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Randy O’Connor is the Owner of Dealer to Dealer (D2D) Development Group, which offers financial and operational consulting for the independent tire and auto service market in North America. The company’s primary offering is a business growth strategy rooted in peer-to-peer networks, specifically the 20 Group format. Randy’s strength lies in strategic analysis and process improvement. Drawing from varied roles across diverse industries, he’s distinguished himself as an adept operator, crafting long-term solutions for sustained positive outcomes.
In this episode…
Tire and auto repair shops seem to face increasing difficulty in setting up their employee pay structure. As a result, it becomes challenging to explain why an entry-level employee is being paid a certain amount when they can drive for Amazon at a higher rate. Does this problem have an easy solution?
According to Randy O’Connor, from Dealer to Dealer Development Group, the situation has been complicated. If you can’t explain a pay plan in a matter of five to 10 seconds, Randy says, it’s not the right pay plan. People have to understand what and how they’re getting paid. Commissions should be administered appropriately for general service workers and tire technicians, he suggests, offering accountability for quick work and professional inspections — not for selling oil filters and alignments, commissions that should be reserved for sales pros.
On this episode of Gain Traction, Neal Maier welcomes Randy for a conversation regarding the latest trends in the tire and auto repair industry. They discuss the positives and the negatives, with suggestions for fixing the latter. Randy emphasizes the importance and value of a professional inspection to both the customer and the shop, and he discusses the customer experience advantage independents have over large chains.
Here’s a glimpse of what you’ll learn:
- Randy O’Connor provides an update on tire industry developments based on recent data
- How base cost is increasing compared to payroll cost in the tire and auto repair industry
- Randy discusses the importance of accurately explaining a pay plan to an entry-level applicant
- What is a reasonable incentive-based pay plan for tire technicians and general service employees?
- How the auto industry could improve its professional inspection process
- Why independent tire and auto repair shops always have a customer experience advantage over large chains
- Randy shares how The One Minute Manager is a helpful book for anyone in leadership
Resources mentioned in this episode:
- Randy O’Connor on LinkedIn
- Dealer to Dealer Development Group
- The One Minute Manager by Kenneth Blanchard and Spencer Johnson
- Neal Maier on LinkedIn
- Tread Partners
Transcript
Announcer:
Welcome to the Gain Traction podcast where we feature top automotive entrepreneurs and experts and share their inspiring stories. Now let’s get started with the show.
Neal:
Hi, this is Neil Maier. I’m the host of Gain Traction where we talk with automotive business leaders about how they’ve overcome challenges and found success in the tire and auto repair business. Before we jump in with today’s guest, this episode is brought to you by Tread Partners. Tread Partners is the digital marketing source for multi-location tire dealers and auto repair shops nationwide. Very simply, Tread Partners can take the risk out of digital marketing for you and put more cars in your base. So visit us at treadpartners.com or email us [email protected] to learn more. Today, I am pleased to be talking with Randy O’Connor again. Randy owns Dealer to Dealer Development Group, formerly known as MTD TEN and the DSP 20 Group. Prior to Dealer to Dealer, Randy held a variety of roles in the tire business ranging from retail to distribution. Randy’s coaching today and working with some of the premier shops in the world, and I’m thrilled to talk to him again. Randy, welcome to Gain Traction.
Randy:
Hey Neal, glad to be back, man. Always good to talk with you.
Neal:
Well, Randy working with 300 or so locations across Dealer to Dealer, I know you’ve stumbled across tons and tons of data and information along the way, and I think you have some reporting to talk to us about, so give us some details. What are you seeing and what’s to come?
Randy:
Yeah, so one of the things that a former DSP 20 Group that has evolved over time and now back into independent ownership, we’ve never done a really good job of sharing data, not necessarily with… Our members, of course, we share the data with the members, but we’ve never rolled it across from group to group, and we’ve certainly never let any of the high level type of data out there, but the more we can help everybody by giving them a little glimpse as to what’s going on in just our 300 repair shops, I think the better. Everybody can benchmark themselves in other ways.
