Solving a Persistent Dealership Problem: High Employee Turnover & Related Costs. Case Study of One Solution….
Source: Automotive News Published Article February 7, 2021
March 15, 2021
It should come as no surprise that employee
turnover is a huge issue for auto dealers.
According to an Automotive News (AN)
article, NADA put total dealership employee
turnover for 2019 at 46%. The average
employee’s time in service (in 2019)
according to NADA was 2.5 years for the
average dealership in the U.S.
It is a huge and costly problem. There are many estimates for how much it costs to hire and then bring up to speed new replacement employees. Depending on which human resource professional you listen to, the related costs of replacing that talent can vary widely. Here are just a couple of formulas to consider:
For rank-and-file staff (think hourly level staff), a company will spend 500 times the ex-employee’s hourly rate of pay to fill the position. If the hourly rate is $10… cost of turnover in that position is estimated at $5,000.
For management staff, it gets a bit more complicated with turnover and replacement costs ultimately totaling 6 to 9 months of that manager’s compensation. So… the replacement for a manager making $100,000 may cost the company $50,000 to $75,000 in direct and indirect replacement costs.
The reduction of employee turnover, and especially management talent turnover, should be an important goal of all auto dealers and general managers. Reducing the costs by a small percentage will yield huge results.
Think about this list of the costs related to employee turnover (Maertz & Campion, 1998)
Recruitment of the new staff member
Administrative hiring expenses
Lost productivity during the period between the loss of the employee and hiring date of the replacement
Lost productivity as the new employee learns the job and gets up to speed
Lost productivity of coworkers helping to train and educate the new hire
Direct costs of training
Costs due to the departing employee’s low motivation prior to leaving
Lost value of trade secrets and inside information that could be captured by a competitor
Related public relations costs
“Voluntary Turnover”… (as opposed to in-voluntary when the company chooses to terminate employment)… This is when employees decide on their own to seek employment elsewhere without being dismissed. What are the primary reasons for voluntary turnover?
Poor match between the job and the skills needed for satisfactory performance. This suggests that the problem was created during the hiring process. If your recruitment process is excellent, this should seldom be the case.
Lack of employee growth. This can be particularly challenging for auto dealers as the staff and the organization chart does not provide for many possibilities for expansion of responsibilities and other career path opportunities. Dealer groups of significant size have less of a problem in this regard… but it still requires that you provide training and experience expanding opportunities. When someone feels stuck (especially if they are self-motivated for growth) this can become unacceptable to them and an encouragement to look elsewhere.
Lack or miss-applied Management. If the supervisor is not a skilled people manager, this could lead to mistakes. The resulting frustration can cause a desire to move on to greener pastures.
Workload. Maybe management is asking too much of the employee and thereby creating a high stress level or lack of balance in their work/outside work relationships. Or maybe the job is beyond their capabilities. Both reasons could have been discerned in the hiring process and the turnover possibly avoided.
Now that we have explored the Turnover Problem in general, let’s take a look at the Germain Auto Group (GAG). Their company LinkedIn page mentions that they have 15 stores, in 5 markets in Ohio, Michigan and Florida. DealersEdge has had minor contact with this organization over the years, but that did not keep us from hearing about their excellent management from others. GAG is not a super-large group, but their number of stores and their close to 1,000 employees give them certain economies of scale that helped them address this problem.
As the AN article mentions, GAG top management wanted to know why their employees, on average, were leaving after 4 years. Since the NADA quoted “average time in service” was measured at 2.5 years, GAG was already outperforming the norms in most dealerships across the country.
GAG was also reported to be confident that their hiring and selection process was yielding excellent talent… yet newly hired staff were still only staying onboard for 4 years. They wanted to create a plan to increase that average tenure.
Germain Academy Plan for Improving Employee Retention:
Management concluded that even with their careful selection and hiring process, they were not doing enough to develop the sometimes-raw talent and to further train and engage employees.
They responded by creating a training center and hiring a director of training and development. In the past, most training was conducted at the stores, individually and without much coordination. Those training resources were now institutionalized and took place at the training center. (This “in-person” structure was adjusted during the Pandemic, but in somewhat remote settings the training continued.)
