Jon Gray has been a dealer in Orange County, Calif., since 2000, though his family has been selling Chrysler and Jeep products for over 30 years. As owner of Orange Coast Auto Group, Gray has three stores selling Chrysler-Jeep-Dodge-Ram, Alfa Romeo-Fiat and Nissan, all in the Los Angeles suburb of Costa Mesa.
Gray says that dealers will have to mind their inventories, hiring practices and sales strategies as they adjust to a market that has plateaued at a very high SAAR. As the incoming chairman of the FCA National Dealer Council, Gray said he wants to bring a mantra of decreased complexity and increased consistency to all of the automaker's relations with its dealers. He said that will help dealers better manage their profit margins in a market where growth isn't automatic.
Gray, 45, spoke with Staff Reporter Larry P. Vellequette.
Q: How was 2016 for FCA dealers?
A: I think FCA dealers followed the industry pattern. When we started off, the market was still growing and we were rolling along. There was a bit of a leveling off, and we felt that as well. We've leveled off at a pretty nice number, but leveling off feels different, like when you level off in an airplane. But 2016 goes down as a good year.
What major issues do FCA dealers face?
I think FCA dealers, and other dealers, are all asking, "What are you going to do in a market where the SAAR is strong, but it is leveling off?" We've now found the level it's going to bounce around in, and we have to figure out how to work within that space. That's going to take a different discipline -- a discipline for OEMs as well as for the dealers.
How so? What type of discipline?
Our business plan for the last few years has been aggressive, and it will continue to be aggressive. The tailwind that was there is still there, it's just kind of leveled off. So, as a dealer, you have to make sure that your staffing is appropriate and your inventory is appropriate, so you can keep up with what's there in terms of demand and growth. But I think you have to be very careful and not overreact to the leveling, to be too lean, because the SAAR is still at a high level. If you go too far the other way, you're going to miss out on some great years ahead.
What do you hope to accomplish this year as chairman of the dealer council?
What I've learned through this National Dealer Council process is that just about the time you set an agenda, something pops up and you have to be fluid and react. But if I were forecasting some topics that we're going to have to have conversations about, it would be decreasing complexity and increasing consistency. Operationally, that's something that we're continually talking about, and I don't think that's going to be going away.
Also, if the world's going to level off a bit, what does the new math look like? Does the margin pressure become even greater? We're going to have to have those conversations. As dealers, we want FCA to achieve its sales goals to be a strong OEM. We've learned that, and we just need to balance that with the same focus from the dealer body on our return on sales.
Being on the National Dealer Council can be a stiff commitment, especially in leadership. Why is it important?
It's important that dealers know National Dealer Council works. The dealers are committed to the process. We all want to make an impact and make positive things happen not only for the dealers, but for FCA as well. We get into the details, and we do grind on behalf of the dealers. It's an important process, and I'm excited to be a part of it.
Let's talk product, starting with Jeep. You're in Southern California. What do you think the reaction will be locally for a $100,000+ Jeep, in the form of a Grand Wagoneer?
I think it would be welcomed in Orange County, Calif., no doubt. With a vehicle like that, you start playing in that kind of high-line-society status. On the current Grand Cherokee, in some of the higher trims like the Summit, we already play in that field. It's not uncommon to take in a BMW X5 or something high-line on a higher-end Grand Cherokee. We're already accepted at that level, so it would seem natural to continue to play in that space.
Let's shift to Chrysler. The brand now is the Pacifica and the 300. What do you think needs to happen with the Chrysler brand, product-wise?
What I would like is for them to continue to focus their marketing and offerings on the Pacifica. It's an exciting addition to the FCA lineup that is working. There's organic demand for that vehicle, and we're fulfilling that. That vehicle is on the right path, and that's exciting. On 300, I believe that product is still relevant. It's a lot of car and a good look for a good value. I suppose, as dealers, we don't have to go into the cost of plant retooling and product development. So, if I'm just throwing darts at a board, is there space in Chrysler for additional product? Certainly. I just don't know what that direction might be.
The Dodge Dart and Chrysler 200 are both out of production. Given the shift in consumer preferences, how much is it going to hurt dealers if FCA leaves those segments unfilled?
In the current climate, I believe we can fill in those gaps with some of the other products, like the new Compass. There's an opportunity to try and backfill Dart and 200 with other product offerings. Since consumer demand seems to have shifted to the crossover/SUV space, that happens to land kind of exactly where it needs to land. We have product to fill that.