And so looking at ’20, ’21 and ’22, certainly tumultuous times, but as we’ve all come in through ’23, we’ve really seen things settle down and getting back into, I hate to use the word Neal, but a little bit of normalcy to some extent. But we have seen obviously with inflation where things go and those are hard things to be able to benchmark and hard things to be able to fight through when you’re looking at trying to outperform the average, because that’s what everybody in the 20 Group tries to do, is you don’t want to be a D average in the 20 Group. That may still mean that you’re above average of everybody else in the country, but you want to be above average in your 20 Group, so being a little bit above above if that’s the case.
And so we’ve seen a lot of really interesting things come out of the data in what’s showing up in ’23 versus ’22. We can all look at sales numbers and be like, “Yeah, of course we can all be asleep at the wheel and sales are going to go through the roof.” And with that, you would expect gross to follow. And with that, to some extent, as long as you’re disciplined with your payroll and your OpEx, then you would expect to see that fall down in the net line. And we are seeing that, but there are certain things along the way that are popping off the page that I think are really interesting that we want to make sure that everyone’s attuned to as the world is changed around us. So throughout the year, it’s been interesting.
I’ve been reading a lot of the trade publications and we’ve noticed in the publications, we’ve seen tire units down, at least up until here recently, where we’ve started seeing the publications saying, “Hey, tires are coming back and tire units are going to be back up there.” Of course, sales dollars have been up there the whole time because of increases. But we’ve really noticed with that that there’s a couple interesting things happening, at least throughout the 20 Groups. And I think it’s worth noting to mention that we’ve typically been very tire heavy. So our members across, let’s call it 60 members that have basically historically been really heavy tires, these are folks that know tires, they do tires well, and that’s a big piece of their business. It continues to still be a big piece of their business, but it’s a shorter percentage, a smaller percentage.
I think in the last conversation you and I had, we definitely talked about mix of business, which for us is what’s on the table for every owner out there to be able to grab. And we talked about the one to one to one ratio because NHTSA told us for every dollar a customer spends on a tire, they spend a dollar on parts and they spend a dollar on labor. Well, we’ve noticed that over the past several months that as tire units, even in our group, grew a little bit. As a percentage of mix of business, it has shrunk a little bit. And so those folks that have historically been tire heavy have started to learn about service and getting more into service in a more intentful and a more effective way, which is fantastic.
And part of that has come about because we now have a fair number of folks that have been very heavy service, that have done very little tires, let’s call it 10% tires, 45% service, and 45% parts. And when I say service, I mean labor, 45% labor and 45% parts. Those folks have started to want to get into the tire business more and more. And so we have these new members that are coming into our groups, which we absolutely love because they can teach us the service side and we can teach them a little bit of the tire side.
So these things are all coming back into a really nice blend to show what’s happening out there throughout the country. So as that plays out, we see now we used to benchmark $2.1 million as being like your average shop from a top line sales perspective. I think that’s somewhere around 8,000 invoices is how that breaks out in that $2.1 million. Well, with inflation and everything else, about a year and a half ago we put out the new benchmarks and we said, “Hey, we think we’re probably going to be more like 2.6, 2.6 million at a 60% margin. Those are pretty solid numbers, and if you follow the percentages down and you stay within your payroll range, call it 42% to 45% of gross profit, and if your non-payroll OpEx is at, so 20%, 21%, 22%, you’re going to land somewhere around 14%, 14.5%.”
Well, what’s been really interesting over the past several months throughout 2023 is we all got to a point somewhere in 2022 where we had to get off the pot when it came to payroll and our teams. We dragged our fee as an industry for a long time where we were still paying people 12 bucks an hour, 13 bucks an hour, 14 bucks an hour, or whatever it is. And that has gone up, which is great. First thing I’m going to tell you when we talk about higher expenses, if you’re going to put it somewhere, reinvest it back in your teams. The issue to date though is how that’s getting back to the teams and what it’s doing to the bottom line. And that’s some of the message I want to get across as we talk a little bit, Neal.
