electric vehicles farther into the future…’ His firm does not see electric vehicles reaching one percent of the total market until 2018.

Electric plug-ins: a long way from mainstream.

Stalling Leaf

Much more optimistic is Carlos Ghosn, Chief Executive of Nissan Motor Co. who invested $5 billion in 2009 on the premise that the world’s next Ford Model T (in popularity) would be electric. Ghosn believed then that Nissan would lead a revolution embraced by nations such as Denmark.

However, just three years later, the total sales of Nissan Leaf plug-in vehicles in the Scandinavian country is 73 units. Until now Ghosn has been heading a campaign to convince the world that by the end of the next decade, at least one in ten cars sold will be electric.

But customers haven’t yet bought into the idea – prices remain high and charging stations are few and far between. Sales for 2012 were half of their target.

Ghosn is not giving up. He has now announced that he is putting his Chief Operating Officer directly in charge of electric cars, elevating the Leaf’s importance for the future of Japan’s second-biggest car maker.

Alternative Energy Vehicles: Talk of the Town





Even in China, where there is a strong motivation to fight air pollution, consumers have yet to take to electric vehicles in any volume. Total sales of hybrid and electric vehicles last year were low, with the market indicating the high price ticket and the difficulties in re-charging as the key turn-offs.

Sales of hybrids & plug-ins (434,498) in the United States in 2013 look more robust, but were still only 3.4% of the total market. Recharge and be paid!

In-between these apparent downsides on the electric plug-ins come some interesting indications of potential paybacks. The University of Delaware has been working on a project where a line of electric Mini Coopers are each attached to the regional power grid by a thick cable plugged in where the gasoline filler pipe used to be, and they no longer just draw energy.

The power now flows two ways between the cars and the electric grid, as the cars inject and suck power in tiny jolts – and get paid for it.

This nascent form of electric car commerce is being ‘test driven’ by the University while working together with the regional grid operator and the local electricity supply company.

Between them have developed a system to collect payments for work (balancing supply and demand moment to moment) that is normally the domain of power plants. The possibilities of using electric cars for other purposes, says the study group, are being realised around the globe.

Recharge traffic jam?And as more and more effort goes into encouraging a conversion to electric plug-in vehicles, other aspects of a larger community of such vehicles are being examined.

For instance, you could have a traffic jam on the re-charging side of things. This next is according to the New York Times:

“If millions of plug-in cars are being driven by their owners on the daily commute what will happen at the end of a workday in that not-too-distant future, when many of those millions of cars are back in their owners’ driveways or garages, plugged in for battery recharging, all at roughly the same time?”

The effect of such a power drain on the electrical grid could be enormous; the overloading of transformers and other infrastructure could lead to local brownouts or worse.

Already researchers at utility companies and other electrical engineers are looking for ways to soften the blow, designing charging systems that can adapt quickly to changing grid conditions.

Slow Sales Spark Debate

Japanese Dominate

The Tipping Point?

Statistically it seems as if the Japanese automakers are set to dominate in terms of the supply of hybrid and electrical vehicle – for the moment. Wards Auto reports that these markets grew to an estimated 1.6 million units, representing more than 85% of global demand.

Toyota and Honda were the industry leaders in hybrids while Nissan, despite failing to meet its sales targets for the Leaf EV, was still the hands-down winner in the all-electric segment.

Some say all these ups-and-downs could merely be part of the process of transformation. Maybe, says one commentator, the electric car’s tipping point will soon be reached. Remember Henry and the Model T Ford? Originally Henry Ford had said: ‘I will build a motor car for the great multitude.’ But it didn’t come easily…

Ford had started off as a luxury car manufacturer making what were then high-tech, but impractical and very expensive vehicles for the very rich. A columnist on the popular business site The Daily

Beast points out that this is how it often goes when new technologies enter the market: ‘First they’re produced in small batches at a high cost. But as the companies increase production, as unit volumes rise, and as competitors enter the field and innovate further, the cost of the products fall, and fall, and fall again – to the point where the middle class can afford them.’

