In October 2008, there was a moving article in the Philadelphia Inquirer about Scott Eckenhoff’s dealership’s valiant yet futile attempt to save his family business through individual sacrifice by the entirety of the dealership’s employees:
Eckenhoff’s business [link], a General Motors dealership that had been relatively healthy just months earlier, was suddenly a credit-squeezed enterprise holding on for dear life.
So two weeks ago, after praying with his family and pulling an all-nighter in front of his computer, Eckenhoff drew up a rescue plan. Half his employees, including a stepbrother, would have to be let go. It was awful.
The day of the layoffs, though, something unexpected happened: The mechanics who had not been fired marched into Eckenhoff’s office. “What can we do to help?” asked the men in grimy work gear.
With that, the lines that had long separated manager from minions, khaki-clad salesmen from grease-smeared mechanics, vanished. The survivors – the salesmen, associates and receptionists spared the ax – had become a single crew trying to save their ship.
At the time, I instinctively knew he was only delaying the inevitable.
Eckenhoff did the textbook moves to stop the bleeding and slashed expenses. He eliminated advertising, reduced payroll and headcount, increased discounts, attempted to sell off assets, and built up a cash-reserve to last a handful of months, hoping for a change of fortune.
It wasn’t enough.
Economic Darwinism would demand that the weak die so that the stronger would survive. A scant two months later, the day of reckoning would come:
GMAC, the beleaguered financing arm of General Motors Corp., had called the loan that had enabled Scott Eckenhoff to stock new and used vehicles. Big trailers carted away the collateral from a Big Three retailer that had been hanging on by a thread.
GMAC also cleared out Eckenhoff’s used-car lot in Maple Shade, which held another batch financed by a GMAC “floor-plan” credit line.
It was a dramatic turn for a dealer whose struggle, while perhaps extreme, is but the beginning, some say, of a broader reckoning that will shutter more Big Three – GM, Ford and Chrysler – showrooms in the months to come. About two dozen have been shut down in the region over the last 12 to 24 months, according to one industry watcher.
“When it happens next door to you, it’s just a vivid reminder that you can’t relax in this economy for one minute,” said Bob Sklar, sales manager at Hopkins Ford, where business has remained relatively strong.
The recession that has battered global auto sales and put U.S. automakers in acute financial distress has also squeezed lenders to such a degree that dealers who rely on their credit lines to fill their lots – men like Eckenhoff – have little room for error.
The grim scene, which played out two weeks ago, while evoking sympathy, also conveyed an urgent message to those hoping to protect their business as the auto industry continues to contract.
Each of the individual actions are exactly the prescribed actions any professional manager would take in a downturn. Cut expenses and weather the storm. The system effects, however, sent a message to both the provider of his inventory financing (called floorplan) and to the customer (no advertising presence creates the image of a sickly store with nothing to offer). The lack of credit and floor traffic, sales, and cash flow were a lethal combination.
General Motors (and certainly Ford and Chrysler) know their dealer networks typically result in competition and reduced profits between same-nameplates. Thinning the herd must be done, although at great personal and collective loss. This is likely to be the first of many.
Tags: Advertising, Bob Sklar, Buick, business plan, Cadillac, chrysler, dealer networks, dealership, dodge, expenses, floorplan, ford, General Motors, GMAC, Hummer, jeep, Lincoln, Mercury, Philadelphia Inquirer, Scott Eckenhoff