How Better Hiring And Training Processes Are Driving Change In The Industry’s Largest Dealer Group
We’ve written a lot about the issue of turnover costing dealerships significant money and eating into dealer profits. For the average dealership, turnover alone can cost upwards of $500,000 annually. For the retail automotive industry, this cost scales into the billions. That’s a lot of profit walking out the front door along with that salesperson that didn’t even last a month.
This revenue is lost slowly, and indirectly. It happens in a few different ways:
- Wasted resources, time, and training expenses
- Poor interactions between inexperienced staff and customers
- Bad fits providing poor customer experiences
- Lost vehicle sales, upsells and services
While a dealer will never get their turnover down to 0% the industry can work to chip away at the problem. Today, the turnover number for the average dealership is upwards of 70%. It seems like any opportunity to improve this daunting number will be welcome news with the industry that has been struggling with retention for the past decade. Ted Kraybill, president of automotive consulting firm ESI Trends, explained this recently to Automotive News.
“It’s the money. It’s the bottom line. How big of a problem is it for the industry? It’s half a million a year for the average dealership. It’s billions of dollars for the industry. And it is not getting better,’ Kraybill said.
ESI Trends is very familiar with the challenges faced by the industry: they also partner with the NADA to produce the annual National Automobile Dealership Association Dealership Workforce Study.
Hireology recently highlighted select findings from the study in late 2016.
Kraybill continues, “A 10-percentage-point increase in turnover will cost the average dealership $7,500 in gross profit per employee per year. With an average dealership head count of 70 people, that means a 10-point increase in turnover costs the average dealership more than $500,000 in gross profit annually. Multiplied by NADA’s count of roughly 16,500 dealerships in the U.S., it’s an $8 billion-plus problem.”
Realizing the opportunity to recover millions in lost revenue, large dealership groups like AutoNation are beginning to address the problem head on. AutoNation has recently shared several tactics with Automotive News on ways to combat turnover and position the automotive industry as a welcoming destination to millennials and sales professionals outside the industry: two challenges having a direct impact on the high turnover rate most dealerships face.
Combatting the Perception Problem
We’ve written the playbook on hiring millennials and see a huge disconnect between today’s generation of talent and the career trajectory present in the dealership world. Now comprising 60% of all new dealership hires, millennials do not want the high-risk, commission-based roles common at most dealerships.
In late 2016, AutoNation helped alleviate this by switching its stores to a new compensation plan offering base wages plus bonuses. Reducing the churn of sales associates is one of the goals, AutoNation CEO Mike Jackson told Automotive News. The plans seem to be paying off. As Hireology has seen, millennials seem wary of commission-based roles common in the auto industry since younger employees likely carrying debt from student loans that are also preventing them from delaying other life milestones such as marriage or starting families.
In fact, given the opportunity, most millennial would overwhelmingly choose a smaller, more consistent pay plan to a high-risk high-reward commission structure that most traditional sales roles are based upon. This disconnect between the millennial workforce and the comp structure witnessed at many dealerships has the potential to turn off an entire generation from the automotive industry.
With competition for millennials – including sales and technology-focused roles available in most markets, this could quickly become an industry-wide problem as dealers not only combat each other to staff their stores, but virtually every other local business offering better pay, more dependable income, and better hours.
Dealerships today are having trouble finding people for their current openings. Rick Evans, a Toyota dealer in Fort Wayne, Ind., told Automotive News that he’s had five to 10 positions consistently open at his store. “It’s an industry-wide problem,” he said.
Evans tries to keep his staff scheduled for a 40-hour week, and he’s looking at reworking his pay plans to remove more of the variable component and make more of the pay come from a salary.
Getting Ahead Of The Problem By Hiring Smarter
“Most dealerships have a better process for buying office supplies than they do for hiring people,’ Adam Robinson, CEO and founder of Hireology explains. “It’s already hard enough to be a dealer. Dealers can’t control cheap private-equity dollars consolidating stores. They can’t control interest rates, recalls, regulators. They can’t control ride-sharing or non-dealer models. The only thing they have 100 percent control of anymore is who they put on their payroll.’
