Auto dealerships are quintessential American family small businesses. They often employ dozens to hundreds of employees, require millions of dollars of capital, experience ups and downs of the economy, and have witnessed severe competition over the last dozen years, not just from competitive brands, but from competing same brand dealerships. I witnessed the technological progress of the internet disrupt business models that worked for decades. I witnessed rapid growth of megadealerships, and I saw them fail.
In all of my experiences, the most interesting lesson one can learn from car dealerships is the laws of human nature in action and on display. Of particular interest is the differences in generational leadership and the amazing lessons in life discovered through understanding these differences.
As with any observation, there are limitations to extrapolation of the lessons to the larger group. But we shall begin.
To understand the plight of the auto dealerships, you have to understand that most, if not all of the auto dealerships are third or fourth generation owners, or, they are owned by people who went to business school to learn how to run a business based on financial statements, not on getting to know customers.
At the beginning of the auto industry, car dealerships were owned by real entrepreneurs. My working definition of an entrepreneur is a business owner who interacts directly with their customers on a daily basis. First generation owners were friends with their customers, and they worked hard to provide value to their customer, to get to know them, and to create a lifelong relationship with them. The most common characteristic of a first generation owner is they were people persons. They got along with their mechanics as well as their clients. All were considered family. They often worked incredibly long hours and their success came from hard work, perseverance and conservative investment strategies.
The children of first generation auto dealers had much different experiences. They were the owners son (occasionally daughter), but rarely did they work as hard as their father. Often, they were children of some privilege, not showy wealth, but wealth none the less. They most likely attended college, where they were removed from the auto business, but where they learned to manage a larger business. In essence, they were managers of the business, not entrepreneurs. They were members of the country club and these were their friends. They became more isolated from their workers, and although they still were pleasant to their employees, they were by no means friends to the mechanics. This dynamic changed the way the business was run. Numbers and bottoms line become more important than people and relationships. Although there would be nice Christmas parties, loyalty became less and less important.
The children of second generation owners lost all of the entrepreneurial instinct of their grandparents. These children were much more social than their parents, but not in a business way. They were really good at waterskiing and were more at home at the lake cabin, than understanding the increasing complexity of how a car actually worked. The privileges of life were the most important part of this persons existence. Unfortunately, the success of the business was dependent entirely on the managers that were hired, and often did not come from the owner. A quality private school education enabled them to understand how to leverage relationships with bankers in order to grow and to acquire additional dealerships, but contact with customers was not a priority and was often not possible in the leisure lifestyle of a large scale owner. All too often, the third generation led the dealership into the ground.
Why? The lesson is that for a business to be successful, you have to have the trust of everyone you come into contact. It was more likely third generation owners were more interested in selling death and disability insurance on an auto loan, than in selling the car itself. This was the way you could "earn" more money. These people talked themselves into believing these products were for the benefit of the customer. In reality, they were only in the best interest of the car dealership. In the end, one must treat people with respect, and do what is in their best interest, even when they don't know what that is. This is what makes a successful business.
The parable of the automobile industry applies to the problems facing America today. The traits that built America, hard work, perseverance, thrift, honesty and integrity, have been forgotten. Today, people look to take advantage of people first, make billions of dollars, and then donate some of their blood money to charities to help the very people they took advantage of. People look for short term gain, instead of planning for the long term. Today we punish people with the traits needed for success and reward people who don't possess them.
The structural problem with America is that too many industries are run by "third generation" leaders. People who have learned to manage a business at Wharton or Harvard, but don't know or wouldn't get along with their own customers. They vacation in places where they will not be bothered instead of at places that keeps them in touch with reality. When there are so many layers between them and the people that are buying their products, the system will ultimately fail.
And it has.
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