How has the deluge of recall work affected dealer operations? Is there something different dealers should be doing to keep their CSI scores up?
There's no doubt that the mix of work in our shops has changed. Inside that mix of work, back 10 or 20 years ago, a warranty repair would generally require a part, but now a repair might only require a flash or a software update. It's just different now, and the change seems to have occurred at a very fast pace. So there's a different flow through the fixed-ops departments.
The service drive is certainly busier, but the mix of work is different, so the staffing requirement is different. As dealers, perhaps we look at greeters, because we can have them look at things that maybe you don't need a master technician to do -- in order to keep things moving for the customer.
We have an opportunity, FCA and the dealers -- with the total units-in-operation increasing, and with what has happened with recalls -- there's an opportunity to get more people into your rooftop and an opportunity to increase loyalty to your dealership and your brand. If we can create that customer experience with this different mix of work, we have an opportunity to increase loyalty at a pace that we haven't felt in a very long time.
FCA's Volume Growth Program has been going in one form or another for over five years. Is it still needed? Is it still a good thing?
It's not any secret that VGP or stair-step programs elicit a very emotional conversation among dealers. But I'll say this: I believe in Reid [Bigland, FCA's head of U.S. sales]. And the dealers believe in Reid. If you look at the growth of FCA, it's hard to argue that the retail strategy hasn't worked with VGP. But with that said, there are serious conversations at [the National Dealer Council] about the impact that the program can have on rooftops. It's a sensitive, hard-to-please-everybody type of program. My guess is that those conversations will continue, and I would say that, without getting into specifics, the more consistent any incentive program is and the simpler it is to understand, that would be a lot of the conversation as well.
I just get back always to, if the program is easy to understand, hence the decreased complexity, and it's consistent, so that dealers know what to expect month to month, that gives the dealers, no matter where they fall in their taste for the VGP program, the ability to make a go of it.
Decrease complexity, increase consistency -- that's my mantra. And I'd be remiss if I didn't say that there are many areas where that has already happened.
Let's talk about F&I: Do you expect to see more or less leasing for FCA in 2017?
In the markets where leasing is strong, I would continue to forecast that FCA and the dealers will want to make sure they are aggressive with leasing. I happen to be in one of those markets, so I'm personally sensitive to that conversation. However, in markets where it's not as big a mix of your sales, I would think FCA would want to see if they could pick up some market share, using leasing as a way to conquest competitors.
How has FCA's preferred lender arrangement with Chrysler Capital worked for dealers? Should that program grow or change?
Overall, the relationship with Chrysler Capital has been beneficial. In certain business centers, it may be greater than in others. It's relevant to have a captive, but it's also important to have competition [for financing]. Where Chrysler Capital has been a good partner, there's still opportunity with others. So from a rooftop perspective, it gives us a lot of levers to pull, of which Chrysler Capital is a very relevant one.
What do dealers need more of on their lots?
I think all dealers are excited about the increased Wrangler and Ram capacity that FCA is focused on. Those are the first two moves that they made, and from a wish list perspective, those would be great. There's a lot of demand for those vehicles.
Let's talk Fiat and Alfa Romeo. Alfa needs to add more points in the U.S., according to brand executives, and Fiat stores have struggled in certain areas. What would you like to see happen?
With Alfa Romeo, let's get the cars first, and then we can talk about network. I understand the importance of the launch and the quality and getting it right. From what I've seen so far, they look unbelievably good, and I think they'll be very well received.
With Fiat, it's going to continue to need to be an extremely fluid conversation. It's going to take patience to have a one-size-fits-all strategy. Fiat has its place in the market, and in certain areas, that place is bigger than others. How that plays into a market, a network strategy, is going to take some serious conversation and patience.
All dealers nationwide seem to be struggling with personnel turnover. What have you done at your dealerships to stay competitive?
In no particular order, one is slowing down the hiring process and making sure we're properly vetting potential employees. I think it's important that they fit into your culture.
From a scheduling standpoint, we've all had to look at some flexibility in scheduling. It doesn't only apply to millennials. Life is fast, and we've had to look at some different scheduling, away from a one-size-fits-all way of doing things. You have to be flexible. As an employee, you still have to be here and perform.
The last thing I've noticed is coming up a career path with more clarity. We're getting asked more and more, "So, if I do well, what then?" That's why I think slowing down the hiring process is so important -- making sure that potential employees fit into your culture. Those things increase the likelihood that people stay.