Case Study: Re-Engineering the Dealership Selling Process

With

Mark Rikess, President of The Rikess GroupAnd

Adam Simms, President & GM of Toyota Sunnyvale

Moderated by

Mike Bowers, Executive Editor of DealersEdge

Mark Rikess - The Rikess Group (TRG) was incorporated in 1991. Our focus from inception has been on the development of leading edge products and services that are based on the ever-changing consumer demand. We provide these services to auto retailers, manufacturers and select vendors. TRG's Performance Consultants have graduated from some of our nation's most progressive dealership groups. Through consulting and training we're constantly bringing unconventional solutions to our clients in an effort to keep them abreast of market trends leading to competitive advantages that optimize profitability. If your company is comfortable with traditional strategies TRG is probably not "your cup of tea." But, if your organization is seeking to uncover emerging opportunities created by seismic shifts in the market, please join us "outside the box."

Our formula for dealership sales success: Commodity + Differentiating Experience = Increased Gross Profits (call TRG - 800-851-4018) to learn more about how to create a differentiating experience.

The Rikess Group - 6671 Sunset Blvd, Suite 15251 - Los Angeles, CA 90028Phone: 800-851-4018 http://www.rikessgroup.com

Adam Simms began his career in automotive retail in 1984, when he joined a Honda store in Jacksonville, Fla., as a salesperson. He worked his way up through the ranks to become general manager before venturing on to other dealerships. In 2003, Simms left AutoNation, where he worked as a senior vice president of operations, to open Sunnyvale Toyota with partner Tom Price.

“We’ve been building that business ever since, so we really leveraged all our expertise on used cars, obviously, and our expertise around the online side of the business. Today, we’re one of the top 25 Toyota dealers in the United States,” Simms says. “The auto business was an immediate hit for me. I really liked the emotional connection between people and their cars.”

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Reengineering the Sales Reengineering the Sales Process To a Limited Process To a Limited Negotiations ModelNegotiations Model

*It*It’’s Time to be Nimble*s Time to be Nimble*

Presented by ThePresented by The RikessRikess GroupGroup

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TheThe RikessRikess GroupGroupCoCompany Highlightsmpany Highlights�� Operate 20 GroupsOperate 20 Groups�� Provide strategic consulting/training to all types of Provide strategic consulting/training to all types of dealersdealers

�� Delivered Internet Training to 80 Client FranchisesDelivered Internet Training to 80 Client Franchises�� Developed theDeveloped the KiaKia Retail Success FormulaRetail Success Formula�� Developed over 50 modules for Toyota regarding Developed over 50 modules for Toyota regarding improving dealership profitabilityimproving dealership profitability

�� Developed new Sales and Management courses for FordDeveloped new Sales and Management courses for Ford�� EE--lead management pilot for AHMlead management pilot for AHM

Goals For PresentationGoals For Presentation�� Recognize that the current challenging Recognize that the current challenging

environment presents us with opportunities environment presents us with opportunities �� Take this time to consider reTake this time to consider re--engineering engineering

your Sales Processes based on what todayyour Sales Processes based on what today’’s s customer wantcustomer want

�� How to change your environment so you can How to change your environment so you can recruit a more educated, diverse sales forcerecruit a more educated, diverse sales force

�� How to reduce selling expenses in order to How to reduce selling expenses in order to become a low cost providerbecome a low cost provider

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Case Study: Sunnyvale ToyotaCase Study: Sunnyvale Toyota�� Started in August 2003 Started in August 2003 –– 222 ranking for Toyota222 ranking for Toyota�� 1212thth largest Toyota dealer (349 new; 152 used)largest Toyota dealer (349 new; 152 used)�� Average sales associate productivity Average sales associate productivity –– 17.5 units17.5 units�� NetNet--toto--gross = 40.74%gross = 40.74%�� Largest single point internet dealer in USLargest single point internet dealer in US�� Has a GSM quality individual running departmentHas a GSM quality individual running department�� Sales team manages leads startSales team manages leads start--toto--finishfinish�� Replies with price quote within 10 minutesReplies with price quote within 10 minutes�� Team handles incoming sales callsTeam handles incoming sales calls

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Adam Simms, DP Sunnyvale Adam Simms, DP Sunnyvale ToyotaToyota

What was your vision when you purchased What was your vision when you purchased Sunnyvale?Sunnyvale?

How would you describe your business How would you describe your business philosophy?philosophy?

Explain how you use Shared Values for decision Explain how you use Shared Values for decision making?making?

