Putting The Customer In The Driver's Seat
Not so many years ago, when cheap oil flowed from Texas wells and good citizens worshipped their sleek V-8s, there were 48,000 automobile dealers in America. Now, when the Shatt al-Arab waterway is our tenuous gas tap, and prudent consumers value a high mpg rating more than a fast four-on-the-floor, there are a little more than half as many. From 1980 to 1982 alone, some 3,400 dealers went out of business.
The reasons for this exodus vary. Some franchises disappeared as part of a natural evolution toward fewer but larger dealerships. Others, unable to keep pace with changing tastes and the growing popularity of imports, were victims of a market that in recent years has been as treacherous as a locked differential. Still others fell prey to the recession.
And some, it must be said, were done in by the automobile dealer's traditionally cavalier attitude toward the customer -- an attitude rooted in righteous belief in Detroit's invincibility and their own.
"For years we were taught that we could do no wrong," explains Robert P. Mancuso, president of Mancuso Cadillac-Honda Inc., a $15-million-a-year dealership in Barrington, Ill., not far from Chicago. "I remember having a violent discussion with my father, a 30-year Chevrolet dealer. I was working in his service department, and I told him I was embarrassed because we'd just had to tow in a car that had been in for a tune-up the week before.
" 'What are you embarrassed about?' he asked me.
" 'Well, the guy spent $85 here, and now his car won't start. You know, we screwed up.'
" 'We don't screw up,' he informed me in no uncertain terms."
In the automotive landscape of the 1980s, the experts agree, such an attitude makes little sense. "Better service for the customer is undoubtedly the name of the new game," notes Carver Hendrix, Chicago zone manager for Cadillac Motor Car Division. "Dealers are going to have to get a lot better at managing their businesses," adds Robert Daly, executive director of communications and industry relations for the National Automobile Dealers Association.
These are lessons that Rob Mancuso, 33, has already learned -- the hard way. "When everyone was making so much money, there was no need to innovate, to manage your dealership better," he observes. "The best thing that ever happened to me was learning how to run a business without cash." His dealership, 1 of 12 in Barrington, was founded in 1974, a scant five months after the first Arab oil embargo. Since then, it has bumped along from one disaster to another.
All the hardships have left Mancuso with a rule of business so simple that he smiles as he says it: "Make the customer happy." But what sounds trite as a maxim is in practice a sophisticated sales strategy that has helped him maneuver his dealership through obstacle after obstacle. So compelling is the strategy, in fact, that Mancuso has begun to package parts of it for sale. And other dealers, some of his competitors among them, have lined up to buy it.
Mancuso is a fourth-generation automobile dealer. His great-grandfather, Charles, began selling Studebaker Series-18s more than 60 years ago, and until recently his father, Jim, owned a Chevrolet dealership in nearby Skokie. But Rob is hardly an offspring of the old school. A 1973 graduate of Princeton University, he dresses in three-piece suits and exudes the lean glow of a vegetarian and veteran marathon runner (he placed 1,557th among 3,624 in Chicago's 1980 marathon). And in a business known for its back-slapping camaraderie, he favors the soft sell of an Alan Alda, whom he somewhat resembles. His office, like his showroom, is chicly efficient: an Apple Macintosh on one corner of his desk, a photo of the Porsche 928-S he is buying thumbtacked to the wall behind, bottles of wine stored in the adjoining bathroom. As he tells his story, he gestures airily, impersonating the people he describes, and the conversation takes the form of a series of acted-out anecdotes. Sales, he admits, was always his forte.
Fresh out of Princeton, Mancuso became sales manager of his father's Skokie dealership, where his older brother, Rick, was minding the store. It was a case, he recalls, of three "aggressive, individual, and stubborn" men locked in good-natured combat. "After that argument with my father -- the only one we ever had -- I began to think that maybe I did have a different attitude about this business." In 1974, when a Cadillac dealership became available in Barrington, a horsey suburban "village" of 9,000 residents with a median income of more than $50,000, Rob set out to get it. Jim Mancuso financed the deal for his younger son, with the understanding that the new grad would buy out dad at the end of five years.
"On April 22, the day we signed the agreement," says Mancuso, "my father pulled up out front, threw me the keys, shouted 'Good luck,' and drove off."
It was a little bit like getting the keys to your family's old Edsel. Village Cadillac was a small, aging dealership ($4 million to $5 million in annual sales) with 22 older employees, no retail business to speak of, and a fleet business that the former owner had taken with him. And it was Doomsday: 1974, the year that new car sales would plummet from 11.4 million to 8.8 million units, largely because of the oil embargo. Cadillac, the most luxurious of the old-style land arks, virtually sank from sight. Unit sales dropped 65,716 in 1974, a 23% decline, contributing in a major way to General Motors Corp.'s 3% loss of market share.