‘A century later the Model T took the nation by storm. Could the same process be happening now with electric cars?’

“Sales of hybrids & plug-ins (434,498) in the United States in 2013 look more robust, but were still only 3.4% of the total market. Recharge and be paid!”





‘Millennials’ will drive tomorrow’s designsCar designers have to rethink where to go next in how they develop their new products into the future – because of the substantial changes, which now drive their consumers. More than ever, it has become a much trickier business.

A Detroit Free Press report on this year’s SAE World Congress says rapidly developing technology, changing demographics, emerging global markets and stricter fuel efficiency standards have forced automakers to pause and ponder not only how they design cars, but also how they conduct the consumer research to give them the right directions.

Mike O’Brien, Hyundai vice-president of corporate planning and product strategy was quoted telling other top automotive executives, ‘You can’t use traditional research methods to ask a customer “Do you like this? or Do you like that?”. Instead we must ask consumers about the forces that are changing their lives.’

The ‘Millennials’ are now the key (the name describing the generation born between 1980 and 2000) and yet they are particularly difficult for automakers to reach. ‘They have,’ says O’Brien, ‘vastly different expectations for cars and transportation than their parents.’

You can’t use traditional research methods to ask a customer, do you like this? or do you like that?

Marketing to the ‘Millennials’ (some people are also calling them ‘Generation Y’) brings up other challenges. Apparently the creative advertising directors as well as the motor manufactures are pondering aspects of the new behaviour tendencies including the fact that more of them are just not that into driving, car culture or the lure of the open road. The shift in attitudes is being spurred by technology, in that many younger consumers are more interested in the newest smart-phone or tablet than in the newest sedan or T-top.

“You can’t use traditional research methods to ask a customer, do you like this? or do you like that?”It is being said in the United States that the cooling of the love affair between youths and cars could jeopardise billions of dollars in automotive sales — and billions of dollars in automotive sales and advertising spend in the automotive category, which is typically the largest category when United States ad expenditures are tallied each year.

‘The digitalisation of our world, mobile phones and social media have allowed a certain new level of independence,’ says Loren Angelo, General Manager for Brand Marketing at Audi-USA in a New York Times interview. ‘That is supplementing what the automobile used to provide.’





Tony NolandOwner, Tony Noland & Associates

Tony Noland started as a salesperson and served

in most of the traditional management positions in the retail dealership structures, including Dealer Principal

ultimately becoming President and CEO of a major US 20 Group company with

more than 3,000 automotive clients.

His regular BenchMarker International column records

and reviews the US retail motor business.


US Market ReportRecovery now; but it was devastating

feature stOrY

The US market is currently in a recovery phase. The financial crisis, which began in late 2008, literally had a devastating effect on the US market.

Annual sales in 2007 were 16.1 million units and dropped to 10.4 million units in 2009. Unfortunately, many dealerships closed during this period and those that remained had a difficult time remaining profitable and staying in business.

In 2009 data reports, there were 20,010 franchised dealers compared to an estimated 17,540 currently in 2013.

Since reaching that low point, business conditions have slowly improved. The annualised sales improved to 11.6 million in 2010, 12.8 million in 2011, 14.4 million in 2012 and in 2013, at the current annualised sales rate, we are expecting sales to exceed 15.25 million. Fleet sales in 2012 were estimated to be 19.0% of total sales. There were 40.5 million used vehicles sold in 2012 and that number is expected to increase marginally in 2013.

So far this year, 54% of the sales in the US market are represented by imports and 46% by US domestic manufacturers. The top selling segment is the full-sized pickup truck, which accounted for 11.4% of industry retail sales in May 2012. Full-sized pickup truck sales in May of 2012 were 9.7%. “In May 2013, the year to date leading manufacturers in terms of sales, in order, are General Motors, Ford, Toyota, Chrysler and Honda. The three largest, in terms of increase in sales volume, are Subaru (21.1%), Ford (12.5%) and Mercedes-Benz (9.8%).”

