Because he was high-priced talent, Ron Wolff was among the first to go when the Minneapolis-area auto dealer who had employed him for 30 years cut staff last year.
As general manager and 20 percent owner of a Nissan-Hyundai-Subaru store, he was given an ultimatum: Purchase the store or accept a buyout.
Wolff took the buyout, sold his 10 percent stake in another dealership and used the proceeds to buy a small Chevrolet-Buick store nearby. And now he's making cuts of his own -- a prime example of the new lean, hard-nosed philosophy that guides dealership management these days.
"Times change," says the 57-year-old Wolff. "Gross profit is hard to come by. You have to cut expenses to make things work."
Wolff is among the dealers forging a new business model for auto retailing. Gone is the traditional emphasis on gross profits, in which dealerships primarily are concerned about the difference between invoice price and selling price. Instead, more dealers are using a variety of cost-control measures in every corner of their stores to focus on net returns and on the bottom line.
The emerging post-crisis auto industry is "a far more rational business," says Mike Jackson, CEO of AutoNation Inc., the nation's largest dealership group. "I'm convinced this really is a transformational moment for our industry."
Dealers are renegotiating vendor contracts and holding off on new construction or dealership renovations, even as factories push upgrades. The most radical cuts are in advertising and staff.
The result: Many dealers survived the brutal recession and stand to thrive this year even with a modest uptick in vehicle sales.
The National Automobile Dealers Association reports that in the first nine months of 2009, the average dealership's net pretax profit was 1.7 percent of sales, up from 1.3 percent in the comparable period of 2008.
Ford Motor Co. also noted "a striking turnaround" in its dealer network, says Jim Farley, Ford group vice president of global marketing. In 2008, about half of its domestic-brand dealerships lost money. But in 2009, fewer than 20 percent were unprofitable.
Farley attributed the gains to "Herculean" efforts to cut expenses, as well as lower vehicle inventories.