least times swith ss and Other snwill timate i Teast ty sale yrowth sblems rritory s pool ividual Puente His Toyots fawn 2 Organization chart [José Montero smancaing Deo ee a re | PE Par [cay Frcewmee | [cries] [ace | es Paaeatel[ tract] i TT tay Gest Puente Hills Toyota 1 Hiakes, vice president think the Key to management in his ster all aviees, reflected on about managing atitude, ow eo wwe keep the team tnoving in the same direction, to get everybody to be part of the team, and prevent the eancers from December 2003, Howa Gf ieicock Automotive Slcel the challenges his fear faced in manag tepany's stable of automobile dealerships. Hi Hearted his points by discussing the challenges fala Puente Hills Toyota, Hitchcock's largest fltenkip, although all of the Hitchcock dealer- ships faced essentially the same problems Hitcheock Automotive Servi privately hkl corporation comprised of seven automobile dealerships -three Toyota dealerships and one each <, Hyundai, and BMW and a ‘THE COMPANY AND INDUSTRY miss very much a people business H's people who rae our bigest noceses 28 wel 5 OF Di Eee store in sles I would say for Volkswagen, For ou Toon oe altethe company large boy shop. AI of the entities wor toca at eri ther 80% ave southem California. Four ofthe dealerships inc arn ago ineysanmakemote ing Puente Hills Toyota were sawed Ast tov ft a ange Oe ea tl City of Industry, California, about Sh 82 Je Bsa of estas mies cat of Las Anges Te ote Tocated roe at ek ne personal problems. They ve ‘Anaheim, Hermosa Beach, and Northridge He a et guptec tater etal. UI important for the dealerships to keep tan Ras ca spre. We, OE a ‘manufacturers and Metomers — happy. The manufacturers allocated for Finger numbers of their bestselling models 10 their better performing dealers. The manufacturers ‘haat and relly want t0 do ach and counsel; we give written notice srtof the employees, once they get the message Mine end ofthe problems. But for some others “pu cae vas prepared by Professors Kenna A Merchant and Win, Nan de ‘Stede of the University of Southern sity of Groningen (he Netherlands). Cafomia and Pieter Jansen of the Univ opi 5 Keanah A, Merchant, Wi A Van dr tes and ter an. 81(Chaptor2- Resuits Controls evaluated their deaters in terms of their abilities to fulfil their market potential: to meet sales targets the ‘manufacturers set for each geographical trading area, known as the primary market area. The dealerships also had to satisfy the manufacturers” licensing and certification standards. The manufacturers regularly performed compliance audits to e ship practices in comparison with the established standards. However, Howard Hakes believed that short of flagrant violations of standards (e.g. selling competing brands under the sa ft market pote the dealers” relationships with the m Customer satisfaction was obviously important in obtaining repeat sales and, hence, future profits. Customer satisfaction surveys were given to every customer who bought or leased a vehicle or had one serviced at a dealership. A copy ofthe survey given io all Toyota customers who purchased or | vehicle is shown in Exhibit 1.! The respon nailed directly to the m: facturer and aggregated into a customer satisfaction index (CSI) to which considerable attention was paid both by the manufacturer and dealership m Manufacturers sometimes changed dealership vehicle allocations when CSI ratings fell below acceptable levels in three consecutive years. le dealer- wed a to these PUENTE HILLS TOYOTA Puente Hills Toyota (PHT) was a large Toyota dealership. Annual sales were about $85 million, including approximately $10 million from the body shop, which provided services to all of the Hitchcock dealerships in City of Industry. PHT had a total of 145 employees, and annual profits totaled about $1.8 million. PHT had won many awards for excellent performance. For example, the dealership had been awarded Toyota’s President’s Award for overall excellence in each of the prior 13 years In 2003, PHT moved into a new, state-of-the-art, $13 million facility with 119,000 square feet of space ‘The new building provided the latest in customer amenities, including a children’s play area, a movie Toyota also required the wse of a service survey, which asked servie customers a comparable st of questions focused un sii faction with (1) making the service appointment, (2) wating up the service order. 