Neal:
Well, it seems like in a lot of ways that higher payroll cost in most businesses is somewhat connected to performance and somewhat connected to sales, but there’s always a really heavy base. There’s always a part of that that is ever present. Are you seeing that base piece, that base cost increase as well?
Randy:
Yeah, so the base cost is increasing, and what’s interesting is there definitely is a productivity model that our members have within their payroll structures, and that’s mostly on the service side. And so historically where there hasn’t been a huge service side, that productivity quid pro quo, if you will, hasn’t played such a heavy role. It’s played a heavier role now because obviously we’re doing more service and more parts going along with it. But what’s interesting is when you’ve also got tires is there’s not many people out there that are doing a productivity based type of payroll when it comes to your general service and your tire technicians. And that’s where we’ve found things become problematic as sales and gross grow. And let’s say we’re paying somebody 12 bucks an hour and you had to respond to what was going on out in the industry and in other retail markets, and you gave somebody two bucks here and three bucks there and four bucks here, and next thing you know your productivity didn’t go anywhere with it because you didn’t tie them together.
And so it’s really hard to put together a system to be able to work off of productivity for someone that does oil, that does tires and those types of things because they’re not necessarily covered by a labor guide where you can just bill for the hour and you’ve got your flat rate that goes with your billable and you’re good to go. Well, in this case, you have to create a custom system if you wanted a one for one in regards to getting productivity back out of those folks. And so what we’ve started to notice, and it’s really interesting, and this isn’t with all members, of course, some people have a little bit of a better program depending on how service heavy they are, but those folks that are tire heavy have handed out these raises, which, again, is great except for it didn’t turn back into productivity in the right way. And the way that we’re starting to see that show up is, and I want to make sure I say this right, so everybody understands, we benchmark our payroll as a percentage of gross profit.
And so what we’ve seen is that gross profit has grown at a clip of about 9.5% for our members over the past… So through August year-over-year 9.5%. We’re going to see that grow a little bit as we get through the end months and we’ve got some winter heavy folks that are going to be banking over the next several months and that type of thing, but we see the gross profit growing at 9.5%, but then we see payroll dollars as a percent year-over-year growing at a clip of 10.3%. So its three-quarters of a point we’re losing in productivity somewhere when we look at the gross increase as a percentage year-over-year versus the payroll dollar percent increase year-over-year. And that’s a little worrisome.
Again, I love that we’re giving out the money and we’ve got to continue to be able to give people a good fair wage for the work that they do. The problem is we shouldn’t be doing it at the expense of the net line, and that’s part of what we’re doing right now, and that’s part of the message that I want to make sure that if people are out there giving out raises just flat with inflation as quick as things are growing, we’re still not outpacing gross profit growth versus the payroll growth that we’ve had to do to make up for all those years that we probably didn’t do a good job of giving people an annual increase or giving them a productivity increase or those types of things.
Neal:
So in a reasonably good year, some would call it a really good year, but across that path of growth, if I’m understanding it right, the percentage of payroll going to those techs is actually outpacing the growth of the business. Just assuming that next year, if next year’s as good as this year, it’s still going to result in a hit to net profit.
Randy:
Yeah, so year-over-year, all else remaining the same, we are at three-quarters of a percent outpacing. You can plan on one and a half percent outpacing if nothing else changes between then and now and our gross grows at the same rate that our payroll has grown at the same rate. The message really, though, is we’ve got to figure out how to tie those pay plans in the general service and the tire categories to be able to be productivity based because we’ve got to consider that probably the largest number of invoices in our shops is coming from those folks. So that stands to reason to me that the largest amount of productivity is also being lost in those situations if we’re not making it a quid pro quo productivity based type of pay plan.
