Prior to becoming a dealer, Mike Reichenbach was a factory guy working at Ford Motor Co. After deciding automotive retail was the place to be and going to work for Tim Stewart Ford, Ford called on him three different times to act as interim general manager for dealerships that were in ownership transition.
He became the owner of a Ford Lincoln Mercury store in Florence, SC, in September 2008, just when the market began to collapse. But a strong faith, a background in accounting and his experience at Ford, have all contributed to his success.
How long have you had the dealership?
Just over two years, since September of 2008.
That had to take some guts, because you were right at the beginning of when everything started to go south.
It was more of a leap of faith. You pray about things and do all of the due diligence and at the end of the day the rubber hits the road. You come in and take on that payroll, or that mortgage and computer contract. It looks great on paper, but when you get in there and start looking at hundreds of thousands of dollars of expenses, that is when reality kicks in. It was a strong leap of faith because it wasn’t, to say the least, the optimal time to enter the car business.
What is your background? You’re a fairly young guy.
I have a bachelor’s degree in accounting, and worked in the accounting and corporate finance world for several years in the corporate arena. I then obtained my MBA from the University of Michigan and worked for Ford Motor Company corporate for several years.
Were you in Detroit at the time?
I was. I went to school in Ann Arbor and then on to Dearborn, MI, to work at Ford’s headquarters. I spent most of my time in a department called automotive strategy. Ford had the eight different brands at the time. We helped determine which products went with which brands and in which country.
What convinced you to jump into the retail side?
My wife and I had two young children and decided we were not willing to move every two years for corporate America. And at that time when you told corporate you no longer wanted to relocate, you pretty much derailed your upward mobility.
So, the only way we could do well and stay in the automotive industry — because I like the industry — was to own a business. We left Ford on a Friday, and we started working for a dealer, as a dealer candidate the following Monday and were immediately enrolled in the NADA Dealer Academy.
Who did you start working for?
Tim Stewart Ford, a dealer in Atlanta. I had known him from my time in Ford’s Atlanta field office.
You were able to get a franchise sounds like pretty easily?
With my accounting and finance background I understood the business side and income statement of a dealership. A lot of good car guys know how to sell cars, but they don’t know how to manage the business. It’s important to manage by the numbers. I found that not only could I sell cars, I could also manage the financial statement. As margins grew narrower and narrower over the last several years, the expense and financial structure became much more important. I was fortunate because the right people in Ford realized that being able to manage a business successfully was more important than being able to say I had been in the retail arena for 20 years.
Did you buy the store or did they give you an open point?
I bought an existing store.
When I was working for Tim Stewart Ford, Ford Motor Co would call and ask if he would lend me out to other stores as an interim general manager. I did that for three different stores.
A Ford Lincoln Mercury store became available in Greenville, TX, on the outskirts of Dallas. We moved there for a year and a half. But then the dealer in Florence, SC that I knew, decided to transition out. We loved the Carolinas with the ocean and the beaches and the mountains up in North Carolina. It is a wonderful quality of life for us and our children. So we left Greenville, Texas and bought this store in September 2008.
When you signed for this dealership in 2008, did you at that time have any idea how bad it was going to get?
Absolutely not. But we still would have done it, because my wife and I made it to this point in our life with much prayer and a tremendous work ethic. After 14 years of marriage to a woman who is an outstanding wife, partner and help-mate, it takes more than a recession to derail us. I’m far from perfect, but winners win and losers lose. Sometimes it is just harder to find the way to win, but it’s there.
We had to combine our work ethic with our knowledge of the financials and business. Even in a recession there are still folks buying vehicles. This is a consumer driven economy where people, even if they perhaps shouldn’t, will still buy vehicles, because it is an expression of their hard work. They want to reward themselves with a nice vehicle.
The people who are saying the sky is falling need to remember that even a nine million unit industry is still nine million units. For every unit the other guy won’t sell because of his pessimism that is one more we can pick it up. We just have to be smart about how we do it. I would still have bought the store, but I probably would have more gray hair than I do right now if I knew we were entering a recession! Ignorance can be bliss at times!
You’re timing is right when it all started to fall apart.
It really was and we didn’t see that coming at all. We prayed very hard before we left corporate America and believed we were led to make this move. So regardless of external circumstances, we vowed to outwork the competition.
How big is the dealership?
We’re pacing $29 million in sales this year compared to $22 million in 2009.
What is the story with Mercury right now, are you going to feel the effects of that at all? Or are you pretty well off?
We are sad to see Mercury go because those customers are very loyal. They especially like their rear-wheel drive V-8 Grand Marquis. Our challenge and opportunity now is to give them a better option within our current lineup. For many of them it is going to be a transition into front-wheel 6-cylinder Lincoln or Ford product, and we are excited because the new Taurus is a great automobile.
When we put a Grand Marquis owner into a new Taurus, they’ll find today’s Taurus is far from the old Taurus. It is a game changer.