3) work quality (4 Work timelines. (5) price snd (6 the faites, 2 theatre, efficient work layout areas, and room fi. growth PHT’s organization structure was fairly typied in the industry. Reporting to the dealership geneal manager were a whose ore ization included both new and used vehicle sales: service manager, body shop manager, pars manag’, and a director of finance and insurance (F&I) (ee Exhibit 2). The one unique feature of the organiza tion was the combined new and used vebicle iki ¢ department. Only about one in five auto dealerships typically the smaller ones, had such a combine vehicle sales department. More typically, the mar agers of the new and used vehicle sales departments reported directly to the dealership general menage. er liked the flexibility of havi s personnel sell whatever vehicle custom wanted, new or used, and Some customers wanted Took at both new and used vehicles. Each of PHT’s departments was managed as apo- fit center. Many indirect or overhead expenses, sud as dealership administrative salaries and deers advertising expenditures, were assigned or alloca to the departments, Only some infrastructure-elal expenditures (e.g. rent and equivalent) and some other expenditures over whieh the department me agers had little or no control (e.g. insurance, tae, legal and auditing) were not allocated tothe Exhibit 3 shows one page of the financial stteme report that PHT was required to submit monty Toyota Sales Corporation. The other pages in tis report called for an extensive array of informata including the profitability of the other depactmens | balance sheet data, unit sales by model, person | ‘counts by department and category, and a varity | ~ performance ratios (e.g. total bonuses as a perce: | age of sales, gross profit average per unit of ext | model sold. The profitability of PHT's departments vais | widely. As in most dealerships, new vehicle sles | PHT were only marginally profitable. Used vehics provided a beiter profit Source, as Howard Hie explained: neral sales mans “This is one ofthe last barter businesses le, Forse sv vehieles, however thre only an $800 dfs | between the ssindow sticker prie and dealer co» there is aot much margin and not mich room gaining, In used vehicles, we havea litle moe ‘porn. Wecan sometimes tke a trade in SOG Put $1,500 worth of workin it, and sel for S60 The serv most pro in the rar Appendir As rei separate 3 if they all PHT: vehicles. profits re1 are exce 10% ton allocatior Howard | what arbit of advert or “infon were sole explained with the 7 the other, All in markei pt Vehicles \ Separimes ‘This poli negotiatir, retail prio jobs wou! Valuat ented di: ant prima commissi they close dealershiy ‘ motivated {secure the ‘dealership times not could hap, to happen 2 Theindass age overie indir we of sales (e Yehiele dep teed vie fndustry an fused vet| room for ‘ly typical ip general oxe organ- sle sales, a s manager, combined the man partments ‘manager. having istomers wanted to asa pro- ses, such, ealership allocated re-related ind some statement onthly to +s in this mation, iments, essonnel ariety of percent- of each s varied > sales at vehicles d Hakes For some lifference eost, $0 1 for bar= ore profit $2,000, $6,000, service department was consistently PHT's oa profitable department, with margins typically inthe range of 15-20%. (See comparison statistics ffon an industry consulting report shown in Appenilix A.) As required by Toyota, PHT managers kept ie records for new and used vehicle sales, wif they were separate departments, even though all PHT salespeople could sell both new and used vehicles, The separation of new and used vehicle profits required some allocations of expenses. With rare exceptions, all items of expense were split 10% to new vehicles and 30% to used vehicles, an alocetion formula that was typical in the industry Howard Hakes knew that this formula w ‘what arbitrary. For example, he knew that some forms of advertising, such as half-hour television shows “infomercials” on Spanish television stations, were solely aimed at selling used vehicles. But, he explained, “I'M bet we aren’t off by more than 5% with the 70-30 split. Maybe it’s 65~35, one way or the other, but we won't be further off than that.”