By Ryan Kerrigan, Managing Director, Kerrigan Advisors
Leadership training for the next generation of auto retail leaders
There is general consensus that the auto retail industry is in for material change in the years ahead. Many auto retailers may not be adequately preparing their leadership pipeline for those changes on the horizon. For the organizations and families who seek to continue operating in auto retail, it’s time to start evaluating your leadership training and the skills your leaders will require to succeed.
Historically, auto retail’s critical mass has enabled the industry’s extensive training programs and networking groups which are unique to our industry. In fact, I suspect few industries can match auto retail’s training and peer sharing. By way of example, for decades NADA has operated large educational programs aimed at all levels of the dealership organization, commonly known as NADA Academy.
On the peer sharing side, 20 groups actively compare metrics and share best practices amongst dealers – a construct rarely seen in other industries, and yet a staple in automotive retail. Many auto retailers are also proud of the fact that their leaders and prospective leaders started “sweeping the shop floor” and have worked every role inside their dealership as they rose through the ranks – understanding the business from the bottom up. And, some auto retail families insist that the next generation work for other auto retailers before coming back to the family business to gain the skills necessary to some day run their dealer group.
These training approaches share one thing in common: they are all intra-industry, and they focus on deep learning about the current business model, rather than focusing on the future business model. This training is no doubt valuable for playing functional roles within the company, e.g. service managers and parts managers. However, in an era of consolidation, tighter margins, technology disruption and higher financial stakes, these historical training grounds will not prepare most of tomorrow’s auto retail leaders.
Critical New Skills Supported by a Strong Foundation of Old Skills
There is no doubt that auto retail leaders will still have to excel in the core ways that have always been important to our trade, particularly the soft skills. Our leaders are generally exceptional at motivating are well trained in sales processes and instill competitive, metrics-oriented cultures. As the consumer-facing component of the automotive industry remains, those core competencies will continue to be critical to success.
However, our evolving industry will also add new leadership and management skills that will be key to future success. Of those new skills, I believe the following three will prove to be the most important.
- Instilling organizational culture
- Technology road-mapping
- Developing financial acumen
Tomorrow’s leaders will have to combine the industry know-how of their predecessors with critical skills in business strategy and financial analysis. Many of these skills will be obtained from outside the industry through a four-year college degree, post-graduate programs such as an MBA, and/or professional management experiences perhaps with a Fortune 500 corporation or a rising start-up.
Instilling Organizational Culture
Auto retail organizations are getting big-ger. Slow, steady consolidation is creating increasingly larger organizations, even at
the local level. We are shifting from the world of running individual dealerships, often employing 50-100 to operating and growing companies of 500, 1,000 and 1,500 employees, which will dramatically increase operational complexity.
At these larger sizes, successful auto retailers will need to consciously forge an organizational culture in addition to an effective sales culture. This organizational culture will transcend the sales culture, and appeal to the many specialist and internal support roles required of a large, growing company in a changing industry. This organizational culture should also speak to the next generation of employees who are often seeking different types of compensation, work/life balance, autonomy in the workplace and social impact.
Effective auto retailers need to be highly competitive in the war for talent to com-pete successfully against tech companies, professional services companies and other retailers to attract and retain the necessary level of talent to adapt and thrive. This work falls on the leaders of the organization to design and implement organizational cultures and management structures that create these competitive and attractive organizations. This is a much higher bar than what the traditional auto dealership human resources roles have sought to achieve and will likely be a requirement for future auto retail success.
Technology Road-Mapping
After a decade or two of discussion about change, we now stand at the precipice of information technology fundamentally disrupting virtually every other sector of retail, and automotive retail will sooner rather than later, follow these trends.
Leaders of auto retail organizations are making some big bets as to how all of this plays out and how to position their organizations for survival in the decades ahead. In other industries, this is described as road-mapping. That is to say, actively planning for the future. Technology com-panies are particularly aggressive in this regard, as they know that the lifespan of their products is measured in months, or at most a year or two, so they are continually planning, and updating their plans. They are actively thinking about where they need to be one year, two years, three years and even five years out. This is a critical component for survival in fast-moving sectors and entails making continual commitments and investments into where one believes their industry is headed. Successful bets will position your organization for the next leg; unsuccessful bets will put your company at a distinct disadvantage to your peers. And the process is ongoing.
Auto retailers will need to start thinking more actively about their technology strate-gy, and tie together their internal road map for how they want to position their organization for the next few years. Technology road-mapping will drive the conversation and will impact capital spending, training, staffing and a series of key management decisions. This is a level of internal planning that we do not generally observe in our industry today and will be a hallmark for how many auto executives position their organizations in the years to come.
Over the next 10-15 years, auto retail leaders will need to make a series of calculated risk decisions about how aggressively they plan to invest in various technology platforms, which ones to choose, how to re-train staff and pare costs from the existing real estate-intensive business model. Being too far ahead can be just as costly as being behind.
Developing Financial Acumen
In an era of consolidation, successful auto retailers will grow via acquisition. The average acquisition in the U.S. is now nearly $19 million, including real estate and working capital. Large, metro stores can easily range from $30 to $50 million. Managing and financing organizations on this scale goes well beyond traditional dealership accounting and financial statement reporting. The skill set required here shifts to true corporate finance.
As an industry, we are transitioning from the era of the family balance sheet, which has long been the primary financing engine, to an era of corporate balance sheets. That is not to say that families will not continue to play a very big role in industry consolidation, but the historical intermingling of family and business balance sheets will diminish. Professional capital will increasingly be the standard by which growth opportunities are assessed and transactions are funded. Industry leaders will require far more financial training and sophistication given the size of these businesses, and the requirements placed on them by investors and lenders. These are not skills that most can learn within today’s dealerships.
Tomorrow’s auto retail leadership will likely want to master the three skills outlined above. The training ground for many of tomorrow’s dealers will be business school, law school, private equity and corporations, not simply working through every role in the dealership.
There is always value in gaining exposure to an industry early in life. “Table talk” refers to growing up and possibly working in an industry when young. As evidenced by prominent auto retail leaders today, there is real accumulated value being raised in the industry. But, that type of training will not suffice for auto retail leaders of tomorrow. Though “sweeping the shop” will continue to remain an important aspect of our industry, there will be a greater emergence of industry leaders who have supplemented their leadership skills with experiences out-side the shop. Both training grounds will be key for auto retail’s future leaders.
About the Author
Ryan Kerrigan is managing director of Kerrigan Advisors, the leading buy/sell advisor to auto dealers in the US. Ryan oversees capital raising and private equity/family office investor relations, in addition to transaction and consulting work. He started his career at McKinsey & Company as a management consultant, advising Fortune 500 companies on growth strategies, organizational issues, and business valuation. Ryan also has extensive experience in auto retail, having been a general manager of his family’s dealership.
