People the key for Penske

THE head of the Penske Automotive Group (PAG) says that the company's success following its move into vehicle retailing in 1999 was largely due to reducing employee turnover from about 80 per cent to 21 per cent where it sits now.

In addition, the company tackled the other major issue for vehicle retailers – facility investment – by building mega-sites that have transformed the retailing sector in the areas where they are located, according to PAG president Robert H Kurnick.

In the 15 years since Roger Penske’s privately owned Penske Corporation acquired a 33 per cent stake in the stock-exchange listed company United Auto Group – now renamed Penske Automotive Group – revenues have grown from $US1.3 billion ($A1.78 billion) to almost $US20 billion ($A27b).

Penske Corporation already owned the largest Toyota outlet in the United States, Longo Toyota, when it made its move on United.

“When we first invested (in PAG), the company was underperforming. It was undervalued and it was losing money,” Mr Kurnick told the Australian Automotive Dealer Association (AADA) National Dealer Convention in Melbourne.

“Our market capitalisation was $US100 million and today it is $5.4 billion. We’ve built a lot of value,” Mr Kurnick said.

The first thing directors did was to establish a core set of values and benchmarksas a foundation on which they could build, and then they addressed the vehicle retailing industry’s running sore – employee turnover.

“Human capital is one of the most important assets in any organisation. Yet, in automotive retail, attracting the best people is one of the biggest challenges we have,” Mr Kurnick said.

“Typical turnover in our industry is about 50 per cent and, if you focus just on sales, it’ll exceed 100 per cent.

“When we started back in 1999, our employee turnover was at 80 per cent and our customer satisfaction, as a result, was very, very low, and there was an absence of any succession plan to fill key roles.”“Employee relationships was not a focus at all.”

With a huge dealer network spanning the United States, PAG introduced a team of human resources specialists – around one for every 200 employees – so the company could stay in touch with its employee base.

PAG also introduced systems to improve hiring and retention, including job suitability and background checks on prospective employees. The compensation and benefit plans were also redrawn and the causes of employee litigation were addressed.

A training system was also created so that PAG “was able to build a bench of aspiring managers”, Mr Kurnick said.

The high-potential candidates are also put through a seven-month program, which is implemented in conjunction with the National Automobile Dealers Association (NADA). The Australian Automotive Dealer Association (AADA) offers some of these NADA courses through its NADA University program.

“We then established a comprehensive employee survey so that every year we asked every single one of our employees to rate our company across a variety of different metrics and benchmarks.

“The important thing is every year we hear what we are doing right but, more importantly, we hear where we can improve and we have to respond to that,” Mr Kurnick said.

An improvement in employee retention happened pretty quickly.

“It worked for us. In 2003 turnover was 41 per cent, down from 80 per cent in 1999. Last year we were trending at 21 per cent.”

Mr Kurnick said investment in showrooms and facilities has long been a sore point between dealers and the manufacturers, but PAG directors decided that new and larger facilities would help drive the quest to improve customer loyalty and referral business.

“So we began to invest in new and larger facilities that were designed specifically for what the customers’ expectations were.”

PAG has invested $US3 billion ($4Ab) across its 327 franchise sites in the US and Europe since 1999. This includes the Scottsdale 101 Auto Collection, the largest luxury auto mall in the US, which was built in 2002.

The 101 has brands including Audi, Aston Martin, BMW, Bugatti, Ferrari, Jaguar, Maserati, Land Rover, Mini, Porsche, Rolls-Royce and Volkswagen. There are various customer amenities, including a cafe.

It covers 400,000 square feet (3.7 hectares), includes 225 service bays, sold more than 10,000 new and used vehicles in 2014 and generated revenue of $US800 million ($A1b).

Other giant malls followed, including Turnersville in Philadelphia (300,000 square feet) in 2006 and, in the United Kingdom, a 200,000 square feet Audi dealership in London and a similar outlet in Leicester.

“These are the kinds of investments you have to make,” Mr Kurnick said.

“They represent destination locations. They help to drive customer satisfaction, they increase employee retention and they facilitate repeat and referral business.

“We understand the contentious points around facility investments and you have to manage it, but it is something we have fully embraced and I think it has come a long way towards helping to build success in our business over the course of the last 15 years.”

While PAG has a very large dealership network, profit margins are still relatively narrow. In the six months to June 30, PAG revenues rose 11.8 per cent to $US9.4 billion ($A12.7b) and profit after tax was up 15.6 per cent to $US171 million ($A232m).

The profit represents a margin of 1.8 per cent on sales and a return of 19.1 per cent on shareholders’ equity of $US1.78 billion ($A2.41b).