The US economy is improving led by a decrease in unemployment and an improvement in the Consumer Confidence index, a monthly index or economic indicator which measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation.

“From a consumer standpoint, the unusually low interest rates in the US (3.25% Prime rate) have contributed to increased automotive sales as has an increased focus by the manufacturers on leasing.” According to data provided by NADA (the National Automobile Dealers Association), total retail dealership dollar sales have increased in 2013, when compared to 2012, by 5.1%. Total dealership gross profit has increased by 1.7%, but the total dealership expense burden has increased by 2.9%, which has led to a decreased net profit. In the average dealership, net profit as a percentage of sales is 2.4% in 2013 year-to-date compared to 2.6% for the same period in 2012.

There are a few reasons for this decrease. First, in the US market, we continue to see a decline in the new vehicle gross profit margins. There is a decline in the service and parts absorption (fixed coverage) rate and personnel expenses have increased primarily in the area of employee benefits.

As is the case in any dealership in the world, expense management is the underlying key to a successful return on sales. Today, as noted earlier, the US interest rates are artificially low which has helped reduce the total expense burden.

“In 2009 data reports, there were 20,010 franchised

dealers compared to an estimated 17,540 currently in 2013.”


mailto:tonynoland%40me.com?subject=




Due to the popularity of the Internet as a method for consumers to look at or shop dealer inventories for a vehicle, dealers have been able to reduce the amount of money they have traditionally spent on television, radio and newspaper advertising. The focus of the dealer now is to have their web site appear highest in the rankings when a consumer performs an Internet search, which is known as search engine optimisation. For example, if a consumer searches for a new Ford vehicle, I want my dealership to be listed first, or as close to the top as possible.

The net cost to the dealer for dealership internet services is less expensive than traditional television, radio and newspaper.

There is one more issue. Dealers today pay for leads/prospects provided by different lead providers. As an example, in the U.S., Kelley Blue Book (www.kbb.com) and Edmunds (www.edmunds.com) are probably two of the most popular search engines for consumers doing research on a new vehicle purchase.

Regarding margins, it has been proven, through research, that if a dealer doesn’t have vehicle sale prices on the inventory which appears

on their web-site, potential customers quickly abandon their view of the dealership’s web page.

The unfortunate result of this is that dealers feel they must have the lowest price on the internet if they are to attract customers. This lowest price is often one, which is below the dealer’s invoice price.

“The decreased margins coupled with an increasing expense burden are certainly not a good situation for any dealer to be in.”Since the internet sales rate, as a percentage of the total Sales, continues to increase and many of the dealers are selling those (internet) vehicles at a lower gross profit margin, the average transaction/sale price is being reduced.Hence, in the US dealership today, it is very important that dealers sell F&I (Finance and Insurance) products, i.e. extended service contracts, maintenance, credit insurance, etc.

In addition, the importance of accessory sales cannot be overstated. If a dealer chooses to sell a vehicle below invoice and does not sell additional items such as F&I or accessories, the end result is troublesome.

Personnel expenses continue to increase due to benefits versus increased wages.

The decreased margins coupled with an increasing expense burden are certainly not a good situation for any dealer to be in.

In subsequent articles, I look forward to addressing the issues dealers are facing in terms of decreasing margins, their declining service absorption plus the steps many successful dealers are taking to address their expense management situation.

Please feel free to contact me should you desire any information pertaining to the US market and I will attempt to either answer your question or get an answer for you. Good selling!

Tony Noland





Rewarding ExcellenceThese examples of both nurturing and rewarding excellence come from the Sewells Group operation in South Africa.

