The Auto Man's Empire

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"There will be 25 products in the line before long," notes Downey. "And with 54 regional warehouse operations like mine, we're all in on the purchasing so we get extremely low prices in co-op. In fact, you're talking about $600 million of buying power when the 55 of us get together." It sounds, more than coincidentally, like something the giant conglomerate in New York had planned some 10 years ago.

"In this business, you've got to private label on some items," insists Downey. "The consumer wants the name brand, but sometimes just can't afford it. We've got the alternative in Auto Value. It's the crux of a margin strategy that will enable the retailer to compete on price-sensitive items and still gross 40% on his entire package."

Getting more than 100 retailers to march to his beat has reverberated in Downey's own base of operations. With growth in the chain has come internal growth, not the least of which is a staff that has jumped in size from 21 at the end of 1976 to 82 now. Downey is proud of his company's personnel record. The five managers who started with him six years ago are still with the company, few employees have been fired, and although Downey Automotive is in the middle of another record year, no one has been hired since October.

Downey attributes the low turnover at the top to "high pay for high performance." The stability below the management level, however, derives from a productivity plan that evolved out of early problems. With the company entering its fourth year, Downey realized that staff size was keeping pace with sales growth -- but worse, the ratio of payroll to sales was soaring out of control. Turnover was also a major problem. By the end of 1979, both sales and work force had tripled. Other expenses were rapidly escalating as well. "The only solution was more sales, bigger margins, or lower overhead," says Downey, noting that payroll represents half of the company's total costs. "Clearly, we had to get our labor costs under control."

Management was already lean -- an original quintet responsible for advertising, sales, order processing, warehousing, and inventory control. The company also needed at least 26 order pickers, packers, and handlers, plus 5 drivers, 10 salespeople, and a clerical and computer staff. How could company growth be sustained without parallel growth in staff?

Downey's first step was to appoint a full-time personnel manager. His wife, Barbara, who had been handling advertising, was tapped. The next step was an incentive program that hit every employee's pocketbook.

Downey launched 1980 by telling all employees that "we want to pay you more money." He also emphasized that salaries were eating up at least 10% of total sales. The new goal was a payroll running at 8% of sales; furthermore, each quarter, employees would share every dollar shaved from the 8% mark. For example, if the company grossed $3 million in sales the first quarter, salaries and wages should hit $240,000. If, however, payroll ran only $210,000 -- by holding down staff size, reducing overtime, eliminating errors -- there would be a productivity bonus pool of $30,000.

During the plan's first quarter, little happened. Payroll far exceeded the 8% target. Still, sensing that the plan would catch on, Downey paid everyone $17. It was a small token that paid big dividends. By the plan's fourth quarter, everyone got $540.

A series of letters was sent to employees, emphasizing the companywide productivity theme: "The more we sell, the more we make." And nothing was considered sold until it was delivered. It was also clear that "if we had to hire someone to handle the increase in orders, it would come out of the employees' pockets, not mine," Downey states.

Productivity improved demonstrably, and the turnover rate tumbled. The strategy worked so well, in fact, that last year Downey refined it with a rating system. Quarterly, each employee -- including managers -- is graded from 1 to 4, superior to poor, based on attitude, dependability, promptness, follow-through, teamwork, and effort to share ideas and suggestions. Supervisors do the rating in each case, issuing mid-quarter warnings to any employee not performing at the "superior" level. At the end of each quarter, top performers, 1s, split 5/% of the productivity pay pool; the 2s, 35%; and the 3s, 15%. Those rated 4 go unrewarded.

Staff productivity and morale have improved dramatically. More than 85% of employees how share the quarterly rewards. But beyond fatter paychecks every three months, the productivity ratings help to determine slary increases every six months. And salary levels determine each employee's share in a profit-sharing trust geared to provide healthy retirement benefits. There is a catch. If an employee fails to meet minimum ratings in consecutive six-month periods, he or she is terminated.

"It gets the basic message across," notes Downey. "We can't afford people who don't give 100%. Just showing up every day isn't good enough; quantity and quality are the only measures of performance. And that goes for managers, too.It's a way of emphasizing that this is a 'bottom up' company. Everyone, from the bottom up, has to pull their weight.And when we do, it works. We all make out better."

The result is a relatively simple incentive system: Do your job and you get to keep it; do it well, and you come out a winner. In the final analysis, it is also the essence of Dick Downey's formula for success.

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