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Recruiting Sales ConsultantsRecruiting Sales ConsultantsWhat Should Keep Dealers Up at NightWhat Should Keep Dealers Up at Night

�� Typical Dealership Showroom Floor Typical Dealership Showroom Floor MakeMake--upup�� Top Top thirdthird does welldoes well�� Middle Middle thirdthird stops selling when stops selling when

comfortablecomfortable�� Bottom Bottom thirdthird churn every 60churn every 60--90 days90 days�� Bottom Bottom thirdthird sees sees over halfover half of new of new

prospectsprospects

The Challenges of The Challenges of TodayToday’’s Sales Models Sales Model

�� Dealers trying to improve last centuries Dealers trying to improve last centuries model rather than remodel rather than re--engineering itengineering it�� Rust PolishersRust Polishers

�� Current model is too managementCurrent model is too management--centriccentric�� 1 manager for 2.3 Sales Consultant1 manager for 2.3 Sales Consultant�� Supply & demand works Supply & demand works

�� High wages for narrow skill sets High wages for narrow skill sets -- deskingdesking, F&I, , F&I, Closing, AppraisingClosing, Appraising

�� The traditional model is very expensiveThe traditional model is very expensive9

The Real ChallengeThe Real ChallengeFinding Qualified Sales ConsultantsFinding Qualified Sales Consultants

�� The $50,000 + PromiseThe $50,000 + Promise�� Lack of recognized peer success in retail Lack of recognized peer success in retail

auto salesauto sales�� Women donWomen don’’t consider auto sales as a careert consider auto sales as a career

�� 7% of auto sales force7% of auto sales force�� We built our existing management staff with We built our existing management staff with

young peopleyoung people�� Who had natural sales skillsWho had natural sales skills�� Moved into management including GSM/GMMoved into management including GSM/GM

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The Real ChallengeThe Real Challenge�� Gen Y and most women wonGen Y and most women won’’t consider a job in t consider a job in auto salesauto sales�� 50 hr work weeks50 hr work weeks�� Command & control environmentCommand & control environment�� Commission sellingCommission selling�� Limited use technology, etcLimited use technology, etc

�� Dealers are looking for something our society Dealers are looking for something our society doesndoesn’’t produce, good negotiators?t produce, good negotiators?

�� Unless we Unless we change the sales modelchange the sales model & environment & environment we wonwe won’’t attractt attract people with natural sales skills to people with natural sales skills to the retail auto industry!the retail auto industry! 11

Recapping the Recapping the Traditional Sales DepartmentTraditional Sales Department

�� The majority of variable compensation The majority of variable compensation dollars flow up to middle managementdollars flow up to middle management

�� Sales Consultant turnover remains high as Sales Consultant turnover remains high as there is little money left to pay themthere is little money left to pay them

�� Grosses are low because Sales Consultants Grosses are low because Sales Consultants add little value for customersadd little value for customers

�� Dealerships have lost a generation of Sales Dealerships have lost a generation of Sales ManagementManagement

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ItIt’’s Time to s Time to ReRe--engineer Last Centuries engineer Last Centuries

Sales Model Sales Model

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Value Creation Sales ModelValue Creation Sales Model

Commodity + Differentiating ExperienceCommodity + Differentiating Experience

= Gross Profits= Gross Profits

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Value Creation Value Creation Selling Model MechanicsSelling Model Mechanics

�� Posted prices typically $150 over current averagePosted prices typically $150 over current average�� Sales Consultants donSales Consultants don’’t negotiate the posted value pricet negotiate the posted value price�� SC paid higher compensation if they sell the unit at the SC paid higher compensation if they sell the unit at the valuevalue--priceprice

�� Only one drop up to $300 Only one drop up to $300 –– by Sales Managementby Sales Management�� Eliminates Eliminates ““Command & ControlCommand & Control”” environmentenvironment�� VCS Managers develop people & manage processesVCS Managers develop people & manage processes

�� Act as a resource & supportAct as a resource & support�� Are showroom floor activists Are showroom floor activists -- constantly coaching, constantly coaching, recruiting and training SC teamsrecruiting and training SC teams

Adam SimmsAdam Simms�� What percentage of the time do you negotiate a What percentage of the time do you negotiate a new car deal?new car deal?

�� Do you negotiate on preDo you negotiate on pre--owned cars and F/I?owned cars and F/I?