The director of training along with senior group managers and store GMs created a curriculum of training to include all of their nearly 1,000 employees with careful attention to the first six months on the job. This is the tenure with the highest turnover rate. If new employees got past the six-month mark, their long-range retention average improves significantly.
GAG employed many of their existing trainers, consultants, professionals and vendors to help fill out the training curriculum – all in concert with the group’s GMs and Training Director.
Case Study Results:
Germain Auto Group’s average tenure increased from 4 years to 5 years. Keep in mind that starting at 4 years already put them head and shoulders above the industry-wide 2.5 years average tenure. They had no low-hanging fruit and significant improvement would be hard-earned.
However, GAG increased the average time-in-service by 25%. Less employee turnover! When considering the cost of a valued employee leaving and being replaced, this is huge. Remember, replacing a manager costs between 50% and 75% of that manager’s annual compensation.
Additional benefits were also enjoyed.
Employees who in the past were difficult to corral into store level training sessions, now had a more formal structure. In-store sessions were often interrupted by the daily demands of customers and the department’s process. Ringing phones, knocks on the door with calls to address the current emergency were no longer an issue. (Over our 40 years of related experience, DealersEdge recognizes the challenge of getting staff to focus and give full attention to training. There seems to always be a fire that needs to be stamped out.)
Steve Germain, CEO was quoted in the AN article as saying that this effort “is making our people more committed to the industry and our company and our family than ever before.”
Not mentioned in the article… It appears to us that this training regimen would also help combat talent poachers… the associated problem of having your best employees targeted and recruited by competitors. In-house training does not expose your staff to other dealer organizations anxious to poach members of your team. Training opportunities outside the auto group do pay valuable dividends, but it also comes with the risk of close exposure to recruiters. Along the same lines, the care and concern for individual development demonstrated by GAG is a further barrier to poaching recruiters. If your team is satisfied and feels valued, they are less likely to trade that satisfaction and security for the unknown values of a new employer; one that may not be as progressive in this regard.
What can other dealership organizations learn from the Germain Academy experience?
Most dealership organizations that are seeking improvement in employee retention will quickly realize that Germain has a size advantage. It certainly is a bit easier for an auto group of this size to spend the money necessary to create a training center and to hire a senior-level executive to oversee the endeavor.
But at the same time, there are other options to consider. GAG quarterbacks this operation with an executive level training and talent development manager, but they also made use of the many industry experts and vendors already servicing their group. There are other expert industry resources that can also provide guidance similar to that provided by an in-house training
manager. The role of the training director is one that can also be sublet to other outside resources.
DealersEdge is one such resource and we would welcome the opportunity to discuss how we could custom fit an “Academy” solution for your store or stores. Using some of the same principles employed by GAG, DealersEdge can assess your resources and needs to create your own version of the “Academy.” This can be achieved whether you are a single store, or an auto group of many more and geographically separated locations.
DealersEdge contributing experts can often be called upon to play a role in a
coordinated training program.
Great Management Educational Resources are Useless if Your Team is Not Inspired to Use Them…
GAG’s efforts to improve employee retention would have failed without the strong emphasis placed on the training process. Much of the credit of the effort’s success must go to senior management and the hiring of a high-level training director.
Not all dealer groups will have the funds or people power to make that work. Keep in mind that any dealership training regimen requires either that the employees are all ambitious self-starters… or that management provides a framework where participation is both encouraged and even mandatory.
This Blog Post is an excerpt from a DealersEdge eBook – “How to Build and
Maintain a Highly Efficient Automotive Management Team.”
The eBook also contains a detailed discussion of the talents and skills you should be looking for in new members for your team… along with training suggestions and opportunities.
This 30-page eBook is FREE of
charge and can be downloaded right
now at:
Nobody does this as well and consistently as DealersEdge… and we have been doing so for 40+ years. It is a brand you can trust to deliver!
Contact: Jim Muntz at DealersEdge- 609.713.1415 or jim@dealersedge.com