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."
