Creating High Performance Companies: Lessons from Automobile Dealers

The McKinsey Quarterly reported on a very interesting survey, applicable to many business though the survey focused on car dealers.  In the survey, car dealers were sorted by profitability, and the most profitable dealers compared to the average dealer.  The top performers were three times more profitable than the average performers.

The results show that profits are split roughly fifty-fifty between factors under management’s day-to-day control, and factors that are already set in place, such as the location of the dealer, the brand, etc.  So, what can managers do within that area where profits can be improved?

First, the top dealers have better human resources practices.  They have more formal hiring and training systems, and they enjoy lower employee turnover.

Second, the most successful dealers worked harder at customer loyalty, doing things such as walking new car customers through the service area, and sending service department customers reminders about upcoming service needs.

By the way, I’ve done some consulting in this industry.  The new car department of a typical dealer does not make money.  The money is made in the used car department and the service department.  Why sell new cars at all?  Consumers trust a new car dealer more than a used car dealer, so having the new car showroom helps sell used cars.  Also, the new car sales feed the service department.  If you have a low-performing division, give some thought to whether it feed your profitable divisions before you close it.

Back to the McKinsey survey.  Their third point was that the most profitable dealers spent more time with their auto-maker’s field representatives learning about best practices.  You’d think the top performers would have less need for coaching.  It turns out, they have a greater desire to be coached.  Reading between the lines of the study, you can imagine the so-so dealer saying that he doesn’t need any help, while the more profitable dealer says, "Give me all the help you can."

If you’re not sure where to begin with your company, try these three steps:

  1. Improve employee retention,
  2. Improve customer loyalty, and
  3. Ask for help with a humble attitude, no matter how great you are.