Being on the manufacturing side, was there anything that surprised you after you became a dealer?
I would say one of the biggest surprises was the uncertainty in the inventory planning process. When the manufacturer says, “It’s time to do wholesale for the next two or three months,” — that sounds easy on paper, but there is no crystal ball that tells you whether demand for a particular product line is going to go up or go down in the next three months.
The uncertainty of deciding how much product to order is challenging. I understand the challenge for the factory because they can’t just flip a switch and easily produce another 10,000 of this model line or 20,000 more of this model line. But a market like 2009 showed large variances in what people wanted and in incentives, which made us scramble for the right product at the right time.
You’re a Ford guy. Alan Mulally is doing a good job, but now being on the dealer side you are seeing a different picture, do you have any sympathy for the complaints that dealers may have made or are making?
I am now much more sympathetic to the retail side because we live in 30-day increments. On the factory side, especially in an area like automotive strategy, we were working with increments of months and often years.
On the retail side we have to be concerned about what we can sell today and tomorrow, literally. Customers are in a “want it now mentality”, not six months from now. With customers having so many choices and manufacturers touting such strong incentives, it can be a real challenge to slow customers down. Like many stores, we need more new inventory right now, but the pipeline only delivers so fast. As a former factory guy, I understand the logistical challenges. However, as a dealer I’ve had to learn the hard way that customers often want their vehicle now.
Financing is still an issue for dealers.
We work very hard to create true relationships with our lending partners. Any dealer can have a transactional relationship where we send an application through the computer, the lender then reviews the application and either approves or declines the application. We work to develop a strong relationship where we pick up the phone and rework the deal over and over until we find a way that works for the lender, the customer and us.
It is probably a lot harder to make that case now, isn’t it?
It is, and that is where that relationship comes into play. Our team won’t ask a lender to do something that we don’t believe in. If the lender knows that if you call them you are going to make a coherent and feasible business case, they’ll take the time to really take another look at the deal. When that happens we are already ahead of the curve because we (us and the lender) are then looking for ways to get an approval.
What separates us from a lot of stores is the willingness to pick up that phone and go the extra mile. We understand what the computer says, but we try to find a way to make a deal happen. I’m so proud of my Sales and Finance team because they ask questions like, “What about a different vehicle” or “What about with a little more money down” or “What about with a co-buyer”. It’s our job to find a way to get the customer an approval. My team works very hard to do that.
Is fixed operations a big part of your business?
Some dealers call fixed operations the back-end of the business, but we truly refer to fixed ops as the backbone because we’ll see at least three times as many customers in our fixed operations as we do in variable operations. With anywhere from 1,200 to 1,500 customers a month between our various service departments (main shop, diesel center, quick lane), fixed operations is vital to our success.
Now, more than ever before, we work to inform our customers of the reasons for coming back to us. Our advisors, technicians, dispatchers, porters, managers etc all understand that without repeat customers, our livelihoods cease to exist. We have to be better than the competition, especially the independents that advertise the cheapest price, which is often not the best value.
There are so many CRM and marketing type tools out there today, how do you as a dealer determine which direction you want to go in?
Digital marketing opportunities are one of the most untapped potentials in our store. The digital arena affects not just sales; it affects service, parts, collision and every other aspect of our business. Knowledge is power and that is the stage we are at right now…trying to acquire the knowledge necessary to make well-informed decisions.
There are so many choices in the digital aren’t that it becomes almost like white noise. One of the ways I try to maximize our decision making and our dollar spend is by keeping my entire executive leadership team well-informed, like sending them to the Digital Dealer Conference. For a store of my size, the several thousands of dollars it is costing me to send myself, my general sales manager, my parts and service director, my controller and my marketing director, to the Digital Dealer Conference is an indication of my commitment level. I look at the cost as an investment versus an expense. I want to make sure my entire executive team is on the same page and that they understand that the digital arena is not merely a department — it is a business philosophy. It is the way we do business moving forward.
Have you moved your advertising completely online, or do you still advertise in print and radio/TV?
A majority of our budget goes to television because in our market my wife and I and our kids brand the store. We are accountable, our name is on the building, and customers want to see us.
Television is our biggest spend at 50% of our budget, but 40% of our budget goes to the Internet. We do a very limited amount of advertising in the newspaper, usually one ad per week. In our market there is a percentage of the population that reads the newspaper every day so we want to have a presence there.
Where are you spending your money on the Internet?
We spend our money on Autotrader.com, Kelley Blue Book, DealerTrack, Eleads and FusionZone Automotive, which is our website company.
What is your biggest challenge as a dealer?
My biggest challenge is in planning: how much inventory to buy, how much advertising to spend, and how much staffing to have going into the next six months, because I have never seen the industry, whether on the factory or the retail side, shift so quickly.
In particular staffing is a challenge for me because you’re talking about people’s lives. I am a husband and a father before I am a car dealer, so I don’t minimize the impact of telling someone that their position is no longer necessary. Trying to manage the business case with the personal side is my biggest challenge.