? All interdepartmental transfers were done at kel prices. Thus, for example, when PHT’s used awhicles were serviced in the PHT shop, the sales ‘jartment paid full retail price for parts and labor. Tis policy gave the used vehicle manager some regotiating power in the service area. Paying full real price ensured that internal used vehicle service jobs would not be given lower priority Valuations of used vehicle trade-ins sometimes cofated disagreements. These valuations were import- ant primarily because the sales personnel eared commissions based on the profits of the “deals” they closed. Such disagreements were common in dkalerships because new car salesmen were often ‘motivated to overpay the customer for trade-ins to secure the new car sale. And at PHT, and indeed all ‘kilerships, needed repairs on trade-ins were some- times not spotted at the time of the sales deal. This could happen anytime, but at PHT it was most likely tohappen on Sundays when the service department Theindstry conslting report shosted that for FY 2002, the aver age overhead expenses (equivalent line 7 ia Exhibit 3) nthe indy were $26 millon for new vehicle departments 17.22% ‘ses (equivalent to Tine | hn Exhibit 3) of 94.48% of new Setvl department profit eguivaten line 33 in Exhibit 3). Foe ted seicle depariments, average overhead expenses in the indy mourned to $14 milion, oe 812% of sales or 83.78 fuse vehicle deparunent pro Puente Hils Toyota was closed and no service advisor could be called in for a second opinion on estimated trade-in repair costs. As Howard explained: On Mondays, we often have animated discussions between sales and service about the repairs that the service department claims are required on trade-ins. le! If the costs of n had anti- cipated on Sunday, it eas into their deal profit, Ith don't agree with the service repair cost estimate, they sell the trade-in “as-is” on the wholesale lucky when the But we stick to the market price ce free market, Sometimes they even repair problem isn’t spotted there either. That's why p y some used vehicles come to be called PERFORMANCE MEASURES AND INCENTIVES ‘Compensation of line personnel at PHT was hi particularly given the employees” generally relatively modest education levels. Even young salespeople, those still in their early 20s, could earn $6,000- 7,000 per month if they hustled and followed up effectively with customers. Top sales personnel ‘could earn $20,000 per month, or even more. Some service technicians earned over $10,000 per month, Performance-based incentives were a significant part of the compensation of all line personnel A. Incentives in the sales department All personnel in the sales department were paid aa relatively modest base salary plus incentive pay. The salesmen and assistant sales managers earned commissions on the deals they closed. ‘The average commission rate was 20% and 7% of deal gross profit for salesmen and assistant sales managers, respectively. The general sales manager, used vehicle sales manager, and sales desk managers” bonuses were based on a proportion of departmental profit after overhead expenses but before taxes (line 59 in Exhibit 3). The general sales manager and desk sales managers were paid 2.25% and 1.2-1.5% of this mount for the total sales department, respectively ‘The used vehicle sales manager was paid 5% of this amount for the used vehicle department only. The bonuses, which were typically 250—300% of the sales employees’ base salaries, provided a significant proportion of total compensation. The salaries were paid semi-monthily, and commissions ‘and bonuses were paid monthly. 6Chapter 2- Resuts Controls Howard Hakes explained that one side-benefit of having a combined new and used vehicle sales Gepariment was that combined the department was seneraly profitable, whereas new vehicle sales depat- ments alone often were not.” Howard wondered hhow managers provided “proft-based” incentives in sales departments that were losing money. AL of the sales managers’ bonus plan contracts also included the following wording: Adjustments, “Any cancelled sales or subsequent Changes to the account as a result of a returned pro ‘duct will be calculated into the commissionable gross profit and will be used to calculate your commissions feared for each month, Adjustments may also be made to correct errors, of for rewrites to the deal; unwinds, null and voided deals; customer receivables not col fected (including, but not limited to down payments, drive-off fees, insurance covers ‘or penalties on trade-in), oF policy adjustments. Other Factors. aisfaction Indo Index (ESD? scone