Even with all the planning ahead and staff preparation, groups will find that they can’t consolidate everything the company does because there will still be localized tasks. - Pexels/Karolina...

Even with all the planning ahead and staff preparation, groups will find that they can’t consolidate everything the company does because there will still be localized tasks.

Pexels/Karolina Grabowska

Ask those auto groups that have done it if it’s a good idea to consolidate back-office functions as the business gets to a certain size, and they’ll likely say go for it. The main reason, though, may not be what you’d guess.

It makes logical sense to eliminate duplicate activities across a group as it grows, say those that made the move for efficiencies. Merging stores’ human resources, payroll and more into one location can reap benefits, depending on the group’s size and its stores’ distance from each other, they said. It’s ultimately an individual choice but one worth considering.

Don’t Follow the Money

It’s true that centralization can save money in the long run, but perhaps even more importantly, the groups say it can bring consistency and controls, and those can pay dividends across a group’s operation.

“Our owner initially brought the idea to me and said, ‘How much money can we save?” said David Griffin, CFO of Illinois-based Watermark Auto Group. “What I learned pretty quickly is that’s not the reason to do it.”

The six-store group spread across southern Illinois and Kentucky had four locations at the time, and after consolidating common functions in 2015 was glad it made the time and effort for the change.

It was able to reduce staff by about 30% through attrition and job mergers; has realized efficiencies on multiple levels; and enjoys the rewards of standardized administrative processes where it made sense, including managing licenses and titling in two states. Consistency in hiring, information technology, lease deals and dealership compliance has been just one of the upsides.

“It’s so much easier when you can say this is how we do it as supposed to, ‘How do the five of you want to handle it?’ Griffin said of headquarters-based decisions compared to individual store-level ones. “There’s a lot of hidden efficiencies. The more I talk about it, the more I realize the benefits.”

Wisconsin-based Van Horn Automotive Group had a similar experience after establishing headquarters offices at its Plymouth location the same year that Watermark took the plunge. It chose the site next to its used-car reconditioning facility to centralize its back-office staff, including group leadership, general counsel, HR, the CFO and controller’s offices, an in-house finance company, accounting, compliance, payroll and IT, in a two-story building.

The change made sense for the growing group, which now has 18 dealerships between southeast Wisconsin and a single Iowa store, said Jeff Niesen, CEO of a holding company that owns the business, and a minority owner whose grandfather started it 58 years ago. The group also has a separate business development center, consolidating that function from the stores to its own office, whose back half is a warehouse for the company’s wholesale parts distribution franchise serving its own stores.

“Originally, you probably think about economies of scale and cost and how can you save money,” Niesen said. “But the reality is once you look at it a little bit more, it is so much easier to manage a process when everybody’s in the same place. We have a process for everything.”

For instance, the centralized BDC brings seamless sanity to what can be a chaotic operation when spread across a large group like Van Horn.

“If you’ve got three to four BDC agents between 18 locations, it’s hard to manage how you’re handling all those phone calls,” Niesen said. “I can have a team of four to five BDC reps covering multiple rooftops. Three teams cover all 18 stores.”

The BDC handles all inbound service phone calls and appointments, plus makes thousands of outbound calls a month to try to pick up more business.

“That is something that if you’re a car dealer, you know all too well. Service advisers are so busy throughout the day that it’s hard for them to pick up inbound calls, forget about them making calls to get additional work.”

Consolidation’s Influence

More auto groups are starting to see the sense that a headquarters makes as they take in more stores in an industrywide consolidation spurt that’s stretched for several years. Dealerships changed hands last year at a record pace, according to Kerrigan Advisors’ Blue Sky Report, which put deals up by 6% at nearly 400.

The only reason Watermark hasn’t grown more, Griffin said, is because its owner pivoted from group expansion efforts to the mayorship of the city of Marion, Ill. after winning the post in the active municipality five years ago.

Tony Wanderon, CEO of Florida-based APCO Holdings and EasyCare, which offers F&I products, training and consulting services, says many auto groups may need about 10 stores to realize the benefits of centralization, which he said include more buying power and better factory deals. With industry consolidation, more and more groups are quickly getting to that size and much larger.

“We have dealers who five years ago had 10 dealerships. Now they have a hundred, and they’re continuing to make acquisitions,” Wanderon said. “Business is robust, and the investments are there for the dealers … Bigger is better in most cases, from a financial perspective.”

Office centralization has picked up over the past decade in California, for instance, particularly since the state is more regulated than most and thus presents a more complex set of laws for dealerships to comply with, said Brian Maas, president of the California New Car Dealers Association.

“If you can figure out how to cross-train those folks to train for all of the brands,” he said, “because processing a new-vehicle report sale is no different for a Nissan than an Acura, than a Toyota. So if you know how to do it, you don’t necessarily need to be physically located at the store.”

