Dealer Bill Wallace slashed inventory, invested in service to stay afloat

September 03, 2018 01:00 AM

The depth of the recession forced dealer Bill Wallace and his team to come to grips with every aspect of how they managed the stores.

When he thinks back on the dark days of the Great Recession, the first thing Bill Wallace remembers is the dizzying speed at which the bottom dropped out of the market.

"At the peak of that thing, our new-car volume dropped 35 percent," says Wallace, now 70, owner of Wallace Automotive Group in Stuart, Fla. "We immediately started cutting back on inventory, though the manufacturers fought us every step of the way. It was hard to right-size the ship fast enough."

Wallace has seen four or five recessions since becoming a dealer in 1979. But he believes the Great Recession, which began in December 2007 and lasted 18 months, outweighed all the rest combined.

The depth of the trough forced Wallace and his team to come to grips with every aspect of how they managed the dealerships. No stone went unturned — from sales floor to service drive to the face in the mirror every morning.

For Wallace, this worst of all recessions taught him to fix the things he could control and manage for the best in those areas he couldn't.

A severe housing crisis in which mortgage foreclosures soared hammered Wallace Automotive, which consists of eight dealerships and 11 franchises. His market area along South Florida's Atlantic coast was one of the areas hardest hit by the national disaster.

"They were building houses like crazy and buying them up like crazy. People were flipping these houses — buying a house for $500,000 and selling it for $600,000," he recalled.

Then it all collapsed. "All of a sudden people woke up and realized they were underwater on their house and the house they had speculated on. They'd have a million [dollars] in home mortgages in houses that were worth $500,000."

On every block, properties fell into disrepair as houses went unpainted and lawns went unmown.

"It was terrible," Wallace said. "We live and breathe on the boom and bust of construction. Everybody we knew had a housing horror story. They weren't in the mood to buy a car. They were worried about getting their house repossessed. That hit us in the solar plexus."

The stomach-churning drop in demand forced Wallace and his team to first turn their full attention to readjusting inventory and advertising expenses. Easier said than done, he quickly realized.

Bill Wallace

Title then: Owner

Dealership group: Wallace Automotive Group

Where: Stuart, Fla.

Survival strategy: Don't hit the panic button when downsizing inventory, invest in service departments and keep a positive attitude.

"To sell 100 cars, you need 200 on the ground and another 100 in the pipeline. To start shutting that off, it takes three to four months to catch up to even. You couldn't just flip the switch.

"For a while, you're taking trade-in values that are not realistic. You take a trade-in for $20,000. But what's happening is the market value is only $18,000. Where you made your mistake is you shouldn't have taken that car at $20,000. But if you'd offered the customer that [market value of only $18,000], they probably wouldn't have bought the car."

Wallace draws an analogy. "Stockbrokers say, 'Don't try to catch a falling knife.' When that value starts dropping, you have to wait till it hits the bottom. You run into a period when you're putting too much in trade-ins to keep everything moving. You realize, 'Not only do I have all these new cars, I have all these used cars I've got too much money in.' "

All the while, the carmakers were trying every trick in the book to get Wallace and other dealers to keep taking vehicles.

"The manufacturers were pushing, pushing, pushing — putting objectives out there. 'If you sell 100 cars you're going to get an extra $10,000.' But the money we got from them was peanuts compared to how much we had overvalued those trades.

"We had $4 million worth of used cars, but if we'd taken them to auction in those days we'd have been lucky to get $3 million," he recalled. "What always complicated things is you had cars that continued to sell in that downturn. You couldn't not take any cars because you were hurting yourself."

Generally, import brands were doing better than the domestics, particularly General Motors and Chrysler, both of which went into bankruptcy. Wallace had GM and Chrysler stores.

With their GM and Chrysler brands, Wallace and other dealers didn't know whether warranties would be honored or whether customers would want to buy the marques' used vehicles.

In the end, as much as Wallace and his team scrambled to align trade-in values with the market, there was only so much they could do. They had to be patient and wait for the market to correct.

"Once the market stabilized, say six months after declaration of bankruptcy, the used-car market stabilized. We were able to take cars in trade at what they were worth in the market."

Wallace didn't kid himself about how much control he had over new- and used-car values. He knew he had to look elsewhere for ways to make up for the collapse in demand. While he couldn't control the retail market, he could make a difference with his service departments.

Wallace and his managers soon noticed customers who might have bought a new car in better times were willing to invest more in keeping their current vehicles running.

So top managers at Wallace Automotive stores began spending more time in fixed ops meetings and taking a hard look at previously delayed requests from service managers for new equipment and tools.

"We upgraded some equipment we'd been postponing," including new front-end alignment machines and new diagnostic equipment at several dealerships, he remembers.

The group repainted several service reception areas, including the floors and receiving area. "It made a difference in the feel of the place and the psychology of those guys."

But if Wallace invested more in service, he expected more, too. If the company was going to buy equipment, he expected the service departments to use it to bring in more business.

"They said: 'Don't worry boss, it will pay for itself,' so they did it. They made it work," Wallace said. The investments paid off. Said Wallace: "Service never took a blip. If anything, it blipped up. That was a bright spot for retailers."

Wallace Automotive made service a top priority.

"We said, 'These people are our superstars,' " he recalled. "Of course, the fixed operations people loved it. They always feel they're the leftover people in an organization." And to some extent, that's true, he admitted. "Almost no organization has a celebration when they have a record fixed ops month like they do a record sales month."

Pain

Though the service and parts departments were bright spots, there was pain almost everywhere else.

In the depth of the recession, Wallace said, "You don't need as many people to clean the cars or to show the cars, not as many managers or finance managers."

Wallace estimates his dealership group employed about 400 people when the recession started and trimmed staff to about 320 through layoffs and attrition.

Those cuts made for some difficult choices. If there were four finance managers at a store and he needed only three, Wallace preferred cutting the staff to three over keeping all four but reducing their pay.

Through it all, Wallace realized the recovery of his business had to start with his own attitude.

"You had to tell yourself: 'I can't go in and tell these guys the world is falling down. We have to make some changes. And everybody is going to go through it together.' You have to keep that attitude and look everybody in the eye."

Wallace started bringing his lunches in a brown bag and showing up at 7:30 a.m. to greet customers on the service drives.

"I'm going to be shaking hands. I'm not going to lie to anybody. But I'm going to put the best face on this that I possibly can. And it works. If people don't see you, they're going to assume the worst," he said.

"People have told me to this day they did not see any change in my demeanor."

Wallace says the lessons of the Great Recession live on at his dealership group.

"I sure hope we haven't forgotten. Now that things are so much better than they were, we try to act the same way we did during those tough times."