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Value Creation vs.Value Creation vs.TraditionalTraditional

Value CreationValue Creation TraditionalTraditionalFastFast Long ProcessLong ProcessSimpleSimple ComplexComplexFairFair InequitableInequitableMy WayMy Way Desk controlDesk control

The Biggest Dealership CostThe Biggest Dealership CostNot Having High Quality Sales ConsultantsNot Having High Quality Sales Consultants

Good SCGood SC Poor SCPoor SC30 %30 % 15%15%

�� SC sees 40 prospects per monthSC sees 40 prospects per month 12 units12 units 6 units6 units�� Average front/back gross (2000)Average front/back gross (2000) 24,00024,000 12,00012,000�� TradeTrade--in profitin profit 10,00010,000�� (4 extra trades @2500)(4 extra trades @2500)�� Lost service incomeLost service income 6,0006,000�� (1000 per car)(1000 per car)�� Total cost of carrying a 6 Total cost of carrying a 6 --88 $20,000+$20,000+�� unit Sales Consultantunit Sales Consultant

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Management CompensationManagement CompensationTarget PayTarget Pay

�� Determine annual compensation targetDetermine annual compensation target�� Rank order key job tasks and determine Rank order key job tasks and determine yield/value per taskyield/value per task

�� Forecast quarterlyForecast quarterly�� Pay on attainmentPay on attainment�� Key Target Pay BenefitsKey Target Pay Benefits�� AccountabilityAccountability�� Consistency of payConsistency of pay�� Adam Simms Management Comp planAdam Simms Management Comp plan 19

Structural Changes Structural Changes That Must be MadeThat Must be Made

�� 40 Hour work week schedules for SC40 Hour work week schedules for SC’’ss�� Training salaryTraining salary

�� Typically $2,500 or more for two monthsTypically $2,500 or more for two months�� Eliminate SC gross profit compensation Eliminate SC gross profit compensation �� Competitive Advantage:Competitive Advantage: Sales staff mirrors Sales staff mirrors

showroom shoppersshowroom shoppers�� Optimize technology/internet during the Optimize technology/internet during the

sales processsales process20

Structural Changes Structural Changes That Must be MadeThat Must be Made

�� Build your Sales Processes around what most Build your Sales Processes around what most customers wantcustomers want�� Competitive pricing Competitive pricing �� PressurePressure--free, transparent, simple, fastfree, transparent, simple, fast�� Delivered by empowered consultantsDelivered by empowered consultants

�� Create a reputation as a training organizationCreate a reputation as a training organization�� TheThe place to workplace to work

Create a highly differentiated, high Create a highly differentiated, high value, Customer experiencevalue, Customer experience

Value Creation Sales ProcessValue Creation Sales Process�� The benefits of not having to negotiate to The benefits of not having to negotiate to

get a competitive price are reinforced for the get a competitive price are reinforced for the consumer throughout the Sales Processconsumer throughout the Sales Process�� Meet & GreetMeet & Greet�� Concept StatementConcept Statement�� Visual AidVisual Aid�� Presentation, Demonstration & pricing storyPresentation, Demonstration & pricing story�� Interactive Trade Evaluation Interactive Trade Evaluation -- VCS Mgt T.O.VCS Mgt T.O.

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Direct Sales Direct Sales –– Adam SimmsAdam Simms�� GSM quality department leaderGSM quality department leader�� Sales consultants manage the entire lead processSales consultants manage the entire lead process�� Recruiting, selection, trainingRecruiting, selection, training�� Price quotes within 10 minutesPrice quotes within 10 minutes�� Live chatLive chat�� KeyKey’’s to websites to website�� ResultsResults

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Why ItWhy It’’s Imperative to Reduce s Imperative to Reduce Selling Expense!Selling Expense!

�� Diminished new vehicle gross profits with a Diminished new vehicle gross profits with a SAAR under 11 million and margin pressureSAAR under 11 million and margin pressure

�� PrePre--owned vehicle margin compression will owned vehicle margin compression will continue downwardcontinue downward

�� Fixed ops gross will be reduced due to lessFixed ops gross will be reduced due to lessUIOUIO’’ss and warranty dollarsand warranty dollars

�� Basic expenses have already been reducedBasic expenses have already been reduced�� Profitability improvement s hang on Profitability improvement s hang on

reducing selling expensereducing selling expense24

Becoming a Becoming a Low Cost ProviderLow Cost Provider

�� Stabilize staff with higher caliber SCStabilize staff with higher caliber SC’’ss�� Professional SC career path (AProfessional SC career path (A--BB--C)C)�� Eliminate Sales Desk Eliminate Sales Desk

�� Reduces Management countReduces Management count�� Create cross functional TeamsCreate cross functional Teams

