Joe Serra says his biggest challenge is finding the right people to run his dealerships. Employee satisfaction, he says, is the key to customer satisfaction.
Serra is president of Serra Automotive Inc., in Grand Blanc, Mich. It ranks No. 24 on the Automotive News list of the top 100 U.S. dealership groups. In 2005, his 17 dealerships sold a total of 17,256 new vehicles at retail and generated $687.5 million in group revenue. His stores are in Michigan, California, Colorado, Ohio and Tennessee.
Serra, 47, joined his father in the automotive retailing business and bought the company in 2000. He spoke with Retail Editor David Kushma and Staff Reporter Gail Kachadourian about his approach to selling.
Did you plan to go into the car business?
The company was started by my father (Al Serra) in 1973. I joined him in 1982 after I graduated from Albion College (in Michigan). I had the intention that the last thing I'd ever do was get into the automotive business.
Why did you change your mind?
I knew if I entered the auto industry, I'd always be "Al Serra's son." I wanted to earn something on my own. He understood, but he said: 'You're always going to be my son no matter what you do, and people will respect you based upon your own merit.' He convinced me. I'm sure glad he did because my father, who is not active in the business today, was a great mentor.
How did you build your network of dealerships?
I was a minority partner with (my father). We started acquiring other dealerships in different parts of the United States.
How did you take over the business from your father?
In 1999, he decided he was going to sell. He wanted to see if I wanted to purchase it. It sounds simple, but it wasn't. (My father) has 10 children, so it was an estate. I had to buy (the company) at fair market value, which was only right.
The first step was getting a value that was agreeable to him as a seller and me as a buyer. At that point, family doesn't enter the picture. We agreed upon a price, then nobody would loan me the money. It was the most embarrassing moment of my life. I struggled for a long time trying to find lenders, and fortunately was able to put a package together.
Your dealerships are spread all across the country. How do you keep control?
I have equity partners in all the deals. I don't look at those as all my deals. I look at me as an investor. Those are my partners' deals. The Grand Blanc, Mich., operation, that's sort of my deal. I stay active in that dealership.
What titles do your equity partners have?
I call them dealer partners. If I'm with them, I introduce them as owning a Chevy store. We refer to each other as partners.
You have mostly GM franchises. Why?
The company is highly skewed to GM because that's where we started. I decided, from a domestic standpoint, if I just focus on GM, that would be enough. Then I would diversify into the import brands. The need to diversify the portfolio was pretty obvious, but it was also encouraged by my lenders.
When did you assume that strategy?
When I did the acquisition, I made a concentrated effort to sell off my non-GM domestic stores. I have one remaining because it fits well.
The decision was, if it's non-GM, it's not even a consideration for me. GM treats me really well. It would take me years to build the same relationship with the (other domestic) manufacturers. I don't want to go through that.
Has GM's situation tested your relationship with the manufacturer?
Any relationship gets tested. But obviously the current situation has made me work harder. We want (GM) to succeed. Obviously we have a vested interest. If something were to happen, I am in big trouble. We want them to win.
They've got my support and attention. I'm not going to buck and challenge right now. It's not the time.
How much of your annual sales come from your GM stores?
Eighty percent of our (dollar and unit) sales come from domestic store sales. It's always going to be a large portion.
What is your ideal mix of GM and import stores?
I don't have an ideal mix. My ultimate goal is to grow with my people. I'm looking to invest with current employees and allow them the same opportunity I was given. My goal is to grow at a pace that meets the growth of our people. If I don't have a person who has the desire and energy and drive, I'm not going to buy the store because I have nobody to run it. I'm not going to buy (just) to buy.
On the other hand, if I have a candidate who expresses all those desires and has the ability and wants to put in the time and the energy, then I will go out and assist him or her. (I'm) trying to get import opportunities. But if a great GM opportunity came along, I would look at that as well.
How do you train dealer partners and ensure they're running the business properly?
The larger you get, the tougher it is to control the philosophy and the values, processes and systems. I would be kidding myself if I thought that all of our operations run the same way. I know they don't. I know they can't.
A dealership or store is going to be a reflection of the person at the top. Whoever I put in there to manage the store, as long as they understand what I value, and what's important, then I've got the hope that it's going to bleed down so they'll do business in a similar fashion but not exactly in the same way. It is ultimately their decision how they're going to operate a store.
The more I know about them, the more they've worked with me, the better chance I have of (having) our Serra Automotive way of doing business brought forth.
What are the core values that guide your business?
I spend a lot of time on people. I'm really slow to hire. In our industry, that's not the norm. We have an obligation to whoever is coming on board at any level. We know who we are. We know what we're expecting. The poor person who's interviewing doesn't have a clue. We owe it to them to make sure they're going to fit us, and they're going to fit our values and beliefs. A lot of good, wonderful, successful, salespeople and managers don't fit us. You've got to be willing to pass on that.
We pick people you'd want to bring home for dinner. From a sales standpoint, if I couldn't take my mother and walk into the showroom and give her to any salesperson on the floor, that's a problem.
You can talk all you want about customer satisfaction, but if you don't have employee satisfaction, if you don't have long-term, loyal employees who understand what we all expect, and you have constant turnover, you can't win. Consumers love to walk in and see familiar faces. I need employee satisfaction. If I have that, I know I will get customer satisfaction.
What is your employee turnover rate?
It's very low. We hire properly. That slow hiring process causes some headaches for our management team at times. They just want to fill (the job). I just know in the long run, there are no shortcuts.
How do you monitor the way your stores handle F&I?
Everything in our stores is pretty much a menu. I've got some stores that don't even have F&I managers. The salesperson handles it. It doesn't matter, they all work off the menu. The rates are the same. There's no negotiation or movement on rates. All the products we offer are menu-driven. Because of that, you don't have to worry about customer A, B and C getting treated differently. Everybody's getting treated the same.