Mancuso, at 23 the youngest Cadillac dealer in the nation, felt his age acutely. "When I walked in, the employees looked at me as though I were from another planet," he says, conceding that they had legitimate cause for concern. "I knew just enough to be dangerous." The new dealership made money its first month. But it soon slipped into the red, quickly worked its way through $150,000 in certificates of deposit, and began bouncing checks.
"In all the years I'd been at my father's store, I'd never heard the word 'overdraft,' " Mancuso admits. "I quickly learned how to turn frozen assets into liquid assets. We bailed out of used cars, sent new cars back to the factory, and cut back on parts to the point where, if a guy came in for a tune-up, we'd have to run down to K mart for spark plugs."
These were desperate measures, and Mancuso knew it. Slowly, as though he were fashioning a dealership from scratch, he began to put together a new way of doing business. He moved to Barrington, and joined the Rotary Club and the Chamber of Commerce. He fired his old salespeople and hired new ones. He also began a series of imaginative promotions: a coupon good for the use of a Seville for a day; catered new-car introductions with salesmen dressed in tuxedos; copies of The Wall Street Journal with a special insert -- a fake front page of The Village (Cadillac) News -- handed out to Chicago-bound commuters each morning at the Barrington train station. "They loved it," Mancuso recalls. "That one sold 45 automobiles."
Some of the changes were more radical than others.
"There was a belief in this business," says Mancuso, "that if a guy didn't buy his car from you, and he came in for warranty work, that you had the right to insult him, to abuse him, to toss him back out on the street. I was taught that by my father, and I used to do it. Then one day, I was out back in the shop, watching two mechanics twiddling their thumbs. I asked my service manager, 'How many warranty jobs came in today that we threw out?'
" 'Eight,' " Mancuso replies, acting out the shop manager's part in this little drama.
"Now Cadillac pays for warranty work -- we make money on it -- and we could probably have sold some of these cars an oil change or other legitimate work that they needed. And I thought, 'Why am I doing this?' "
The result was fresh ads in the Barrington Courier-Review: "We want your warranty work. Trained technicians. Free loaners."
"All of a sudden, the place started filling up," says Mancuso. In the service department, which many dealers regard at best as a necessary evil, sales climbed from an average of between $30,000 and $40,000 to between $50,000 and $60,000 a month.
The dealership slowly edged its way back to profitability. Still, like the rest of the auto industry, it suffered from recession and lingering gas-shock until 1977. Then the economy began to recover, the oil embargo receded, and pent-up demand for large cars resurfaced. Encouraged by this market, Mancuso moved. The new quarters of Mancuso Cadillac, as he renamed his dealership, were a 20,000-square-foot facility of red brick and exposed wood beams on the crest of a country road connecting Barrington with I-90, Chicago, and the world beyond.
The move proved to be a disaster. It doubled Mancuso's monthly overhead, from $50,000 to $100,000, and it meant paying the higher cost of advertising in the Chicago metropolitan market. Customers hadn't yet discovered the new location, and Cadillac couldn't supply him with the new cars he wanted. In June, its first month there, the dealership once more fell into the red, losing $30,000. In July, it lost another $20,000. Mancuso tried every trick he knew. He plugged away with original ads ("Who's the young punk on TV selling Cadillacs?") and marketing ploys (a drawing for the free use of a Caddy for a year). He even resorted to such tried-and-true techniques as overloading the showroom with salesmen. "It works," he comments, a bit regretfully. "You throw enough guys out there, everybody begins to starve, and they start finding business . . . but it's blood and guts."
None of his maneuvers, however, worked well enough: For two years his losses continued. Then, sure enough, things got worse. "Each time it got bad, I thought that that was as bad as it was ever going to be," observes Mancuso, "but there were always worse times to come."
In 1979, after his two losing years, the planned buy-back from his father began, significantly increasing Mancuso's already onerous expenses. "The figure that we'd settled on," he explains, "was $400,000 cash, but I was also paying my father a salary of more than $50,000 a year." Adding it all up, Mancuso calculated, it cost him something like $900,000 to get the business back.
A radical move, he decided, was definitely in order.
"In '79," he says, "I didn't know where this product [Cadillac] was going to go. It had its up and downs. I couldn't bank on allocations, and the United Auto Workers had targeted GM for a strike that year. I'm thinking, My God, if supply is bad now, what happens when they go out on strike?" When Mancuso learned that a Honda franchise had become available for Barrington, it seemed the answer to his anxious prayer.
American Honda Motor Co. had been in the United States since 1969, and by 1979 it had 740 dealers around the country including 21 in the Chicago area. But not one of the 23 Cadillac dealers in the metropolitan Chicago market had dared to "dual" with a Japanese import; indeed, only one handled an import of any kind. Honda, Toyota, and Datsun were more than declasse; they were an outright affront to Cadillac's image of itself as the standard of the world.