The recognition and reward comes from the Sewells Businessman of the Year banquet where a winner in each of three categories (Large, Medium and Small) was selected to receive their coveted trophies. The nurturing of excellence was symbolised in the graduation ceremony of the latest batch of Advanced Dealer Management students who completed their high-level course.

awards

“Good motor dealers are those who provide measurably excellent services to motorists – and when they do this properly, their own businesses prosper” said Tania Barlow, MD of Sewells Group South Africa, talking to the 15 finalists of the 2012 Businessman of the Year (BotY). All the finalists, she said, are excellent businessmen producing good returns on investment in tough market circumstances.

The three category winners for small, medium and large dealerships, as well as the ‘Most Improved Performance Group Member’ were announced at a prestigious WesBank sponsored banquet held in Gauteng, South Africa in May 2013. The Businessman of the Year is a measurement of excellence in performance using the key industry benchmarks produced by Sewells Group South Africa. Most franchised dealers in South Africa participate in the benchmarking process.

Dealership financials and a large range of key statistics are uploaded using the Sewells Online System (eSOS) which then allows dealers to immediately view their own individual results. Sewells can then view collective industry benchmarks which are determined by sequencing the values generated for the key performance indicators (KPI) and then, picking the result at the 70th percentile for revenue items and 30th for expense items.

“Good motor dealers are those who provide measurably excellent services to motorists – and when they do this properly, their own businesses prosper...”The Businessman of the Year measurement process has been in place since 1998, initially selecting one overall winner, regardless of dealership size. Since 2011, Sewells Group in South Africa has utilised a stratified selection procedure to nominate contenders from each of three different categories (large, medium and small).

The categorisation is determined by taking the total turnover for all qualifying dealers (those who have subscribed and reported consistently for 12 months) and dividing the result by three.

These dealers are then ranked by turnover. The progressive addition of dealers’ turnover in the ranked sequence, commencing with the largest, until the total equalled the first one-third strata, represents the large dealers. The progressive summing of dealers after this point, until the second one-third strata, represents medium dealers and the remaining dealers make up the small category.

Dealers are ranked by ROI percentage from largest to smallest. The top 10 dealers are then selected with no repeat of brand in the selection.

Each of these 30 dealers received a special certificate giving recognition to their ‘Best Practice Performance’ for the year. The top five of each group then became the finalists attending the banquet and the leading performer in each group received the ultimate accolade.

The actual turnover levels of the three categories for the 2012 South African evaluation were: Large dealers – over R320 m; medium dealers – R202 m to R180 m; and small dealers – R180 m to R2.5 m.

Sewells Businessman of the Year ( BoTY) Awards, South Africa

Koos van Rensburg of Oranje Toyota

Bloemfontein, winner of the Sewells Businessman

of the Year for Large Category motor dealers

Johan Kemp of Queenstown Volkswagen,

winner of the Small Category





ADM Graduation Ceremony in South AfricaHere are the delegates from the first intake of the 2012-13 Sewells Group South Africa Advanced Dealer Management (ADM) course, celebrating their graduation in Gauteng in May 2013 after the end of their year long program.

Joining them in this picture are Paddy O’Brien (back row: second from left), Chairman of Sewells Group who was on a visit from Australia, Tania

Barlow, MD of Sewells Group South Africa (back row: fifth from left), and Mike Paxton, Senior Sewells Group Consultant (back row: sixth from left).

The latest program included classroom training, numerous special assignment submissions and culminated in the development of an actual sustainable business plan.

The graduates in the back row from left are:

Ashley Gengiah, Lindsay Saker Vereeniging; Bilal Bhoja, Lindsay Saker Edenvale; Karen Watson of CBF Motors East London and Sharon Shaw, FMCSA Academy Director/Sewells Group.

In the front row from left are:

Smita Odhav, Lindsay Saker Hyde Park; Xolani Mkhwanazi, McCarthy pre-owned Gezina; Marcia Mayaba, Lindsay Saker Alberton and Etienne Maritz, McCarthy Toyota Bruma Lake.

Stephan Venter (right) of Nelspruit Auto Ford receives a special award for being the most improved performance group member in 2012, from Paddy O’Brien, Chairman of Sewells Group.