It's easy to monitor. In the world of technology, I can literally see everything from everywhere if I wanted. If there are variances out there, something will be highlighted and come to me.
Do you videotape F&I transactions?
No. Knock on wood: I've never had an issue. It doesn't mean I won't. The larger groups are targets (for litigation). We consider ourselves vulnerable. But going back to my partners all sharing my values, my beliefs, as long as they spread that down, and I know they do, we have the menus, we have the controls.
Do you have a ceiling on how much you mark up the buy rate?
The ceiling varies by stores. But our cap is really low. When you come into an F&I office, you've got all these products to offer. You have extended warranties, insurance policies, and then you have rate. Of all those products, the only one that does not bring added value is rate.
If I have to sell you an extended warranty, which is going to increase your monthly payment by X, there's a value. Whether I charge you 8 percent or 12 percent, there's no added value for the additional 4 percent. I stay away from that. Most customers are payment-driven. If we have an extra $10 that we can move their payment, I would rather move things with value, like a warranty.
What is your lease penetration rate?
It varies by store. But it goes as high as 70 percent in some stores to as low as 18 percent. I am a big proponent of leasing.
Which imports do you want to grow with?
I've got a wonderful relationship with Honda. It's easy to work with Mr. (Dick) Colliver (executive vice president of auto sales, American Honda Motor Co. Inc.). He's very fortunate that his organization is not as large as GM. There are some real advantages to being small. He understands those advantages and utilizes those advantages to his favor, big-time. You can reach out to him and get an answer.
I bought my first Toyota store in June. They're obviously strong, doing things right. My goal is to let them get to know me better. Hopefully there will be some opportunities in the future.
What is your profitability outlook for 2006?
'05 was a down year vs. the previous years. Fortunately, it wasn't substantially down. From when I acquired the company, we always had shown improvement. But unfortunately, that streak broke last year.
We didn't have a record year. It was a very good year. That's the one advantage that having a group holds over these single stores. I've seen some local single stores close their doors recently. And I thought to myself, it's too bad they weren't part of a group that could help them weather this because it's just a period.
For 2006, I look at my ultimate forecast to be pretty similar to '05.
Is GM going in the right direction with its pricing?
They are right from the standpoint that we need to get the (sticker price) to be a better reflection of the value of the vehicle, versus a reflection of the value of the vehicle plus some built-in future incentives. It is more accurate.
What products are you looking forward to?
Honda's new Civic is going to be a flat winner. Toyota just introduced the new Camry. That's a no-brainer.
Then we go to the domestics, and I'll talk strictly GM. Saturn has a wonderful portfolio of vehicles. GM has done extremely well with the (Hummer) H3. (The Chevrolet) HHR has done well. The (Buick) Enclave, Lucerne. I could go on and on.
Which products should GM discontinue or replace? Are there any dogs?
They've done a pretty good job of identifying those and shrinking their portfolio. The one dog I know of for sure that they just got rid of was the (Chevrolet) SSR. It was expensive to get out of that.
How did you feel when Robert Lutz referred to Buick and Pontiac as "damaged brands?"
It wasn't in contempt. I believe that and accept that and move on. The direction they're going, which is to channel Buick and Pontiac and GMC together and not make each of the franchises everything to everybody, is the proper way to go.
You can't keep everybody happy in this deal. You've got to make a decision that you know - long-term - is right. For so many years, all the manufacturers tried to be everything to everybody, which is difficult to do.
Does GM have too many brands?
Their current strategy, if I understand it correctly, is that they're going to have four channels: Chevrolet, Saturn, Buick/Pontiac/GMC and Cadillac/Hummer/Saab. It's easier to manage. Just imagine the simplicity of a Toyota or a Honda, vs. all that GM has. There are some real pluses.
What role does the Internet play in your business?
That's the future. It's not going away. Things are shifting away from newspapers. We have shifted our advertising budget to a medium that didn't even exist when I got in the business.
What percentage of your ad budget is for Internet advertising?
We're in the 25 percent to 30 percent range, and I don't see it ever decreasing.
Will people eventually buy vehicles completely on the Internet?
They do entire transactions today on the Internet. They just come in, and we deliver and do the paperwork. It's so simple and easy and convenient.
How will that affect the physical dealership?
Years back, we thought we might be able to work out of smaller buildings, but I can't envision that yet.
What are your biggest challenges?
The biggest challenge is people. Finding people who want to enter our field, learn our business. Our business is retail, and it's evenings and Saturdays.
How much of your fixed costs do service profits cover?
As a group, probably around 60 percent. That will range from stores that are as high as 70 to a few of our newer acquisitions in the 45 percent range.
What are you doing to increase service revenue?
We're trying to make it as convenient as we can for the consumer, whether it's pickup or delivery or extended hours, whether it's writing (a repair order) online before they get in.
Where most of us are missing the ball is that we're not focused on the retention of our current customer base. We're letting too many of them slip out the back door. We've put so much time and energy and effort into chasing new customers. If we took just a smidgen of that time and effort to retain our customers and take care of our customers who are loyal to us and encourage them to continue to do business, it would pay great dividends.
We've made a concentrated effort to go out to our most valuable customers and say: "What do you like? What don't you like? What would you like to see?" You can't provide them with what they want all the time, but a lot of times you can.
Why do customers stray?
Part of it is the dealers. Some of it is product. But more of it is somewhere along the line you dropped the ball. Sadly enough, it's usually something small. We need to identify what those (things) are. You have to do exit interviews with your customers who left. You are going to lose some customers. We just need to minimize it.
You may e-mail David Kushma at [email protected]
You may e-mail Gail Kachadourian at [email protected].com