Case study Business policy

The Midwest suburb dealer was once a top Daimler-Chrysler dealer for three years in a row ending 2007. During this time, the dealer was the envy of the entire Midwest car market because of its spectacular sales performance along practically all categories of vehicles. For so many years, the dealership was an apple of Chrysler’s eyes. At the end of the year 2008 however, the dealership dropped to the lowest rung in all 87 Midwest dealers.

From a sterling performance of $1.2 billion group revenues in 2006, the dealership revenues slid to just $120 million during 2008 or just a mere 10 per cent of its peak performance. What happened to an erstwhile enviable dealer becoming a corporate issue of great proportions? The financials are obvious but what non-financial factors were responsible for the steep decline in revenues?

The critical incidents: Pre 2005-2007

The Midwest Chrysler dealer commenced business in May 1995 as a used car dealer starting off with a $2 million investment from the partnership of John Clarkson, an accountant by profession; and Stephen Howell, both in their early thirties.

The partners agreed that John Clarkson will become the general manager for three years with the other partner Stephen Howell, a former used car salesman, becoming the general manager for three years as well starting 2003 to 2005 after which John assumes back the position from 2006 to 2009.

The dealership did very well selling used cars up to 1999 when the partners found an opportunity to become an exclusive Chrysler dealer. From the $2 million investment, above industry returns jacked up total resources to $20 million by December 2001 and revenues of $50 million.  A sales force of 20 topnotch salesmen from competing dealers were recruited and formed into a cluster sales force of two and assigned in nearby counties and further beyond the state.

Sales commissions were increased to 5 percent above industry to sustain the drive of the twenty account executives.  By the end of 2002, total revenues hit $86 million with total assets of $36 million. Upbeat sales were triggered by aggressive selling of both new and old line of cars, supported by aggressive financing from every financial services outfit available in the area.

Motivated by the sales trend, the company further increased its sales force by another ten and covered nearby states of Missouri, Iowa, Indiana, Kentucky and Wisconsin, all considered bright areas for almost every Chrysler variant.

Thanks to the aggressive sales force that dominated the dealership from 2002 to 2005.

By the end of 2005, total corporate resources reached $140 million with revenues hitting $600 million. At this point however, several financing firms were starting to distance themselves from the Midwest dealer for one significant reason: the account executives have been referring subprime buyers, demanding and collecting bigger commissions, proposing too aggressive financing terms than before and threatening to form their own financial services group to siphon the good accounts and refer subprime accounts to the local financiers. The sales force was discovered to have favored certain financiers.

The general manager at this point was Stephen Howell whose term started 2002 and ended 2005. It was he who conducted an aggressive hiring of account executives that generated the unprecedented revenues. Hiring of new employees was likewise intensified that bloated the dealer workforce by more than 30 non-productive employees without real assignments. Many of these workers were referred by the account executives.

Howell accommodated these referrals without referring to the budget control systems adopted by the company, one of the several internal control systems put in place by Clarkson before he stepped down in 2002.