The Great Recession turned out to be an innovation lab for the industry

September 03, 2018 01:00 AM

Alexa St. John

It was the day the earth stood still in the auto business: Sept. 15, 2008.

Lehman Brothers collapsed (it's still the largest Chapter 11 filing in U.S. history) and the financial world lurched into chaos. Commercial banks and mortgage lenders around the country failed. Credit dried up overnight and high drama began to play out under every dealership rooftop in America.

As storm clouds gathered, Charlie Brown, used-car manager at Chrysler-Dodge-Jeep of Eugene, Ore., tried to call Chrysler Financial. The phone nearly rang off the hook. Eventually a custodian picked up and told Brown that the lender had been dissolved.

Steve Germain, CEO of Germain Motor Co. in Columbus, Ohio, recalls the morning he took the front page of his local newspaper's business section to work rather than leave it behind for his wife to read. On it was an article about the dealership group's decreasing sales and falling business.

Every brand was impacted.

"Sales just halted," said Abigail Kampmann, then general manager of Porsche of San Antonio.

It was the first month her Porsche store ever lost money.

"Dealers that had never worried about their viability were quite concerned," said John McEleney, president of McEleney Autocenter in Clinton, Iowa, and the 2009 NADA chairman. Annette Sykora, the 2008 NADA chairman, said: "It was a kind of perfect storm." Credit is "the lifeblood of our business."

At Automotive News, we could see the shock on dealers' faces. Then the fear. Then the looks of determination. In the end, a preponderance of U.S. auto retailers weathered 2008, 2009 and 2010 with a resourcefulness roused by doggedness.

The Great Recession was an innovation lab. Dealers strategized and improvised. They rewired belief systems and forged new philosophies. Ideas bubbled up.

Recession strategies

In a survey by Cars.com, 94 franchised dealers were asked to cite the most useful strategy they employed for surviving the Great Recession of 2008-2010.

38.3%Focused on used-vehicle business

29.8%Reduced advertising

26.6%Relied on fixed operations

21.3%Focused on F&I

21.3%Nothing in particular/not sure

11.7%Cut staff

6.4%Closed underperforming stores to focus on the good ones

5.3%Other

2.1%Kept all staff, but cut salaries across the board

Much of what they did was predictable: They cut staff, froze hiring, cross-trained employees to handle multiple jobs, temporarily moved managers into sales positions, based department heads' pay on net, not gross, profit, and instituted 35-hour workweeks. But they also thought out of the box. Many turned to nonautomotive candidates for sales positions and shifted salespeople and technicians into salaried positions to retain them.

Some decided to "just say no" to manufacturers who were twisting their arms to take more vehicles when the recession hit.

They also rebid vendor contracts, centralized administrative processes and slashed advertising budgets, though a few turned up the volume on advertising. They reduced print media spending and bought digital in bulk across all stores in a group.

Little things meant a lot, like combining reconditioning centers, siphoning leftover gasoline from used vehicles to fill the tanks of new vehicles and switching from generic email responses to personalized responses. Some even bought coffee and vending machines and turned them into profit centers.

Scores of retailers boosted reliance on used-vehicle sales and they became obsessed with turning vehicles in 30 days or less with little front-end profit, selling the warranties and the aftermarket accessories.

Those dealers began watching auctions intensely, concentrating buys on vehicles that, while not generating the highest grosses, would be bought quickly once they were on the lots. They became highly disciplined in shuffling vehicles that didn't sell in the allotted time back through the auction.

"We'd try to turn within 10 days," said Denny Amrhein, managing partner of Fiat Chrysler Automobiles stores in Toledo. "We'd take that car, and we wouldn't pay any floorplan on it, because we got it, and we'd turn it."

Meanwhile, dealers focused on fixed operations like never before. They chased service business from stores that had closed. They adopted grid pricing based on the difficulty of the job and they started multipoint inspections on all vehicles in for service while adding services such as tires, detailing, minor bodywork and headlight restorations.

Managers leaned out parts inventories, started group purchasing of parts and supplies and groupwide delivery systems to reduce labor and fuel costs. One counterintuitive measure was to reduce discounting in the service departments.

Everywhere, dealers got granular. They analyzed performance metrics and conducted weekly, storewide financial updates.

Meanwhile, they made hospitality to customers a priority. Many conducted free service clinics on weekends to attract customers.

Time to ponder

Overall, more effort went into training, which had an unexpected payoff: brainstorming of unique marketing and sales strategies.

Some benefited just by having time to think about their problems.

"What did it for me — the way in which I was able to find the path and processes — was that I started to spend more time at the store when the store was closed," said Wayne Siegel, dealer principal at Legend Auto Group in Amityville, N.Y. "I came in earlier."

Dealers sought help where they could find it. Chris Haydocy of Haydocy Automotive Group in Columbus, Ohio, reached out to his congresswoman, who vouched for the dealership as a crucial cornerstone to the neighborhood. Eventually, he got his loan extended.

Sykora: Helped set up assistance

As 2008 NADA chairman, Sykora, dealer principal at Smith South Plains Ford-Lincoln in Levelland, Texas, helped set up workshops and a hotline with 20 Group moderators and academy instructors who helped dealers analyze financial statements.

"We wanted to employ that intellectual capacity with our instructors to push that out as a service to our dealer members," she said.

"I still have conversations with dealers who say, 'I'll never forget that,' and that they still employ the strategy that they employed through that period."

Dealers, of course, also looked for opportunities, buying stores at low prices from retailers looking to retire or sell. They terminated less-successful franchises on their own and used the proceeds to bolster stronger ones in their groups. Some sold real estate and converted the funds into equity.

Dealers also saw the big picture. Several helped revitalize surrounding neighborhoods to perk up local economies. Some, such as Tamara Darvish, then vice president at DARCARS Automotive Group in Silver Spring, Md., took to "fighting for our industry" in Washington.

Molded by the recession

In short, what dealers did was exercise every entrepreneurial bone in their bodies. Germain appreciates the changes that the Great Recession brought to his strategies, many of which he says remain in place.

"We're a much more efficient operation than we were 10 or 11 years ago as a result of that downturn," he said.

So many dealers and dealership managers just launching their careers when the crisis hit were molded by the Great Recession. Liza Borches, CEO of Carter Myers Automotive in Charlottesville, Va., says her generation is more conservative about debt, expansion and expenses, all of which make these dealers prepared for when — not if, in her mind — the next recession hits.

"I'm really thankful that I had to go through 2008 and 2009 fairly early in my career," she said.

But even those who thought they had seen it all were driven to change.

Says Amrhein, who was 59 when Lehman Brothers collapsed: "I'll tell you what: It made us better dealers. There's no doubt about that."

Jim Henry and Larry P. Vellequette contributed to this report.