Employee turnover costs dealers billions

Bad hires cost dealerships billions of dollars a year.

Few dealers are trained in how to hire, but as more face up to the implications of the problem, they are starting to look for help with the task and experiment with new approaches, say dealers and dealership employment experts.

The industry's track record for hiring and retention is "unacceptable," said Asbury Automotive Group Inc. CEO Craig Monaghan.

"It's one of our greatest challenges," Monaghan said. "We've just got to do a better job."

Struggling with hiring is the norm for dealership groups both small and large. Asbury is one of a multitude of retailers exploring ways to improve hiring procedures and rework schedules and pay plans. The aim: to improve retention and lower turnover.

Turnover costs stores money in several ways: wasted search and training expenses; inexperienced sales staff; lack of continuity with customers; and, ultimately, lost vehicle sales. Even small improvements can pay off for dealers in big ways, experts say.

"It's the money. It's the bottom line," said Ted Kraybill, president of ESI Trends, a Largo, Fla., consulting firm that conducts the annual National Automobile Dealers Association Dealership Workforce Study. "How big of a problem is it for the industry? It's half a million a year for the average dealership. It's billions of dollars for the industry.

"And it is not getting better."

To be sure, dealerships face an uphill challenge if they want to hire the best of the best. Retailing in general requires that someone be in the store over long hours. And the industry suffers from a negative reputation that leaves some college graduates more willing to work at a Starbucks for less pay than at a car dealership. Many prospective employees, especially the millennials who now account for 60 percent of new dealership hires, dislike the high-risk, commission-based compensation plans common at dealerships. 

Still, dealerships are going to hire employees. The question is how they can hire the best possible ones -- and keep them. 

Kraybill's firm has spent years examining how turnover affects dealership profitability. The rule of thumb he's come up with after multiple studies: A 10-percentage-point increase in turnover will cost the average dealership $7,500 in gross profit per employee per year. 

With an average dealership head count of 70 people, that means a 10-point increase in turnover costs the average dealership more than $500,000 in gross profit annually. Multiplied by NADA's count of roughly 16,500 dealerships in the U.S., it's an $8 billion-plus problem, Kraybill said. 

That means a dealership that can improve its turnover will gain a significant profit edge on its competitors.

Improving the people side of automotive retail is the last great return on investment available to dealers, said Adam Robinson, CEO of Hireology, a hiring software provider and consultant. The difference between a mediocre dealership and a great dealership is the strength of its people, he said.

"Most dealerships have a better process for buying office supplies than they do for hiring people," Robinson said. "It's already hard enough to be a dealer. Dealers can't control cheap private-equity dollars consolidating stores. They can't control interest rates, recalls, regulators. They can't control ride-sharing or nondealer models. The only thing they have 100 percent control of anymore is who they put on their payroll."

Dealers generally say they're happy with about half of their employees. If they can make better hires and improve that satisfaction rate to even just 60 or 70 percent, "It is a huge opportunity," Robinson said.

Some of the bigger dealership groups have hired analytical scientists to study the hiring problem, Robinson said. Many groups have been experimenting with new approaches for years. AutoNation Inc., the country's largest new-car retailer, last fall began switching its stores to a new compensation plan offering base wages plus bonuses. Reducing the churn of sales associates is one of the goals, AutoNation CEO Mike Jackson said.

The hope is that the new approach "should slow down the turnover and attract a different kind of person," said Jackson, who is timing the plan's rollout to coincide with a switch to one-price selling on used vehicles. "If you can move away from needing negotiation skills, that would be a huge plus. Then you have a different type of individual in this job."

With the change, AutoNation stores can focus more on hiring the type of person better versed at meeting the customer's needs vs. just negotiating the best deal for the store. If a career path also is laid out for those hires, more are likely to stay at the company rather than jump to a rival store.

The potential for improving sales and customer satisfaction through better hires has more automakers paying attention to dealership staffing as well.

Hireology is working with Kia and BMW to offer hiring services to dealers representing those brands. Ford, Toyota, Mercedes-Benz and Porsche also have worked with their dealers to improve hiring, training and retention. Mercedes, for instance, conducts brand training for dealership employees and also has asked dealers to do employee surveys and respond to feedback to reduce turnover.

But dealership hiring is ultimately a dealer problem, and it's up to dealers to solve it.

The grim news: Despite the added focus on hiring practices, the track record of retailers actually has worsened. Five-year trends from the Dealership Workforce Study generally are going in the wrong direction, Kraybill said.

Annualized turnover for all dealership positions is up. The median tenure for employees in all positions has fallen. One- and three-year retention rates continue to drop.

Dealers also are paying employees more as the labor market has tightened but auto sales expanded. In 2015, the last year for which data are available, the average dealership payroll rose nearly 8 percent to $3.8 million, according to NADA. Actual head count was up 4.3 percent.

Many dealers report not being able to find people for all the positions they have available. Rick Evans, a Toyota dealer in Fort Wayne, Ind., says he's had five to 10 positions consistently open at his store. It's an industrywide problem, he said.

"To get really good quality people who are qualified for the positions is a challenge, and it's getting worse rather than better," Evans said.

There are glimmers of hope. Turnover in sales positions at nonluxury dealerships is beginning to improve, Kraybill said, as the mass-market brands work with their dealers to tackle the problems of sales-consultant churn. That measurement dropped 7 percentage points in 2015, and Kraybill expects further gains when his firm evaluates the 2016 numbers.

"Dealers are getting this," Kraybill said. "They're getting the cost of turnover. They understand what it means for their bottom line."

He provided an example of how unqualified people in even the most entry-level jobs can hurt results. If a lot porter loses a key or doesn't park a car where it's supposed to be, a sales representative can waste a lot of time trying to track down a vehicle for a customer demo. A customer left to wait for long enough can get ticked off and leave. Not only has that misplaced key or vehicle cost a potential sale, the customer's bad experience can mean poor word of mouth in the community.

For Matt Davis, a dealer in rural upstate New York, hiring is the challenge that keeps him awake at night. At his store, Don Davis Chevrolet-Buick-GMC in Albion, N.Y., 10 people have cycled through a single porter position over the last three years.

"We probably make significant mistakes when we hire people," said Davis, who owns that store and has a partnership in another upstate dealership. "You end up hiring out of desperation."

The overall turnover rate at his dealership is much lower than for the porter position, Davis said. Sales staff turnover, for instance, was running at about 20 percent until two salespeople quit via text message and with no notice just before Christmas. That took the store's sales turnover to 40 percent for the year, Davis said. That's still significantly better than the industry average of 67 percent.

The sudden departures left Davis starting the year scrambling to find new sales reps. And it's tough to find good candidates in his area, he said, where young people are not attracted to the auto business. Finding technicians is especially challenging.   

Davis tries to keep his staff scheduled for a 40-hour week, and he's looking at reworking his pay plans to remove more of the variable component and make more of the pay come from a salary.

Other groups continue to experiment with approaches to hiring and changes to schedules and compensation. Asbury is among them. But Asbury executives acknowledge there's a long way to go before they find the right solutions.

"We definitely feel like we have opportunity," Asbury COO David Hult said. "We haven't perfected it."