In a recent Automotive News piece, Robinson highlighted ways dealerships can combat turnover. ESI trends also recommended tactics dealerships should stop doing immediately in order to identify, hire, and retain long-term employees:
Hiring practices to avoid:
- Hiring someone without proper vetting for a sales position to fill the role quickly
- Hiring someone after just 1 interview by a single manager
- Failing to have a list of reasons to work for the dealership
- Overselling the position – IE telling a sales position applicant that it’s easy to make $100,000 a year
- Not running background or reference checks
- Keeping applicants waiting past the appointed interview time
- Not worrying about impressing the recruit
- Hiring a training class of 10 applicants for just 2 or 3 open positions
Source: ESI Trends in Automotive News
The Importance of Perks And A Career Path
Increased vehicle sales, sophisticated onboard technology, and the retirement of many baby boomers in retail automotive are compounding a problem that’s been increasing for years: getting new, young blood into roles that require technical expertise such as mechanics and service technicians. Dealers across the country are feeling the squeeze as technical programs become scarcer, and students opt for other career paths.
Alleviating this problem will take some outside thinking, and a fresh look at pay, perks, and a career path.
AutoNation shared recent successes retaining employees by implementing incentives the Universal Technical Institute recommends all dealers adopt, says Natalee Doenig, AutoNation’s talent acquisition program manager.
- Tuition reimbursement
- Sponsored tool packages
- Sign-on bonuses
- Relocation assistance
AutoNation realized these offerings are quickly becoming the new normal as competition heats up. For example, their group – the largest in the country – typically has 500+ job openings for service employees of all levels at any given time, Doenig said.
Beyond the above perks, another commonly overlooked benefit is training. While it may strike many dealers as an expensive luxury, many techs see comprehensive training programs as an investment in their career. A recent Carlisle survey found that many unhappy auto techs worked for dealers who would not fund their training efforts. The specific reasons for the dealers to not support training efforts varied, but the outcome was always the same: the techs soon left to work at a rival dealership eager to find new talent, leaving the original rooftop with an empty bay.
Training, while an additional human capital cost, is a great investment to retain and attract better technicians.
Beyond training, a designated career path is mission-critical to find and retain top automotive talent at any role within the dealership. The same Carlisle study that discovered automotive techs desired better training programs found that just one third of all dealership employees were satisfied with their career progression. Even more troubling, the most unhappy employees were considering leaving retail automotive entirely, further compounding the talent shortage today’s dealerships are struggling with.
To combat this, top groups are starting to transition to product specialist and service advisors, hoping that dramatically rethinking automotive talent will hopefully lure back talent that wouldn’t have previously considered roles in retail automotive. As early as 2014, AutoNation led the charge with the dramatic push to service advisors to be the first point of contact for customers.
The hope – and success of this major rethinking of dealership employees – relied on finding an all-new kind of employee: instead of the hard-line salesperson that was a tough negotiator, they would instead focus on a customer-oriented host to walk them through the entire experience and provide great service. In the years since launching the service advisor role, AutoNation seems to be doing well. While the baseline average turnover is upwards of 70%, AutoNation is closer to 30% for these new roles.
The secret is thinking radically outside of the box – and entire industry. AutoNation frequently recruits outside of retail automotive to bring new experience into their rooftops from candidates who likely never thought of working at a car dealership. However, the flexible hours, focus on customer service, and extensive training to introduce new hires to the industry, the AutoNation brand, and the need to provide the best service to the customer have differentiated AutoNation as a career destination for millennials and those outside of retail automotive.
Fighting Turnover With Better Hiring And Training Tools
Turnover is disproportionately affecting retail automotive, radically impacting dealership profits and the customer experience. A changing workforce and economy are forcing the entire industry to radically rethink decades-old practices around human capital management, compensation, training, and career trajectory for today’s young and eager employees.
Yet, as we’ve seen from some dealership groups, there are great ways to combat the shrinking talent pool, as boomers retire and millennials look elsewhere to find opportunities. A set hiring process and comprehensive training programs are critical to help dealers find and retain great talent. It’ll require a bigger investment in human capital upfront today, but today’s turnover challenges and a dwindling market for auto technicians, mechanics, and even qualified salespeople are forcing dealers to think in very unconventional ways. Ted Kraybill outlined how the average dealership loses over $500,000 each year to turnover alone: wouldn’t this money be better spent on training and retaining great employees so they can expand your sales and profits?
Hireology can help.
Learn about our well-oiled hiring process by reading our newest eBook that walks you through each step of our award-winning process.