Gerhard van Zyl of NTT Volkswagen East London,

winner of the category for medium sized dealerships

in the South African Businessman of the Year.





Used Car Bravery in the Gulf Region

a nOte frOm paddY

For anyone that has experience in the Middle East, you would know how much emphasis is placed on the ‘push’ of new cars as the priority. Volumes are exceptionally high per outlet and one consequence of this is that pre-owned vehicles (trades) tend to take a back seat and are either rapidly dispensed with in a throw away fashion or allowed to choke-up as obsolete stock.

This is not the only part of the world where this destructive practice is allowed to fester and where many dealers have ignored the opportunity of turning Used Cars into a profit contributor to the overall business.

Encouragingly though, there are pockets of excellence that pop up in every market and my involvement with Performance Groups in the Middle East is bringing examples of well thought out strategies from retailers and distributors that are showing signs of normalizing that market.

It was encouraging indeed to listen to the presentation of Fadi El Aawar, General Sales Manager of the GM dealership in Doha, Qatar explaining to his Performance Group in a very professional power-point presentation about the basis on which they had bravely set about restructuring the Used Car department after it had been allowed to ‘choke up’ with aged stock. It begins with clarifying in your own mind the vision of what you would like the department to do for the business.

‘Foolishly, we had ignored Used Cars, allowing the stock to jam up to the extent that 65 percent of it was greater than 60 days, representing a whopping $1.2 million of slow moving stock that was not fresh and therefore, limited in value. We drastically needed to front-up to this reality and come up with a plan to deal with the situation.’

Fadi then showed the Group his dealership’s step-by-step actions. Included in these actions were the re-pricing of slow moving units, the improvement of processes (showroom controls), the shift towards treating pre-owned customers in the same way as new car customers, a dramatic change in remuneration plans, tighter control and supervision of valuations, the development of a stringent Policy for Used Cars.

“It begins with clarifying in your own mind the vision of what you would like the department to do for the business”Fadi ended his presentation by emphasizing that any such drastic change begins with strategy, moves into structure and process improvements and cannot succeed until you develop a strong sense of self-belief and discipline.

In less than two years the department has shifted from a loss-making unit to a significant profit center.

Paddy O’BrienChairman

Paddy O’Brien is the Chairman of Sewells Group. He is based

in Melbourne, Australia.

He consults to Dealer groups on strategic planning,

operational and financial management models. Paddy is also a sought after speaker in

various auto retail conferences around the globe.



Any Questions?


mailto:pobrien%40sewellsgroup.com?subject=

http://www.linkedin.com/in/paddyaobrien




About BenchMarker

This special global edition of BenchMarker, the global thought leadership publication for automotive retailers, is produced in an email format for dealers and OEM executives throughout the world. Do send your feedback and comments.

Subscribe to BenchMarker

cOntact us

Dealer Principals, Departmental Managers and Senior OEM Executives who interface with automotive retail activity anywhere in the world are welcome to join the expanding list of email recipients of the quarterly editions of BenchMarker Global by sending their name, position and business details to [email protected]

BenchMarker’s purpose since its inception has been to create a forum for the sharing of best practices. Although we operate in a highly competitive environment our experience has been that there is a community sense amongst dealers who are willing to share ideas with other dealers. There is much to learn from others who might be experiencing similar challenges. We are keen to hear from dealers and OEMs who have examples of retail best practices.

All you need to do is contact the Global Editor and we will arrange for one of our editors to contact you for an interview and to write up the best practice. Nothing will be published without your final consent.

Want to Share a Best Practice?

Want to keep up to date? Subscribe to BenchMarker

Dennis Anderson & [email protected]

Editorial Team Published by Sewells Group275 Canterbury Road, Canterbury, VIC Australia 3126

© 2013 Sewells Group


mailto:benchmarker%40sewellsgroup.com?subject=


mailto:danderson%40sewellsgroup.com?subject=