GARRY'S ARTICLES

 

 

Overview

Following is just a sampling of the numerous articles that have been published by Garry House. For a full listing of Garry's thought leadership work, first click on "Connect with Garry," then click on "About Garry House," and finally click on "Visable Expertise."

 

 

The Difference Between “Good” and “Great”

by Garry House, Garry House & Associates Co.

 

In the first couple of paragraphs in his book, Good to Great, author Jim Collins makes several interesting statements:

“Good is the enemy of great. And that is one of the key reasons why we have so little that becomes great. Few people attain great lives, in large part because it is just so easy to settle for a good life. The vast majority of companies never become great, precisely because the vast majority become quite good – and that is their main problem.”

 

Although I’ve worked with a lot of “good” dealers during my professional career, I’ve never been privileged to work with a “great” dealer. (That makes sense; they didn’t need my help.) Not surprisingly, all of the “good” dealers with whom I’ve been associated wanted to be better, but most never seriously aspired to greatness. In fact, one of my “good” client-dealers recently said, “Garry, you wouldn’t believe how difficult it is getting my team focused on performance improvement when we’re making a million dollars a month!”

What does “great” mean at the dealership level? In my personal opinion, as a dealership resources professional, a dealer can claim “great” or “world class” status when he/she achieves ALL of the following:

  

  • 100%+ Market Share for all new vehicle franchises represented

  • Retail Used to New Sales Ratio of 1.00 to 1.00 or higher

  • 80%+ Share of Calculated Service Market Potential

  • Net-to-Gross (Pure) of 30%+ and/or Net-to-Sales of 4.5%+

  • Annualized ROI of 25%+ Against True Projected Liquidation Value

  • Measurable Best Practices Guidelines in Each Inventory and Receivables Category

  • Measurable Highest Levels of Employee Engagement, Satisfaction, Productivity, and Retention

  • Measurable Highest Levels of Customer Loyalty, Retention, and Satisfaction

  • Measurable Highest Levels of Recognition for Community Service and for Service to the Retail Automotive Industry, in general

 

By comparison, what does “good” mean to me when looking at the dealership level? This is tougher, and certainly more subjective, but here’s my take:

  • 80% - 90% Market Share for each new vehicle franchises represented

  • Retail Used to New Sales Ratio of at least 0.75 to 1.00

  • At least 60% Share of Calculated Service Market Potential

  • Net-to-Gross (Pure) of 22.5%+ and/or Net-to-Sales of 3.5%+

  • Annualized ROI of 15%+ Against True Projected Liquidation Value

  • Measurable Best Practices Guidelines in Most Inventory and Receivables Categories

  • Measurable Average Levels of Employee Engagement, Satisfaction, Productivity, and Retention

  • Measurable Average Levels of Customer Loyalty, Retention, and Satisfaction

  • Measurable Average Levels of Recognition for Community Service and for Service to the Retail Automotive Industry, in general

 

As you’ve probably guessed, this article, unlike Jim Collins’ book, is not about how to transition from “good to great,” but rather it is concentrated on differentiating “good from great.” When I was managing the NCM Institute Center for Automotive Retail Excellence (NCMi), we didn’t spend a lot of time focusing on becoming a “great” dealership; that is a challenge that would have involved a long-term commitment and relationship between the NCMi faculty and a dealer’s entire employee body. NCMi did not have the resources to undertake that challenge, nor has it ever been its mission to do so. That is a challenge that has always been best undertaken by the NCM Retail Operations team.

 

The NCM Institute mission, and challenge, was to help transition the managers of a dealership, one or two at a time, from “good to great.” And we did this by focusing on world-class (“great”) department processes…what they are, why they’re critical, how to implement them, and how to execute them!

 

Remember, great processes that become disciplined habits produce great and predictable results!

How Should You Pay Service Advisors?

by Garry House, Garry House & Associates Co.