may be taken ‘Other factors such as the Customer (CSI) and Employee Satisfaction o account in deter- How these nonfinancial performance indices were taken into account for bonus determination was left ‘agile. They could be used in a positive sense, to provide “discretionary” bonus awards, or they could be used to limit the formula bonuses. However, no fone at PHT could remember any situations where they had made a substantive difference inthe bonuses awarded, perhaps because at PHT the indices had never fallen below acceptable levels. For comparison purposes, Appendix B provides excerpts from a consulting report showing vehicle dealership department manager compensation dala. In this appendix, Schedule 1 shows data about the amounts and forms of monetary compensation given to department managers. Schedule 2 shows the measures used in allocating formula bonuses, The comlting report showed hat bout one in three new vehicle tiles departments incurred [os (See note 2) in Appais A. {CSI was explained eater nthe case. The sles customer survey form is shown in Exhibit ‘TST was calculate fom ihe reulls of survey designed by sulting fm giver sally tall PHT employees, Each mmplyce was asked ment om a sale from T strongly sages) t© 5 (trogly agree), with 26 state ents, sh sl fel my work is ved bythe dealership" and ‘Overall the managers ave honest and ft i their teatment of employes. 64 Schedule 3 shows the incidence and size of dis- cretionary (nonformula) bonuses. B. Ince es in the service department The service technicians were paid from $10-23 per jag hour” of work completed. The actual hourly rate depended on each individual’s technical specialty and their certifications (e.g. master technician). Flag hours were standards set by the manufacturer for the accomplishment of specific tasks. The standards were set so that an average qualified technician could achieve them, However, it took technicians a PHT, who were generally very experienced, about 45 minutes on average to do one flag hour of work For some technicians the disparity between fag and actual hours was much higher. Jesus Barragan, PHT's service manager, said “Our top guy, who is a ‘natural,’ beats the flag time by 600%.” T parity also varied by area. The service advisors earned a base salary of approximately $2,000 per month. They also bonuses as follows: ©. 8% commission on customer-paid labor andl pars ‘© 6% commission on manufacturer-paid labor under ‘warranty © 6%6 commission on labor and parts paid for inten ally at PHT. The PHT service manager was paid a base salary of $3,000 per month plus a bonus based on a per centage of the service department gross profit (ber overhead expenses). The percentage was 3.75% if the gross profit figure was $195,000 or below it any given month; the percentage rose to 4% if gms ded $195,000. The $195,000 was the |geted amount divided by 12. profit ex total annual bu C. Gameplaying temptations in the service are: Because they were paid by the job, service technic hhad temptations 10 cut corners. For instance, a typical Electronic Engine Control (EEC) the technician might be required to diagnose tk problem, replace the defective electronic mod, hook up'a test recorder, and test-drive the vehis The flag rate for this job might be 48 minutes. [7 technician who wanted to cut comers might skip test drive. Knowing that a supervisor would chat23 per rly rate ). Flag rer for ndards nician ians at about work. n fla who is we dis- uy of vamed parts; under salary 1 per- refore 5% if gross, s the area +, for 2 the dule, ticle. A pthe heck the vehicle's mileage-in and mileage-out, he would have to put the vehicle up on a hoist and run it for 3s, three minutes 10 increase the odometer But by cutting comers, he might be able to complete the entre job in less than 15 minutes. PHT managers had two types of controls over these gaming behaviors. First, if the time spent ona job was very low, service managers asked the teonician for an explanation of the anomaly. Second, ‘management monitored the number of “re-checks, instances where the problem was “not fixed right the first time.” In the industry, a one percent re-check rate was considered good, The re-check rate usually could not go to zero because some of the re-checks ‘were not the technician's fault. The cause might be simply that a needed part was unavailable. Technicians who cut comers were “written up,” that is, given notice, and