That is an interesting perspective. I don’t think I have heard that before.
If I wanted to be a cold-blooded person, I can manage by the numbers all day long. But I also have to sit across the table from a grown man or woman and tell them, “Good luck out there.” I know that they have to go home and they have to tell their husband or wife or kids that, “Guess what, mommy or daddy lost their job today because Mr. Reichenbach had to manage by the numbers.” That is something I have to live with as a husband and a father.
I lose more sleep over that aspect than any other element of the business. The finances I can manage with a spreadsheet, but I don’t believe people’s lives are something you should whimsically decide based on a piece of paper. I have my biggest challenges when I know what is right from the business side and then balancing it with what is right from the personal side. But with 86 employees and their families depending on the success of this company, I can’t allow my feelings for one or two or three employees to adversely affect the livelihoods of everyone else.
Some dealers say they have a formula, but again they don’t approach it with that mindset about people. They are making it purely about numbers.
I know how to manage by the numbers, but it is easy to do that alone in my office when looking at a spreadsheet. It is much harder to do that with a person sitting across the desk from me when I know that that person has worked hard and done their job but the business is just not there to support their role. My mother and father raised me to have compassion for other people. I make the tough decisions, but I find it hard to find compassion while laying off a person because the market has slowed.
What’s the used vehicle market like right now?
It is very challenging to have enough of the right priced used vehicles right now. As many dealers are in the same position on pre-owned, the days of “stealing” cars at the auction are far and few between. Worse yet, the guide books unfortunately lag behind the market, so the advances from banks can be insufficient at times.
That problem is so much more pronounced now that when it was.
It absolutely is. It helps to be a Ford Lincoln Mercury dealer with great new vehicles because new vehicle sales bring in better trades. We work hard to not undervalue a trade. If somebody comes in with a $10,000 ACV, does it really make sense to upset or even lose a customer by offering them only $8,000 for it? Worst yet, if it’s a unit we need we’ll then go to the auction and buy one just like it for $11,500 plus fees! If it is worth $10,000, let’s give them $10,000. It is not smart business to continuously try “stealing trades” when we need cars right now and consumers have plenty of Internet based knowledge on what their vehicles are worth.
What else are you doing to source used vehicles?
In addition to trading for vehicles and buying at the auction, we do a robust campaign to outright buy cars from consumers. They don’t need to trade it; I’ll pay fair market value for it. I get a car that I need and they walk away with money in hand. Not long ago a recently widowed lady brought in her departed husband’s vehicle. She no longer needed two vehicles, so we were able to give her even more than she wanted for the car and we ended up with a great unit to retail. Situations like that are a true win-win.
Are you making any predictions internally for the market in the next year or so?
I would use the phrase, “cautiously optimistic.” Business is getting better, but I am also aware that there can be a slow down right around the corner that nobody sees coming. Instead of ballooning the business and expecting it to be rosy, I try to grow at a pace that is paralleling what the market is doing. But I try to do it in a way that I can cut back quickly if necessary.
More smart dealers are operating like that. If the market does come back you are positioned to make a lot more money because your expense structure is in place.
We are excited for the boom, but we also need to be prepared for the possible bust. Managing cash in a year like 2008 and 2009 gives one pause before jumping head-first into a growth mode.
So You Want to Own a Dealership? Understand the Numbers, Says Mike Reichenbach
What advice would you give someone who wants to get into owning a dealership?
The first advice I would give them is to understand the financial principles of the business. There are a lot of good sales managers who come to me and want to be dealers. They know how to sell cars but they have no idea how to make payroll, pay bills and manage a profitable bottom line.
Dealerships are no longer printing presses for cash. A dealership this size can lose tens of thousands of dollars in a month quite easily. I would tell someone interested in ownership to invest in the NADA Dealer Academy and perhaps even invest in a couple night accounting classes at a local junior college. They certainly don’t need to become accountants. But they should understand at least enough so they can have a good conversation with their controller to know where they are financially. This business is about cash flow more so than profitability. All that matters is cash flow. You can sell yourself broke in this business quickly if you are not careful.
It is true. You can sell yourself out of business today.
You sure can. And, it is pretty simple math that a lot of good sales managers and general managers don’t think through. If we sell 10 units and 7 of the deals have trades, we will show profit but our cash is reduced. We don’t pay bills or make payroll with inventory, only cash. Moreover, if we don’t pay very close attention to contracts in transit, our cash gets further reduced. I’ve yet to find an employee or supplier that preferred an “IOU” to cash come payday or when we send out payables.
We know a lot of dealers who got caught with contracts in transit and are now out of business.
It happens too often. Many self-proclaimed great “guy-cars” tell me that if I hire them they will sell so many cars a month. While car sales are vital, I’m more interested in the person who can sell all those cars while growing our cash and protecting our resources like advertising spend, commissions, used car water, etc.