 

Not by design or intent, but rather simply by circumstance, over the past 30 years I have become known as a subject matter expert (SME) in the arena of dealership compensation planning and implementation. Based on the phone calls and emails I receive, it would seem that the hottest compensation topic on the minds of my client-dealers is service advisor pay plans. The common questions that I am asked most frequently are as follows:

"Has there been any significant change in advisor compensation philosophy over the last three year period? How should advisor compensation be budgeted? How should advisor productivity affect advisor compensation levels? What elements should be included in a well-balanced advisor compensation plan?"

The first question is pretty easy to handle, because it relates primarily to a changing “mission” within the community of better dealers. Most of the clients with whom I work are attempting to transform their service department staff from a “fix it and smile” organization to a “selling organization.” And in so doing, these clients recognize that compensation plans need to be oriented to sales activities and results. There is no longer a place for an “order taker” in the service drive. So the mantra now seems to be that for advisors to enjoy the income they’ve previously experienced, they will need to a) increase their customer R.O. transactional quality, and b) reduce their customer R.O. transactional quantity. This will result in the need to add more advisors.

 

As a general rule, those of us who work regularly within the service department training and consulting arena use “12.0% of department gross (before any parts gross transfer)” as our guide for budgeting service advisor compensation. This budget guideline is sometimes a little higher for domestic franchises and a little lower for luxury franchises. However, please understand that budgeting compensation and structuring compensation plans have different meanings; budgeting refers to “how much” we should pay, while structuring refers to “how” we should pay.

The relationship between advisor productivity and advisor compensation is critical, and this needs to be clearly defined and communicated when we set expectations and seek to gain commitments. An advisor who has superior transactional quality, superior CSI, and who handles an adequate number of customers could earn as much as 14% of the gross he/she generates. On the other hand, an advisor with below average transactional quality, below average CSI, and who handles a below average number of customers might earn as little as 10% of the gross he/she generates.

 

The fourth question is the most difficult to answer. I’m going to try talking about how to structure a well-balanced compensation plan without getting myself in trouble. First I need to say that, like any other dealership compensation plan, there is no “one size fits all.” There are numerous reasons for this, such as, but certainly not limited to: a) each dealership, each service department, and each advisor staff might operate within different cultures, and culture certainly has an impact; b) the dealership franchise might impact the advisor compensation structure. c) the individual priorities of the dealer principal might impact the advisor compensation structure; and d) state and local wage and hour laws might impact the advisor compensation structure.

Here are my general recommendations for advisor compensation structure:

As is my philosophy with most sales compensation plans, the structure should be 100% incentive based, with a reasonable underlying “guaranteed draw against commission.”

Since “Hours Billed” is the force that drives service and parts profitability, the predominant driving force within the plan should be Hours Billed per Individual Advisor per Month, which might mean $x.xx paid for each hour billed, for each labor category. I have often seen this as a stand-alone compensation metric, but I often see it “matrixed” with labor gross profit, or total R.O. gross profit, or a mix of these elements. This category might represent 55% - 70% of the plan structure.

Achieving “acceptable” or “world class” individual CSI Performance is usually the next ingredient in the compensation structure. The advisor should be rewarded for achieving either of these levels. The payment should be quantified as “an additional $x.xx paid for each hour billed (second bullet point above. Depending on how much manufacturer money is tied to CSI, this category might represent 10% - 20% of the plan structure.

The next category is what we refer to as “miscellaneous spiffs and incentives”, that are typically defined as the Top 3 Sales Initiatives for the Month and might cover such things as:

Parts Sales per Customer R.O.

Customer Effective Labor Rate

Menu Closing Percentage

Tire Sales

Service Contract Sales

MPI (ASR) Closing Percentage

 

The payment might be quantified as “an additional $x.xx paid for each hour billed (second bullet point above), or as a flat amount, or as a per item amount. I normally like to see this category represent approximately 15% of the plan structure.

