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Welcome to NCM's Up to Speed Blog

There Is Good Failure and There Is Bad Failure

Written By: NCM Associates
Posted on April 16, 2015

We have all heard that we can’t fail unless we try. In every class we conduct at the NCM Institute, we begin by focusing on accountability, management, and leadership. Right after that, we take a very deep dive into your numbers, either departmentally or in the case of General Managers, the entire dealership’s profitability picture.

Some of them are year-over-year comparisons of new and used vehicle volume per vehicle retail gross profit and total departmental gross profit. We look at personnel productivity in those variable departments like unit sales and gross profit per salesperson and unit sales and gross profit per manager. The discussion of F&I is huge because, in many dealerships, the F&I gross profit per vehicle retail is larger than the front-end gross profit per vehicle retail. Of course, we look at expenses in many ways like year-over-year comparisons in personnel expense, advertising expense, floor plan expense, and other selling expenses. We look at inventory aging, especially used vehicle inventory. We look at dollar and unit day’s supply and the all-important inventory turn rate. We begin to track the price-to-sale gap (difference between the advertised internet price and the actual selling price of each used vehicle).

In the Fixed Operations, we look at year-over-year comparisons in mechanical customer pay labor gross, mechanical customer labor gross as a percentage of sales, effective labor rate, the number of customer labor hours, the number of customer repair orders, hours per repair order, parts department gross, and parts gross profit as a percentage of sales. In the Fixed Operation Personnel Productivity, we look at the number of mechanical technicians, labor gross and hours per technician, the number of service advisors, how many technicians per advisor, how much labor gross per advisor, and how much parts gross profit is generated by each one.

We remind our students that in 20 Group meetings, two of the most important metrics that the dealers look at are where the dealership and departments are in relationship to being at 30% net-to-gross and total dealership and departmental gross profit per employee.

What does this have to do with good failure and bad failure?

All we are doing in our deep dive of the numbers is identifying opportunity. And, we usually find a lot of upside opportunity in each dealership we work with. The bad failure we are referring to is not the missed opportunities that we uncover. Bad failure is ignoring those missed opportunities. In many cases, our students have never been taught or shown the best practice solution to turn the situation around. Bad failure is learning the best practice way to do a job, and then not successfully holding themselves and their team accountable to the new and better way of doing things.

For example, a general manager, GSM, or used vehicle manager comes to us and they're unprofitable in their used vehicle department, which invariably includes having a huge aging issue. We spend a lot of time examining the root causes of aging (price/valuation, reconditioning, planning). We go through the 30 Fundamentals of Used Vehicle Success to determine a plan of action. The primary takeaway will be to begin conducting the Daily Trade Walk/Stock Walk process. These help to ideally on-board each used vehicle into the system and manage the aging of each vehicle as it ages, not when it ages. Bad failure is coming back to the dealership and taking all this new information as a quaint suggestion and not doing it. Bad failure is synonymous with the definition of insanity (doing the same things over and over and expecting a better outcome). Good failure is gathering the buy-in necessary to get the team on board (this is not an easy undertaking) by explaining why we are going to do this, and what’s in it for everyone. Good failure is sticking through all the trial and error to ensure the eventual outcome. Good failure is celebrating the little wins along the way. Good failure is doing positive coaching when the slightest amount of process evaporation begins to creep in.

You get the point. Real, substantive change is hard! Good failure is creating the safe place where real change and growth can take place. Having a clearly defined and communicated daily routine where everyone understands the WHY is your starting point.

Good failing to you!

Learn more from the NCM Institute in their Used Vehicle Management courses.

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