their ticket was deducted. Bad habits can be Corrected; bad mechanies can't,” Jesus Barragan observed. Howard Hakes had some confidence that this gam- ing problem was under control because the servi tea at PHT was averaging only about four re-checks per month for approximately 700 completed service jobs. If service technicians were cutting comers in a significant way, he estimated that the recheck rate ‘woul be significantly higher. “The service technicians at PHT were very loyal to the company, because “we treat them as people not mechanics,” Jesus said. “We also train and pay them well.” Tumover was virtually zero? But the rechanies had to buy their own tools. Jesus Barrag noted that “one of our guys has bought well ov $535,000 worth of tools during his 36-year career ‘ith us, but then, le makes $130,000 per year 100." Management issues Howard Hakes knew that his PHT management team had not solved all their problems. He lamented isis in stark contrast with wimawer inthe sales depen which ‘Mowand deveibed aso about 6 po year, as opposed to only about S¥ in service). Puente Hills Toyota bout the fact that, in general, sales personnel we not effective at following up with customers. Follow-up means thatthe sales staf keeps in touch ‘with potential customers with whom there has been an initial contact. Follow-up includes outreaches (e.g. phone calls, thank you cards) to customers who visited the sales department but have not yet decided to purchase a vehicle, as well as sales approach to customers who are driving an older vehicle that hhas recently been serviced at PHT. PHT had estab- lished regular processes for both types of follow-up. For example, service explain to customers which servi to occur on their older vehicle in the coming years and to invite the client. vist the sales department However, these activities consumed time, and the avisors regularly ignored them. Could follow-up and visors were encouraged 10 costs were likely service incentives be provided to encouray referral behaviors’ Howard also worried that the CSI measure, which could provide useful information, sometimes had questionable validity. Howard had heard that some dealerships regularly “gamed” the measures because they had become so important. ‘The CSI ratings were important inputs for the influential rat ings of automobile reliability published by the firm J.D, Power & Associates and, as mentioned above, the manufacturers used those ratings to allocate their vehicles. As a consequence, in the quest for “perfect rafings, customers were regularly “couched” on how to complete the questionnaire at the time they pur- chased a new vehicle. And, sometimes, de asked customers to drive to the dealership when they received the questionnaire from the manufacturer. When they arrived, the customer would give the questionnaire to a dealership employee and receive 4 present, such as a full tank of gas. The employee would complete the questionnaire and send it to the manufacturer. Howard was not sure whether some of hhis “shark” salesmen also engaged in such practices, and if they did, what he should do about it, Despite these issues, Howard was confident that PHT was one of the best managed dealerships in the country(Chapter 2-fesults Controls Exwoir 1 Puente Hills Toyota: customer satisfaction survey Exuerr , ss eee] Of swore ype 5 TOYOTA Purchase/Lease Survey |-rosegemaranawsrneuneee: Ege | | 4 Fra see | [Brmearemvooromsivar 2008 SENNA VINE TEBCOADSEESQOO oe Bt Ayton Toya on March 18,2002 Veoh sayremnzit? €Yx rn) Che tienes nt ue etn oer OME | ne Geyenomnan i OS Gee guia Boone amar nemeepepoeed 020327101594 _| Product presentation Tet 6 0) Product presen gpERSON on ach oftetatowng: Excelent Good Average Eat oor Aepeas oN Prompt ntl greotng ooo ay Courtesyltiendiness, o 9 o 86o06l[6O | . Ineo 8 o 8 3g 8 6 6 8 @ 3 Corsica of you imo 5 ¢ 8 6 4 | ‘bait answer your uostons 8 6 5 G 8 9 Tostaive. 