The final category is a team incentive based on Percent of Total Monthly Shop Hours Objective Achieved. The intent here is to have all service and parts personnel focused on the same number (total shop production capacity) throughout the month, trying to achieve or exceed full capacity operations.  The payment might be quantified as “an additional $x.xx paid for each hour billed (second bullet point above) or as a flat amount. I normally like to see this category represent approximately 7% - 10% of the plan structure.

Are Your Sales Department Pay Plans Properly Balanced?

by Garry House, Garry House & Associates Co.

More frequently than you might expect, one of the NCM 20 group moderators, retail operations consultants, or NCM Institute faculty members gets tagged as an “industry expert.” It happened to me in the March 10th, 2014 issue of Automotive News in an article titled “What’s an F&I Pro Worth?” and authored by Jamie LeReau. Jamie’s commentary focused on F&I producer compensation and the fact that these folks now make more than sales managers and most other dealership managers (as reported by NADA for 2012). Since I have a reputation as being outspoken on this issue, Jamie called and asked for my opinion. Fortunately I wasn’t misquoted, and here’s essentially what I said:

"The typical F&I producer today sits in his office and waits for somebody to bring him something. A sales manager has to manage the activities of his sales team and deal with five potential customers before he closes one. There's a lot more skill involved in becoming a successful sales manager than in becoming a successful F&I manager. F&I managers are overpaid, and sales managers are underpaid. There needs to be a change in the balance. Pay plans have not changed with the times, especially now that consumers are researching vehicle prices on the Internet. Transparency in pricing is enabling consumers to negotiate cheaper car deals, resulting in thinner profit margins on car sales and lower commissions for salespeople. While pricing transparency is good, it can keep salespeople (and managers) from getting a ‘fair shake.’ We have not adjusted to transparency with our compensation plans. Our formulas are flawed. Dealerships struggle with how to tweak compensation formulas to make them more equitable. Most F&I managers are compensated based on a matrix percentage based on two factors: 1) their product penetration, meaning the number of F&I products they sell, excluding financing, against the number of people they see; and 2) the F&I dollars earned per retail vehicle sold at the dealership. Their compensation has typically been based on just the income that F&I produces. Today, though, some dealerships are looking at blending the revenues of all departments on the variable side of the business -- new-car sales, used-car sales, and F&I -- and paying the managers of those departments a percentage of that blended number. These stores are trying to put everyone on the same pay line."

 

So why is there a compensation misalignment in so many of our sales departments? We need to look at how we got here in the first place, so let’s go back a few years and compare “then and now.” The following table, Two Months…20 Years Apart, will help explain why we’re where we are today.

  • The data displayed is intended to be representative of domestic and volume import stores, rather than luxury dealerships.

  • There is also some terminology, such as “Adjusted Gross (SuperGross),” that may be unfamiliar to you.

  • Other than the above two items, the table should be virtually self-explanatory.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I would first like to draw your attention to lines #3 and #15 of the table. Back in 1994, the “$1,000 PVR Club” was only a wish or a dream for most F&I producers, and F&I product vendors and trainers were recommending that dealers pay their F&I producers 15% - 18% of Net Financial Services Income. Today many F&I producers are achieving $1,000+ PVRs, yet many dealers are still paying out 15% - 18% of Net F&I Income in compensation. Do these F&I producers today deserve nearly twice the compensation they earned in 1994. Are they twice as good as they were in 1994? Are they dealing with more customers per month? Do they have to work harder than they did in 1994? I think you’ve probably answered “no” to these four questions! In fact, you may even be saying to yourself, “Wow, we’ve really even made the F&I producer’s job a lot easier over the last 20 years…improved processes, better technology, more product offerings, shortened deal cycle time, etc.”

From a compensation philosophy standpoint, my current preference is to pay all F&I producers and sales managers on the same pay line (probably line #9), with their individual percentages determined from an individual performance matrix. If you disagree with me, I’d like to know what you think! 

 

 

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