4 Operational Pearls From Roger Penske

I had the privilege of hearing Roger Penske, head of Penske Automotive Group, share his perspective on the car business today during a Q&A session with Cox Automotive president Sandy Schwartz.

The session is part of a Cox leadership team meeting this week in Fort Lauderdale, where we’re gathered to sharpen our knowledge and understanding of the challenges and opportunities facing dealers.

Now, in the interest of full disclosure, I should note that I hold a great deal of admiration and respect for Penske and his organization.

I’ve visited thousands of dealerships across the country over the years and, simply put, you can always tell when you’re in a Penske store. The facilities are consistently pristine, and every team member contributes to an unmistakable air of process, productivity and purpose in the dealerships. Based on these experiences, I’ve never been surprised as the Penske organization continues to build on its long track record of success and reputation as a top-performing dealer group.

In the Q&A session, Penske covered a lot of ground, but there were four key take-aways that struck me as instructive and relevant for every dealer:

• The power of people. It’s clear to me that Penske and his organization put their people first. They place a high priority on recruiting, hiring and training people who fit well in their organization. They expect accountability, and they reward good performance with the additional opportunities and responsibilities good employees expect. As Penske shared his perspective, I couldn’t help but think that behind every great team, there’s a leader who views employees as assets, and champions the cause of proper human capital management.

• Facility cost friction. Penske shared how his group has invested more than $2 billion in facility renovations and upgrades in the past few years. Penske wasn’t complaining; he astutely views the investments as part of a franchise dealer’s responsibility to maintain mutually beneficial relationships with factory partners. But Penske also noted the car business’ ever-accelerating shift toward digitally driven retailing. He openly wondered whether a dealer might be equally, if not more, successful in the future with just an “internet connection and a warehouse.” Ultimately, Penske’s observation points to what I’d call a growing gap between factory expectations for physical facilities, and the front-line realities dealers face with e-minded customers.

• A customer trifecta. I liked how Penske framed today’s new/used vehicle buyers. You’ve got older customers, who buy at expected intervals and call “Charlie” when it’s time to make a vehicle purchase. There’s a second “hybrid”-like customer, who goes online and comes to the dealership armed with as much, if not more, information than sales associates. Millennials make up the third group, and their expectations require dealers to develop a meaningful and relevant presence in social media. Penske captured the key challenge and opportunity for dealers—how to serve each of these customer groups effectively, efficiently and equally well.

• A “buffer” in tougher times. Penske touched on the cyclical nature of retail sales, noting that dealers will inevitably face tougher times ahead. His plan: Continue to build on the 42 percent of dealership gross profits that come from his service and parts departments. This emphasis on fixed operations performance and profitability creates a “buffer” that helps dealers weather more turbulent times in new and used vehicle sales. Penske’s correct, of course, and his point got me thinking: I wonder how many dealers will someday wish that they’d done a better job building their own “buffer” today, when times were good?

As Penske finished the session, I felt grateful for the opportunity to learn from one of the best in our business.