�� Team Leader does F&I Team Leader does F&I �� Lower compensation costs as a percent of Lower compensation costs as a percent of

salessales�� Switch to comp plans that reward productivitySwitch to comp plans that reward productivity

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Becoming a Becoming a Low Cost ProviderLow Cost Provider

�� Eliminate rate negotiationsEliminate rate negotiations93% of reserve dollars stick93% of reserve dollars stick

Adam Simms:Adam Simms:�� UC SoftwareUC Software�� Market based pricingMarket based pricing

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Traditional Dealers vs.Traditional Dealers vs.TRGTRG’’ss VCS DealersVCS Dealers

NCM DealersNCM Dealers VCS DealersVCS Dealers VCS SavingsVCS SavingsNew VehiclesNew VehiclesComp Dollars per RetailComp Dollars per Retail $574$574 $469$469 $105$105Total Comp as a % of Retail GrossTotal Comp as a % of Retail Gross 25.3 %25.3 % 18.5%18.5% 6.8%6.8%Total New Selling Expense per RetailTotal New Selling Expense per Retail $1009$1009 $634$634 $375$375As % of New Vehicle Operating Gross 42%As % of New Vehicle Operating Gross 42% 33.5%33.5% 8.5%8.5%

Used VehiclesUsed VehiclesComp Dollars per RetailComp Dollars per Retail $627$627 $474$474 $153$153Total Comp as a % of Retail GrossTotal Comp as a % of Retail Gross 25.5%25.5% 22.5%22.5% 3.0%3.0%Total Used Selling Expense per Retail $1083Total Used Selling Expense per Retail $1083 $765$765 $318$318Total Used Selling Expense $ of Gross 44.2%Total Used Selling Expense $ of Gross 44.2% 36.7%36.7% 7.5%7.5%

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The Keys to Reducing Selling The Keys to Reducing Selling ExpenseExpense

�� Cross functional sales management reduces Cross functional sales management reduces headcount by approximately 38%headcount by approximately 38%

�� Eliminating management negotiating skills Eliminating management negotiating skills lowers compensation costs lowers compensation costs

�� Market based pricing eliminates wholesale Market based pricing eliminates wholesale losses and increases floor plan creditslosses and increases floor plan credits

�� Sales consultant productivity allows you to pay a Sales consultant productivity allows you to pay a smaller percentage of variable compensationsmaller percentage of variable compensation

�� Lower advertising costs due to customer word Lower advertising costs due to customer word of mouth and a switch to digital mediaof mouth and a switch to digital media

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Connecting the DotsConnecting the Dots�� If you donIf you don’’t change the sales model to attract t change the sales model to attract

better Sales Consultants:better Sales Consultants:�� YouYou’’ll need layers of Management to ll need layers of Management to POSSIBLY capture the 50% of prospects at riskPOSSIBLY capture the 50% of prospects at risk

�� YouYou’’ll have an expensive Managementll have an expensive Management--centric centric modelmodel

�� YouYou’’ll have lower closing ratios & grossesll have lower closing ratios & grosses�� YouYou’’ll make less moneyll make less money

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The Market Has ChangedThe Market Has ChangedThe Transparent PurchaserThe Transparent Purchaser

�� If youIf you’’re a great prere a great pre--owned dealer you owned dealer you currently arencurrently aren’’t negotiating by more than t negotiating by more than $100 to $200$100 to $200

�� Women make up 50%+ of purchasersWomen make up 50%+ of purchasers�� They dislike negotiatingThey dislike negotiating

�� Gen Y make up 10Gen Y make up 10--20% of purchasers20% of purchasers�� They dislike negotiatingThey dislike negotiating

�� Are you trying to perfect a Sales Process for a Are you trying to perfect a Sales Process for a shrinking owner base???shrinking owner base???

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Final Questions to PonderFinal Questions to Ponder�� Are your dealershipsAre your dealerships’’ Sales Processes significantly Sales Processes significantly different than your competitions?different than your competitions?

�� Do you have competitive advantages that create Do you have competitive advantages that create incremental sales? incremental sales?

�� Does the traditional negotiating model satisfy how Does the traditional negotiating model satisfy how the majority of customers want to buy vehicles & the majority of customers want to buy vehicles & attract Sales Consultants with natural sales skills?attract Sales Consultants with natural sales skills?

�� Does anyone like the command & control Does anyone like the command & control environment other than your middle managers?environment other than your middle managers?

�� Would you want your mother, wife or daughter to buy a car Would you want your mother, wife or daughter to buy a car from your store without your help?from your store without your help?

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