"I thought it might be a nice hedge," says Mancuso, with a sly smile. He put together an elaborate package -- dealership history, sample ads, customer testimonials, proposed media plan -- and flew off to Honda's U.S. headquarters in Moorestown, N.J. Two weeks later, the franchise was his.
"We were selling 30 to 35 new Cadillacs a month, and I figured we'd do 10 to 12 Hondas," he recalls. "We did 25 in our first month, 30 the second, then 35." Although Honda provided the insurance he needed, Mancuso is convinced that other Cadillac dealers regarded him as something of a turncoat. "Before, I was the new kid on the block. Afterwards, I was guilty of a little bit of treason." Today, more than half of the Cadillac dealers in Chicago "dual it." The largest, Mancuso jokes, has more Japanese lines than the Tokyo telephone exchange.
Positioning Mancuso Cadillac-Honda required some delicate shifts. "We had to walk a fine line," says Mancuso, "between that of a prestige operation . . . and getting down and dirty." Mancuso succeeded by treating both cars as class acts: The glistening white Honda Civic-S sits beside a regal black Cadillac Cimarron in his showroom, and the classic script of the Cadillac sign out front plays off a restrained but eye-catching orange Honda logo. Occasionally, though, the novelty -- some would say the incongruity -- slips through, as when Mancuso ran a two-for-one sale: Buy a Cadillac at list, get a Honda for free. The campaign attracted national attention and sold cars, but it raised eyebrows even at Honda headquarters. "The head of the company cornered me at a party," Mancuso recalls, "and told me, 'Don't you ever do that again.' "
Although Honda gave him a much-needed shot in the arm -- and his active imagination continued to find new ploys like the two-for-one deal to tempt and satisfy customers -- Mancuso still wasn't making it. Free rust-proofing, picnic lunches, and private sales could accomplish just so much, and extra advertising -- a quick fix -- was becoming an unconscionable expense. "I was operating under a discipline imposed by my financial condition -- that of having no money," Mancuso laughs. And indeed, the bottom line remained intransigent. His business's continuing losses in 1979 and '80 were the sorry legacy of the untimely buyout.
At that point, six years into his dealership, Mancuso reassessed his strategy. His fundamental concern, after all, was not simply promotion, but also giving customers what they wanted. And since he couldn't buy any more promotion anyway, he had better be sure he was meeting the needs of the customers he had.
Many dealers, he explains, keep rather informal records of their traffic, often estimating what percentage of their "ups," or potential buyers, they sell. Industrywide, this closing ratio averages from 14% to 18%. Mancuso wasn't sure of his. So he hired a greeter to welcome arrivals, see that they were taken care of, and record the eventual outcome. His goal was simple: "We had to get our slippage down."
To the same end, Mancuso began to make regular use of "shoppers" -- counterfeit customers who come in to look at a car, then report back to him on how they were treated. He discovered that there was considerable room for improvement and that a host of small details, all of them having to do with customer satisfaction, were holding back sales.
It is not his favorite anecdote, but it makes his point. "The very first time I did it," Mancuso recalls, "after I'd had the shopper fill out a questionnaire, I asked him, 'Did you notice anything in particular about the salesman?' And this guy says, 'His breath -- his breath smelled like death; I wouldn't have bought a car from him if it was free.'
"It was something that we'd all noticed about this salesman, but we'd never considered that a customer might. And I thought, 'What have we found out here? What has this cost this guy? What has this cost the dealership?' "
The problem was solved with a 69 cent bottle of Binaca, and the close ratio inched up.
Shopping, Mancuso explains, has been around in a variety of guises for more than 50 years. Automotive Profit Builders Co., a sales and management consulting service he uses, sends in shoppers when it first begins working with a dealership. Both Ford Motor Co. and The Chevrolet Motor Division, General Motors Corp. use shoppers as well. But all of the programs, Mancuso felt, left something to be desired: They were expensive, sporadic, and generally geared to the manufacturer's rather than the dealer's needs. "I really didn't care whether a salesman told a customer about the Twilight Sentinel on the Cimarron," he explains. "I wanted to know what the customer thought about me, about my dealership."
As he developed his program, he learned more and more about these matters. Demonstration rides weren't being given. The quality of his service department wasn't being stressed. Cars weren't priced in accordance with his instructions. Gratified that he now knew enough to correct such situations, Mancuso decided to formalize his system -- and to sell it.
The idea for selling the system came to him, oddly enough, on a beach in San Diego. "About two years ago, I wasn't too happy with the business -- GMAC was pressuring me because of the financial condition of the dealership, and Honda, because I was selling so many of their cars, was pressuring me to put up a separate building." So he went on vacation, sat on the beach, and outlined a shopping service he called Consumer Concepts Ltd. Then, not one to procrastinate, he picked up a telephone and called Kent Allen, a dealer at Team Nissan-Datsun, in nearby Encinitas, Calif.