5 8 G&G 8 4 | eewiegge of modelsestres ‘Gomiments on queston 4: [_ —_] Deslerst —— — ——'| 7 Mer Negotiation | purse 2 bung you pcpaymant NEGOTIATION exparione, Pow One would yu rat the along? Excelent Good Average Ove ‘Smolo and salghtorard DOO Honesty a oa a | Your como wi th process 8 8 6 | ‘Conseoration fr yout ime 8 oo 6 8 hay Kowtedgo o! purchase finance opens oo 0 an Comments on cuseion2: [_ — —— ave reigned —_—— ees Fina paperwork sg PERSON WHO COMPLETED YOUR FINAL PAPERWORK (arcnglasng, eon | Tking baste PERSON om wouyou ran the foloning? Exclunt Good Average far Foor | Concern or your needs err rs | Couresyendiness os 8 8 5 8 | Facities neg 9 6 6 6 8 9° Please Krowiege of produtsicorvees etter So 6 6 5 Q Clear Explanation of dumentspaperwork ¢ 5 5 o 58 = Easel fy to answer you questions 5 @ ao a 32 Coneidraton fr your tne o 2 68 6 8 | overs fecuraely completed your paperwork ao 5 5 8 28 10 How w Foiled nopotated cormtments po o ao 0 } OE — es oo | | ‘comments on question &: | OO RETU Receiving your vehicle ree Fe yor ea up your raw Toyota (VEHICLE DELIVERY), Pow would you at Senn the faloning? ‘Excolent Good Aversge Eat Poor Provided al accesories 26 promised at Please Explanation of eatrescortols 5 8 8 68 a8 aaa ‘Eeplanaion of mabstananes sched and waranty ao. 3 05 8 0 "2 What ‘ty to answer your questions 5 o 8 a 3 Consdoration or your ime ao 8 8 5 0 = ete Expressed appreciation fr your business Ss 8 co 68 8 mate ‘Comments on question 4: [__ _ _ _ | be ano ue Ven" meryncs Peanmincereas east rmamusa 973292 orn, - = = = Byes — | ane (Continued on next paseEmer continued Puente Hils Toyota 5 whan you picked up your new Toyota (VEHICLE DELIVERY), the foiowng O23 Gtered a scheduled timo for doivery if ys, kept io scheduled time ecetod ul tank of gas or gas voucher ‘orice dlvored clean Voie ta series aroaipersonnel (i depariment was ope), «-pidyou nave any cones with your veie WHEN YOU PICKED UP om the geslash#7 1 No (Skip to Question 7) (Donpiseratehident_———— ce | Has the dealership resolved the concern? Dealership communications ate reatease expeReNee? a a, gto Gunston a) _| Wye, how woud yourae Coe eer 7p | folonup contact? ass: [_ Good Averane a 0 No (Seo fo Quvstion 9) =zshome shaal —< BYes—— 2) | tyes, how would you rate he felowing? ‘torts of daslership persone to resote the concern . (Outcome a the contact pats oan: [_— Facies 8 Pleage rae the folowine Be CGleantness of dealorshipfacities 0 caer tanvenionce of parking ai te deslershi. a overat Ove 4g you rat your OVERALL PURCHASEA-EASE EXPERIENCE sis dese? How wougyourmcygeed — CAverage Far C1 Peor 41 Would you Yes Heri to his deslershin to purchaseviease another Toyota? oO ae ere rend fate a apace to puchastease & TOVSe? SERVICE your nav Toyota a this dealership? a rast expan wry of hy 9 [ 12 Vina aspects ol your purchaselloase experiance did you LIKE MOST? ‘wnat aspect of your puehasaease experience COULD HAVE BEEN IMPROVED? our writen comments? Pa ne een ro when sharing my comments wh he cose oe a havo any oration on ths survey wih the delete Yes o _ —________ 1 Yes." F yes, lean check he aarp box ad deseo oer ‘lank (Shook al that app) ‘a Noietatve: abe me Whoo aigeeentstenig: —— Mationtion:—_——___—— = EiMssing itm: a | oNotclean Bote ees corre jeao, ha deri phar, al orev ou odtemine You SOC with your Not = lo pooleatla a 0 o a o oa mm | Boor | a is ss nlany ponding or arte puchase/lase process you ako dealeenp 1 =oh8 OF concomns? «ough we do ot idnty you wi your india heck bor eeu 10 the dears MY Wo associate your name with 973293Chapt 2 - Results Controls Exwait 2 Puente Hills Toyota: organization structure Exwerr3 Pu ‘General manager aa TT i l baron Cone sales | senice aay shop Pars Lied | manager wvanager manager wvanager |= | I Cc Used veticle | [ “Desk sales ‘Shop Body stop | [Pans ral | rranagor managers foreman techneans | | omployaos vwrors unit | 3) i 3 a ‘| -2{ etary ‘ - - 9] Financing, I I 10 | Financing, ~Paconaoning | psisan Service 11 | Aeverising imaragen(t) sales advisors and "2 hie froury) | managers | | ‘echicians fiero ese || 5) 13) TOTAL SE bani ~ 14/DEPARTM Sales 15| Poly Aas porsonnel 1s (50) inventory M [8] Personne Outside Sen [28 | Miscetanex 27 | Salarios & We 59] DEPT. PROF 88Puente Kil Toyota {nn3 Puente Hills Toyota: sample page of financial reporting package Total income and expenses NAME OF ACCOUNT TOTAL SALES _ TOTAL GROSS PROFIT —L mhuwe DEPARTHENTAL SELLING EXPENSES ‘rector Sales Compensation _ sles Compensation ~ Scion only = 1 spanion Compensaten ‘ra [sien conpersaton Seon any = o [eloawery Expenses _ _ Feancing, insurance & Service Center Commissions Franc, sarge 8 Servee Gener Conmsins~ Seon oj ive - Depart rest Floor Plan TOTAL SELLING EXPENSES (noo 41> Tne) | iloePaaeraL OPERATING EXPENSES | Pate agusments alas Adineris Demos & Company Vehiclos = Deparimental L eventry Maintenance I Personnel Training | ose Sewees-Deparraral 21| Freight - al spies & Sal Too Blan & Unions = [Eaipnen & Veh %5| Equipment Maintenance, Repair & Rent 11 Deparimental %| Miscellaneous Expen: __ |z]Saues Waves cere’ Salaries "al vacation a Tie OffPay [y[TOTAL OPERATING EXPENSES (Lins 1510 29nd) t [TOTAL SELLING & OPER. EXPS. (Unes 13430) Departmental [n|oeer. PROFIT 4OSS) {Lino 2LessLineSt) Ct (Continued on nest page) 69Puente Hills Toyota ‘Avpewoux A Puente Hills Toyata: excerpts from Consulting Report showing automobile dealership and department data (FY 2002)' ‘ata obtsine rom 256 dacerships. Tho eum oh eles and polis of ho sence and te new and usod vehicle deparments do not add ‘tothe dealers tolls because sales and prtes associ with body an pars are not ined 302% of renew vehice cepartmants, 27.8% ofthe used vente departman', 169% af the sonea deparments, and 5.1% oto GAR DEPT| bine mi] yo 1st Quartile —_ Median ‘rd Quartile Average St Dev, Bags {Taw veeous pera eee mam. meaner, asus +4 ence oor ee ES | BeaimonSae . 2S a | 2, USED VEHICLE DEPARTMENT Seay re ee ee leg = ml ae ee ee ae oi \ Se SS ue 4: suavon DuPont \ - Saco 00) i saa ommk samen = fe 00 oS SSS | nie oe ket oa ome bes 4. TOTAL DEALERSHIP . Save 0) a | wee Se on = 2. ee. aS 2S le ae ena aay ane | sslrsins inca alse . nChapter 2. Resuits Controls ‘Areenon B Puente Hills Toyota: excerpts from Consulting Report showing department manager compensation data (FY 2002) Schedule 1: Department Manager Compensation: Total and Breakdown into Components ~ Base Salary, Formula Bonuses, and Discraionary Bonuses (ovoral averagos) Base salary Formula bonus Discretionary bonus NEW VEHICLE DEPARTMENT MANAGERS (Average foal compensation = $78,428) Average (8) 944,829 $5,108 Percent rocaiving 4.480% 23.50% 30.77% 4.26% Avorage % of ofa! compensation USED VEHICLE DEPARTMENT MANAGERS (Average foal compensation = $72,195) ‘Average (3) $31,672 $40,976 $4,088 nit receiving 85.04% 06.14% 27.55% ‘Average % of total compensation a712% 98.32% 503% ‘SERVICE DEPARTMENT MANAGERS (Average total compensation = $61,422} Average (8) $33,278 $30,575 $2,302 ving 90.00% 68.00%, 20.00% ‘Average % ol tlal compensation 56.00% 34.26% 3.59% ALL DEPARTMENT MANAGERS COMBINED (Average total compensation = $70,189) Average (8) $02,379 $37,983 93,739 Porcent receiving 184,909 627% 23.14% Average % of tolal compensation 49.00% 17% 417% “Tera. Coursneanon canis of any oral oh oloming components: Base Swany, Fonw Benics (asia o the), O etntons: ‘+ Formula Bonuses are baead on quanta pefomanea mestutes (9. ceperment pre). Soma conrats hava yp ote formula ‘enuses,athough the majnty a the managers (60% reve one formula bons any. Across oo tho ft fonmula bonus ee ‘35% oft tot formula bonus. lo, he fet formula bonus ison average mere than soven times lger than ie eocon Bo 1's subjective utgmants of he managers’ pectormancos. 12 Sovss sce miscelancousrowares (ot rqprtee above), which are cite lo eharacton20 in a lands way. Common example ae te ‘seo! promotional vahiclas and cra ncotves provide by tho vila manufactur (a, vacaton tp). Athough rece cl sp’ ‘commen about 63% of tho managorsraclv thom), tol scarce signteance sey low (abou $4,589 for thoso we reoohe ‘Ss, compared al $15,000 to $2,000 lo those whe rece a dseronary bon) se baced onthe 24 \ n ‘Avecnonx B Schedule 2: Now vehicia de, Used vehicle de Service depann All dopartmant +4 Arrexox B continued formula contacts) Puente Hills Toyota Schedule 2: Dealership Performance Measure Used in Department Manager Formula Bonuses (as a percentage o ll Formula bons #1 a) a Gross prof 18 17 00 Dealersiie Net profit 270 108-200 Gross profit 648900 7 Net prot 5817 ‘New vehicle satos lcci, OU ee Unit sales \00 ga 8 Gross prot ‘ss 4614.8 cake Net profit 220 5286 Used vehicle sales ae Sf ae Unit sales 05 7528 Gross prot 450° 46 29 Net profit a6 698 New + used Invent oo 00,57 Unit sales 03 88) 28 Gross profit a7 1400 Pans Not prot 19 2800 Revenue 02 0000 Gross peoit 94 40°00 Senice Net pratt ee 6957 Revenue 08 0000 Gross peo 26° 57s Body, paris & service Net prot os 10328 % Gross profit are % Net profit 4 BG 448 S14 Schedule 3: Average Di total compensation) Now vehilo dopartment managers Used vehicle department managers Senice department managers ‘I dopariment managers retionary Bonus for Managers Who Recelve a Discretionary Bonus (dollars and percentage of ‘Average discretionary bonus Pet. receiving oltars $21,958 515,719 si1g0t $16,654 % tot comp, 18.1% 183% 77% 18.0% B |