On the other coast in North Carolina, immediate past dealer association president and CEO Bob Glaser said more dealers are considering merging duplicate duties into headquarters, despite the state’s more rural makeup, though it’s growing steadily.

“A lot of dealers want to have a meeting every Thursday with their general managers,” said the industry veteran. “Where do you have that meeting?”

Look Before Leaping

Before deciding to streamline, though, groups should do their homework to make sure it’s the right move for them, those who’ve done so advise.

Is the timing right? What are the group’s goals in considering it? What all do you need to know to make it work for you? Do the group’s size and stores’ distances from each other make it a good candidate?

“Reach out to other people who have done it and see what you can learn about it ahead of time – you’ll save yourself a lot of headaches,” Niesen said.

Griffin in Illinois agrees. He said Watermark asked groups that had already centralized about the problems they ran into. “It isn’t something I would do without serious consideration,” he said, offering to personally share Watermark’s experience with any groups that are considering it.

Then if a group decides to make the change, it should be prepared to enact what amounts to a culture shift and to likely go several years with no cost savings.

“There should be some expectation that in the long term you’ll save money doing it,” Griffin said. “If you’re a large, large operation, you can probably carve out a lot more savings than we could.”

Groups would be wise to help staff adjust to the idea instead of shocking them overnight. Niesen points out that people in general dislike change of any kind and recommends developing a plan and selling employees on it, particularly getting input from those who’ll be most affected by consolidation. But ultimately, they’ll need to make a decision based on what’s best for the company overall and help their team understand the reasons.

“People are afraid of change, and ‘it’s always just change, man,’” he said. “The hardest thing is to paint a picture of where we want to get to and how we’re going to do it, and then of course executing it. And there’ll be plenty of hiccups along the way, and you’re just going to figure them out.”

Manage the Change

After pulling duplicate functions into a central location, it’s also important to guide staff through the transition because it’s a change “you have to be patient with,” Griffin said. “It ends up as a trust issue with your dealerships.”

Groups should ensure they have a dealer management system that can help them handle the shift, including accounting, he said. And stores should be on the same IT system for wholesale process implementation and computer bug fixes.

Still, even with all the planning ahead and staff preparation, groups will find that they can’t consolidate everything the company does because there will still be localized tasks that can’t be done digitally, something that’s even true for the largest auto groups. Administrative tasks, for the most part, can be based at the headquarters facility but not operations, Niesen said.

Griffin agrees. “We literally have a courier who drives around every day,” ferrying customer checks and the like, he says. “You still have local relationships, local banking to deposit payroll or cash intake.”

Both groups said the change comes with pitfalls and takes time to achieve efficiencies and consistency. “You end up learning as you’re doing it,” Griffin said.

Benefits Are Worth It

Both groups say that the upside is more than worth inevitable downsides. When Van Horn bought a single Honda store 60 miles from its headquarters, Niesen didn’t have to add any staff because his headquarters had everything covered. He was therefore able to cut expenses when the store’s employees who were in then-redundant roles decided to stay in their area rather than take different jobs with the group.

Van Horn’s furthest-flung store is a six-hour drive from the headquarters, but the group’s streamlined accounting processes still allow it to close financial statements much more quickly than before consolidation, down from a week to just three days. Similarly, its centralized used-car reconditioning facility processes jobs within seven days, down from 30 days before, a big money saver, since every day the group holds a car costs it $20.

“It means that you’re doing everything right all month long – you’re not trying to track down things in a car dealership that should’ve been done two weeks before,” Niesen said. “It all happens ahead of time.”

Watermark, like other groups, has introduced financial controls to meet new Federal Trade Commission guidelines, and Griffin said he thinks that would’ve been a harder task before its consolidation. “I think it would’ve been a lot more difficult to manage that in five locations.”

All in all, establishing a headquarters ended up being the right move for both groups.

“It wasn’t without its challenges,” Niesen said, “but I would never go back.”

Road Map

Beforre deciding whether to consolidate back-office operations, follow this checklist:

  • Research the idea before doing anything else, including talking to groups that have consolidated.
  • Make the change for the right reasons, which in the short term shouldn’t include cutting expenses.
  • If you decide to make the move, develop a plan before taking other action, then use it to share the vision with staff.
  • Ensure your dealer-management can handle the change and that your IT system is common to the headquarters and individual stores.
  • Prepare yourself for several years of transition, including guiding employees through the culture shift and waiting to realize both efficiencies and cost-savings.
  • Expect snags along the way, a natural result of change.

Hannah Mitchell is executive editor of Auto Dealer Today. A former daily newspaper journalist, her first car was a hand-me-down Chevrolet Nova.