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Tough decisions are part of the territory

Bearing the burden of making tough calls is a big part of why they pay CEOs the big bucks.

“In addition to having the courage to make a big decision, you need the fortitude to deal with unpleasant surprises,” consultant Ram Charan, an adviser to firms including Bank of America Corp. and Verizon Communications Inc., told the Harvard Business Review in a 2013 interview.

The toughest calls are those that affect their workers, RBJ 75 CEOs say.

“Among the toughest decisions I’ve had to make are those regarding our employees,” said Paul DeCarolis, CEO of DeCarolis Truck Rental Inc. “I truly believe that our employees are like a second family.”

Doing what is right for the company has sometimes meant terminating dedicated, loyal workers who, as economic factors and industry changes impinged on the business, were “just not the right fit,” he said.

To help keep the company afloat during an economic downturn several years ago, DeCarolis instituted an across-the-board pay cut.

“That was very difficult to do, but it was a better alternative than cutting positions,” he said.

And in the end, it turned out to be the right thing to do.

“I’m pleased to say that when the situation arose, we communicated it well, were able to retain our employees and after a year were able to reinstate everyone back to full pay,” DeCarolis said.

Pike Co. president and CEO Rufus Judson echoes DeCarolis. Layoffs or firings are hard to do, he said, especially when circumstances outside the affected employees’ control call for the action.

Knowing that such moves are the right call is not always easy. Judson typically does not take action without gathering as many facts as possible and typically involves several key staffers.

In 2009, President and CEO Richard Dorschel began to make changes in Dorschel Automotive Group’s business model that within a few years resulted in much of his sales staff leaving. Many were people who had been with the company for decades.

In the same year, circumstances forced him to abandon the Buick dealership he had bought from his father in 1976—a move that Dorschel says still stings but had to be made.

A self-confessed gearhead, Dorschel had sentimental ties to John Dorschel Buick, the car-sales business his father had started in the early 1950s.

As a child, teenager and young man, Dorschel learned the automobile business by working at his father’s company, a franchise the elder Dorschel had built into one of the area’s largest auto firms.

When his father agreed to sell the business to him, which by then had added a Toyota franchise, he told his son: “You’ll pay the same price as anybody else. If you don’t want it, I’ll sell to somebody else.”

Dorschel took the deal.

By 1989, when he formed the Dorschel Automotive Group, the business included Isuzu, Saab, Lexus and Oldsmobile franchises as well. It now consists of Nissan, Toyota, Volkswagen, Lexus, Infiniti, Mini, Kia and Maserati franchises.

On the verge of bankruptcy in the wake of the 2008 financial crisis and planning to discontinue its Pontiac division in 2009, General Motors Corp. offered Dorschel a Hobson’s choice: Give up his profitable and popular Toyota dealership and keep the Buick franchise or keep selling Toyotas and agree to sell the Buick franchise to a local dealer who would lose his Pontiac franchise in the discontinuation of the Pontiac line.

“There was no negotiating,” Dorschel recalled. “GM told me they were about to declare bankruptcy. They said I had to accept their price or I’d get nothing in the bankruptcy.”

GM had previously shut down Oldsmobile in 2004. The owner of Isuzu, it pulled the Japanese brand out of the U.S. market in 2008. And then it shut down the Swedish-made Saab, which GM also owned, as part of its 2009 Chapter 11 reorganization.

Faced with a rapidly changing industry, the loss of several nameplates and a recession in 2009, a year that auto dealers at the time called the worst in more than a decade, Dorschel resolved to do what it took to position his business.

After calling in consultants and studying the market, he began to implement a plan in 2010 to completely rework the Dorschel Automotive Group’s business model. 

Before then, the Dorschel dealerships operated as virtually all U.S. car dealers did: Sales representatives worked on a commission based on a percentage of the gross amount vehicles they sold went for.

And after closing a sale, reps would turn customers over to managers whose jobs amounted to arranging financing on terms more advantageous to the dealer than the buyer and selling as many expensive add-ons such as undercoating and extended warranties as possible.    

That method worked well to maximize dealerships’ profits and pad salespeople’s paychecks, Dorschel said. But it made auto buying a dreaded ordeal for customers who spent hours negotiating prices and often walked out unsure if they had made a good deal.

Dorschel’s new model calls for his dealerships to undersell regional competitors, offering customers a guaranteed low price for new vehicles. To ensure that result, he set up systems to monitor competitors’ sales as far away as Pennsylvania.

To ensure that sales personnel hewed to the new low-price regime, the Dorschel Automotive Group changed its commission structure, instituting a system in which reps are rewarded for attentiveness to customers’ wants and needs and not for negotiating the highest price.

“Most of my existing sales staff could not go along with it,” he said. “Within a few years, most of them were gone.”

The low-price model meant that his new-car revenues would fall. Dorschel expects them to be down by as much as $2 million this year.

But along with changes made to beef up his dealerships’ service departments and add features such as comfortable lounges, free coffee and free WiFi make them more customer-friendly, the new policies would drive customers to Dorschel Automotive Group franchises.

A second leg of the plan involved going head on into the used-car business, a market segment Dorschel had been cool to over some four decades as a car dealer.

Whether on the new or used end, car sales is a low-margin business, Dorschel noted. Volume is the key to surviving and flourishing. The used-car market is far bigger than the new-vehicle market.

To plunge profitably into the local used-car market, Dorschel said, he again had to abandon decades-old practices and embrace a new model: Instead of acquiring good-looking used vehicles at auctions, where “the prices are about the same as retail,” his dealerships would aim to stock cars taken in as trade-ins and carefully evaluated by specialists.

In the Dorschel Automotive Group’s revamped used-car program, vehicles are reconditioned in-house and sold with warranties that match or exceed new-car guarantees. Any trades that do not measure up go to out-of-town auctions, Dorschel said, noting that local used-car dealers demand too many concessions.

“For most people, as long as they don’t care that much about the color, a 2-year-old, certified vehicle with a warranty that’s really better than a new-car warranty is by far the best deal,” he said.

The new regime is working, Dorschel said. Still, changing virtually every aspect of a business he’d grown up in and run for 40 years “was by far the hardest decision I’d ever made.” 

As for his decision to let go of the Buick dealership he acquired from his father, “I still regret it,” Dorschel said. “I love Buicks, and this is a great Buick town. But it meant I could monetize the Buick dealership. It was the right thing to do.”

6/12/15 (c) 2015 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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