Automotive News - March 9, 2009 - (Page 35) MARCH 9, 2009 • 35 THE DEALER SPEAKS Penske Auto cuts costs, stays ‘opportunistic’ P enske Automotive Group Inc., the nation’s secondlargest dealership group, cut $100 million last year from its budget of $1.32 billion in selling, general and administrative expenses, about half of those savings in personnel. The company is not looking to buy dealerships this year. Rob Kurnick, Penske’s president, plays a critical role in the company’s tough decisions. Kurnick, 47, told Staff Reporter Donna Harris he expects the dealership group to emerge from the recession as a stronger, more efficient retail network. You don’t have a typical background in auto retailing. I was at a law firm in Detroit for 8½ years before I started working for Roger Penske. I was representing GM as an outside lawyer. That’s how I was introduced to the business. I became president of Penske Auto Group last year and of Penske Corp. in 2003. I was vice chairman of Penske Auto Group prior to that. How does your legal experience make you a better car dealer? Given the size and international flavor of the company, it is much more complex than running one or two dealerships, or a bunch of them, in a specific geographic area. You have to understand regulation, Wall Street, capital markets, international issues and mergers and acquisitions. I think my legal background is well suited to these issues. JOE WILSSENS What kind of mentor is Roger Penske? There’s not a better entrepreneur than Roger. He has a dynamic, charismatic personality. He knows how to build relationships. He is the consummate salesman, always selling his ideas to us, to customers. He wants to get buy-in from everybody. If you disagree with him, he listens. But he has such a wealth of business experience, he’s almost always right. He is very hands-on. If you learn anything from Roger, you learn you can’t manage a business from 30,000 to 40,000 feet. You have to have a good understanding of the details. Where do you draw the line between being hands-on and micromanaging your dealerships? We empower the general managers to be entrepreneurial. We think that entrepreneurial spirit makes each dealership successful. We have corporate initiatives we encourage our dealers to follow that are significant from a cost-savings perspective, but they have the dayto-day responsibilities for running their businesses. Our pay plans are tied to individual dealership performance. That works well for the general managers and for the company. How is Penske Automotive weathering the economic storm? I don’t think anyone envisioned what would happen in the fourth quarter — the fall was so drastic. The biggest issue today is uncertainty. It’s very difficult to plan. We plan conser- What is your brand mix? Ninety-five percent of our worldwide revenues and 93 percent of revenues in the United States are import and luxury brands. ROB KURNICK vatively, assuming that there won’t be a drastic turnaround. Penske Automotive has been known for its aggressive acquisition strategy. What are your plans this year? As a general rule, we are not making acquisitions this year. But we will be opportunistic. We are preserving liquidity so we are in a good cash position. Capital expense projects and acquisitions may have to sit by the wayside. In the U.S., we haven’t seen a dramatic decline in the price of dealerships. We have seen some opportunities in the U.K. market, where prices have created significant opportunities. Some automakers have pushed their dealership image programs. Do they understand your need to cut capital spending? Manufacturers fully understand the environment. They have been very cooperative in terms of what we can and can’t do. We have invested $1.8 billion in facilities since 1999 and clearly are benefiting from the nicer facilities and added service capacity. That was the right strategic move for us. Is it still the right move when a lot of the sales process takes place online? The customer still likes to come in and feel the car. What the Internet has done is that the buyer comes in much better informed about pricing. Smart is a wonderful success in its own right, but we learned so much about how you can use the Internet and electronic media to promote a product. We are using those ideas in the retail business. Such as? Most of our business is done through e-mail, not only vehicle purchases but service and parts. It is a big benefit in terms of overall cost reduction. How else are you cutting costs? Last May, we started to monitor our inventory on a weekly basis. We have access electronically to our overall inventory, dealership by dealership. Our regional vice presidents and top executives access a weekly inventory report. We are able to react quicker. We’ve cut capital expenditures and advertising, and focused on centralized purchasing to help reduce overall expenses. We leverage our size to purchase items on a national basis. What effect has your 10 percent personnel cut last year had? Those were very tough decisions involving long-term employees. We looked, dealer by dealer, to make sure we were not cutting into the muscle. We reviewed it on a corporate level with individual operators. Regional executive vice presidents came to us with a proposal. We challenged the dealerships to look at their hours and see if they have low foot traffic on some nights. If traffic is low on Wednesday night they might close early. You have to do that locally. Phoenix is so hot during the day, you need evening hours. How are your dealerships doing with fixed operations? Service and parts are relatively stable. We don’t have a corporatewide program. The dealerships have their own initiatives that fit the marketplace. Dealers are having trouble maintaining adequate inventory financing. Do you have stable sources of floorplan credit? Since 1999, we have aligned ourselves with manufacturers’ captives as financing sources. They provide our working capital facility. Are you having trouble getting retail customers financed? Seventy-five percent of our vehicle sales are financed, and 75 percent of that retail finance business is through the captives. If there is an issue with a manufacturer’s captive, we can go to a group of preferred banks. It is more difficult for our customers to get financing. But the number-one problem is not financing — it’s customer confidence. You’ve said Penske Automotive likes to be opportunistic. Do you see opportunity in the current economy? We’ve put great controls in place. Senior management approves all new hires now. It forces you to take a good look at every expense and question whether we have to do it. We are also focused on electronic advertising because it is so much more cost-effective. We are trying to capture correct e-mail addresses. We’ve improved dramatically over the last 18 months. We are looking at worst-case scenarios to make sure we have the right initiatives in place. When we emerge from the recession, we are going to be a healthier, leaner company. c
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