"Rob just showed up one day," recalls Team controller Edward Kaiser, "and told us what he was doing. We signed on the spot because it fit in so perfectly with our philosophy of customer treatment."
Under Mancuso's system, shoppers are recruited by Manpower Inc. and sent to visit the dealership twice a month. They then produce a computer-scored, 50-point questionnaire and a taped interview. The dealer pays $250 for each pair of visits and the information they generate.
"It's been incredibly helpful," says Allen, noting that Team now enjoys a close ratio of 46.7%, one of the highest in the nation. One of Team's first revelations, for example, was that customers had a hard time finding the dealership. "We had a nice, well-laid-out facility," explains Kaiser, "but even though we were next to the freeway, we were difficult to spot." Team responded with extra signs.
Since then, Consumer Concepts has signed up 50 independent dealers. Recently, it signed a pilot-program contract with Cadillac to shop 50 dealers in 10 metropolitan areas. CC grossed $75,000 in 1983, will do $250,000 in '84 (returning to break-even after absorbing significant start-up costs), and, as far as Mancuso can see, has a promising future. "I'II be talking to Honda next week, to Ford the week thereafter. . ."
For Mancuso, CC is more than a sideline, or a tool to use in his own dealership. It is the embodiment of his evolving philosophy. "Ninety percent of the dealers I know haven't really committed themselves to customer treatment," he says. "They all pay it lip service, but they beat up a guy when he comes in a day over warranty. And in the evenings, they congratulate themselves on how well they're doing.
"We're saying, 'Let's stop measuring the gains -- they're already in the bank. Let's do something about the losses.' It's an entirely different approach."
While he developed Consumer Concepts, Mancuso continued to look for ways to pull in customers and satisfy existing ones: a "New Age Thinking" motivational program for employees; a free car wash with every service; a computer campaign that let customers price their own cars (that one, he says, was good for more than 50 sales); and undercover shoppers who not only continued to show up in the showroom, but also ventured into the shop. "I found out what sort of efforts were being made to sell additional service," says Mancuso. After his service people were briefed, the average service sale went from 1.8 to 2.1 hours.
Thanks to such measures, Mancuso Cadillac-Honda nosed back into profitability in 1981, and remained there for the next two years. To be sure, pretax return was a matter of fractional percentage points. But the important thing was that the dealership was in gear, warming up and ready to go.
Finally, after nine years, all of the planning and market conditions came together. The economy improved, and the market for Cadillacs came back, eventually climbing to 300,337 units in 1983. Exactly one year ago, the buyout was concluded, and Mancuso's dealership took off.
Mancuso slides a Macintosh-generated chart -- "Year to Date Comparisons" -- across his desk. During the first two months of 1984, new-car profit has increased by 189%, used-car by 11,132%, service by 79%, parts and accessories by 3,250%. Overall dealership profit is up a remarkable 2,500%. The close ratio has risen to 32%, and Mancuso expects to earn a healthy 4% on sales this year. With an average daily balance of from $250,000 to $350,000 in the bank, Mancuso is using his working capital to build a separate building for Honda and to pursue a Porsche-Audi franchise.
"I'm beginning to enjoy this business for the very first time," he says. "Now that we're making real money, it's a lot easier to make more."
On the management side, ideas that in the past went begging for time or money are now being implemented. Extra loaners. A greeter for the service department. Ads that offer free car washes or oil changes. Service writers in ties and jackets. Extended hours. Videotaped evaluations of salesmen's presentations. And there is renewed emphasis on innovative management -- regular strategy meetings, department heads with virtual autonomy, "true turn" inventory figures from the parts department. "Management is the new growth area," observes Mancuso, echoing industry experts.
Although most of his 50 employees have gotten used to his brand of business as unusual -- "I think they'd come in wearing shorts and tennis shoes if I asked them to" -- old ways still die hard. "In the past, I'd warned my people never to sacrifice pennies," he explains, "and now that I want to give away money, they find it hard to adjust to."
Mancuso recently told his sales and service managers that they each had $500 to give away each month, but they didn't understand. So he acted out an explanation in the shop. "There was a customer there who had been coming in for years," he reconstructs. "Ah, Mr. Abbate, how you doing?'
" 'Just great.'
" 'What are you in for?'
" 'Grease, oil and filter, and rotate the tires.'
" 'How much is the bill going to be?'
" 'About $65.'
"Mr. Abbate, you've bought a lot of cars from us, and we love having you around. I'm going to pick up that bill.'
" 'What do you mean? You're going to charge it?'
" 'No, I'm going to pay it. Thanks for coming in."
The resulting goodwill, Mancuso explains, is something no advertising can buy. "We have one central operating philosophy now," he adds, "and that's to make the customer happy . . . right now."