Three Principles for Managing Competing Stakeholder Pressures

It’s a challenging time for the automotive industry. Dealers everywhere are facing unprecedented pressures from lenders, investors, customers, and employees — many of whom have competing interests. Recent bankruptcies among major players like First Brands Group and Tricolor have raised the stakes, demonstrating how questionable decision-making can have severe downstream consequences.

After more than 40 years in the industry, most of which were spent in the Buy Here, Pay Here (BHPH) space, I’ve learned that it’s the response to pressure, not the pressure itself, that determines survival. In an era of compressed margins and heightened scrutiny, automotive dealers must resist the temptation of resorting to short-term fixes. They should instead embrace disciplined decision-making that aligns stakeholders and creates lasting value for everyone.

The BHPH Difference: Why the Stakes are Higher

We’re all facing the same economic conditions. There’s less inventory available, and what’s left is much more expensive. Interest rates are relatively high, increasing borrowing costs for buyers and sellers alike. And any remaining margins have been gobbled up by rising costs on everything from printer paper to replacement transmissions.

But for BHPH dealerships, the stakes are even higher. Unlike retail dealerships, which sell a vehicle and then immediately transfer the risk to an external lender, BHPH dealerships hold the paper. Consequently, we must manage costs across the entire lifecycle of a transaction: from purchase to lending to maintenance and, if necessary, to collection, until the loan terms are satisfied.

These conditions create additional challenges as we strive to remain competitive and profitable while meeting performance expectations from our lenders and investors. Our line of credit is subject to financial covenants that require us to maintain specific metrics related to delinquency rates, charge-offs, and portfolio health. If we slip on these metrics, our access to capital can be restricted or withdrawn entirely, regardless of what caused the problem.

Not so long ago, there was a forgiveness factor at play. Dealerships had a little bit of time to problem-solve and adjust to new challenges. Today, there’s less room than ever for delays or second chances.

Three Principles for Disciplined Decision-Making

For business leaders, navigating these pressures without compromising a dealership's long-term health can be challenging. Over the years, I’ve developed a few principles that guide my choices when external pressure is at its highest.

1. Don’t Park Problems Where They Can Live Unseen

One of the easiest traps to fall into during challenging times is making short-sighted decisions that offer momentary relief. Years ago, I was part of a dealer group that gathered regularly to share our experiences and best practices with the goal of improving together. One of the group members had a very successful team that would come to each meeting boasting huge sales numbers that everyone else envied.

As it turned out, this dealer had a simmering problem in their collections department. Whenever they experienced an insurance covered accident loss, they would apply the associated insurance payout to cover future payments, rather than writing off the contract as they should have. Eventually, those losses that had been kicked down the road came home to roost, and the dealer went out of business.

This story always reminds me that it’s better to address pain points directly rather than hide them away to deal with later. Fixing that dealer’s collections process would have been a painful undertaking at the time, and might have compromised their superstar image, but it probably would have saved their business.

2. Stay Connected with the Pulse of Your Business

Dealers who are deeply involved in their day-to-day operations will be better positioned to recognize when conditions are changing and respond appropriately. That involvement becomes critical when it’s time to understand which challenges are temporary disruptions and which represent fundamental shifts. I remember when COVID first hit, everyone in the industry knew it would be disruptive, but few understood how.

Originally, we thought that widespread shutdowns would make it harder for the average person to purchase an automobile. That didn’t happen at scale. Instead, the pandemic caused supply chain disruptions, inflation, and reduced inventory levels that dramatically increased the cost of buying and selling cars more than half a decade later.

The sands are always shifting beneath our feet in this industry. Dealers who are connected to the pulse of their business will be able to recognize which factors are transient, such as COVID shutdowns, and which are more significant, such as limited automobile inventory. This wisdom will help them make intelligent decisions about adjusting their footprint, inventory selection, underwriting terms, or any other factors within their control to enable them to meet the market while remaining profitable.

3. Expect Accountability From Everyone, Including Yourself

Of course, none of us does this work alone. We all have teams of employees and vendors who help us serve our customers. During challenging times, dealers must build relationships they can count on and be willing to move on from those who don’t deliver on their promises.

We often source engines and transmissions from third parties because new options aren’t always available or they don’t fit our customers’ budgets. We’ve stopped doing business with certain suppliers because they weren’t honoring their warranties, even though their prices were competitive. If a vendor doesn’t do what they say they’ll do, we have to move on, because failing our customers simply isn’t an option.

The same principle applies to our employees. We want them to be accountable for their performance, and we create structures to reinforce those expectations. But accountability is a two-way street. We hold ourselves to a standard for our employees that includes offering competitive compensation, providing technology that helps them work more efficiently, and creating the right incentives to motivate them to continue improving.

Creating Value for All Stakeholders

Making good decisions rooted in principles like facing problems honestly, staying aware of what matters, and demanding mutual accountability creates alignment around a larger mission. For Oak Motors, that means providing great service in a responsible manner to a group of customers who may have been mistreated in the past. When that alignment exists:

• Customers receive affordable, dependable transportation and fair treatment.
• Employees receive the compensation they need to thrive and a sense of purpose in their work.
• The business sees growth and sustainability.
• Vendors and investors see positive performance metrics and healthy returns.

Ultimately, what’s good for one group of stakeholders should benefit everyone else. When that alignment begins to waver, it’s time to start making tough decisions.

Rowing Together in Rough Waters

The automotive industry has always been cyclical, but today’s environment is less forgiving than ever before. Businesses must now perform at a much more efficient and effective level than they did even five years ago.

Too often, it seems like a “you against me” attitude is the only way to win. But I believe true success comes from building organizations where everyone is rowing together. If everyone plays their part and does what they’re supposed to do, everybody gets the value they’re looking for.

The dealers that thrive will be those that refuse to compromise their principles, create alignment among their stakeholders, and adapt intelligently to changing circumstances.