If I can go all the way back to business school, I remember thinking about compensation plans and being taught that a compensation plan that works on very fast turns. So we have a very fast turn in our inventory. Our customers are with us for a matter of minutes to hours. That’s a very short customer life cycle versus someone who might be a salesman that doesn’t close 8,000 invoices a year, they might close 500. They’re going to have a slower customer life cycle. And those folks, typically, you can pay them more on a salary type with a lower commission. But generally speaking, and classically from business, for me it was the faster the customer lifecycle or the invoice lifecycle, the shorter that it is, the higher the percentage of those wages should be paid in some type of productivity based commission-based type of way. And we see a super fast lifecycle with all of our folks. It’s funny because we don’t practice that. We pay the cars that are in the base for two days, we pay them on productivity. Cars in our base for 30 minutes, we just pay them hourly, right?
Neal:
Yeah, our model’s backwards. And it seems like there’s a real educational challenge when it comes to explaining this, especially to an entry level applicant when Amazon will pay $17, $18 an hour to drive a truck. I’m going to come to you with a complicated plan. You’ve got to really paint a picture of some very good upside to make that make sense for an entry level person.
Randy:
Yeah, we do a great job of complicating things. If you can’t explain a pay plan in a matter of five seconds, 10 seconds, then it’s not the right pay plan. People have to understand what and how they’re getting paid and they need a scoreboard on a regular basis that helps them keep up with it daily so that they know what they’re making and how it’s contributing to what the store is making in a significant way.
Neal:
Through the years, I’ve built a hundred different pay plans and I’d try to solve a problem with a pay plan change, and my gosh, it got so complicated that nobody knew. And at some point, it just made sense to basically start over, go back to just what are the two, three key metrics, key drivers we want to accomplish in this? What does great performance look like? And find a way to reward it.
Randy:
I’m thrilled that you brought that up and I hope that members in our group are listening because I don’t know that there have been maybe but a handful that have listened to this, but you got to have a certain amount of influence in anything you do in order to be able to hold somebody accountable. And we may have talked about this a little bit on the last one, but I’ll reiterate is that we pay these GSs and these tire techs 14 bucks an hour plus $1 for an air filter, $2 for an alignment sold, $3 for a flush sold and that type of thing. And it begs the question to me is, how much control does a tire tech or a general service have over an air filter actually being sold? They don’t.
Neal:
Right, right.
Randy:
They have no effect over alignments being sold. They really have no significant impact, let’s call it 75% or more. You want to hold somebody accountable and you want to reward them for it, well make sure that they’ve got at least three-quarters influence over whatever it is you’re holding them responsible for, 75%. And in those cases, I would argue that the salespeople, the sales advisors have a much larger circle of influence over whether it gets sold or not. And so this takes me back to, all right, what do tire technicians and oil chains general service folks really have influence over if we want them to move the needle when it comes to productivity? Well, could be how quickly you get tires in and out and how much you get them on and how quickly you dump and pump and do all those things, but that money is already in the bank.
It’s incumbent on us to give our customers a good clean bill of health, or if there’s not a good clean bill of health, then it’s our responsibility to tell them that too. And we haven’t done a really good job of doing real professional inspections in our industry. You look at dealers. If you go to the dealership, you pay for every little thing they look at and they might wrap it in and it doesn’t seem like you’re necessarily paying for that time, but it’s part of the mileage package. And most of the dollars that are spent by the customer in that situation are done just four times on doing inspections.
And so to me, if a tire technician and a general service person have the greatest number of cars in there and you’re doing a good job with inspections, then it would argue to me that that’s the one thing you’ve got to be the master of. You’ve got to be the master of the inspection, whether you have an expeditor and a porter that’s doing them or whether you’re actually putting that as part of the tire technician and GS’s job. And so if we think through that and take it one step further, if we get really good at DVIs, which some folks are, digital vehicle inspection, some folks are doing a good job, and it’s worth saying here, you don’t have to have a digital inspection to have a good inspection. It can be on paper. That’s fine.
Neal:
Hey, we did a zillion every year and I felt like the majority were good and the technology didn’t exist back then. We started with two part carbonless checklists so we could give the customer a copy and we kept one. So no, the technology should make it easier and better, but it’s not a requirement.
Randy:
Well, if you have a crappy inspection on paper, you’re going to have a crappy inspection digitally at the same time. And we don’t do the industry independence in general speaking, and I know there’s some folks right now out there saying, “Nope, I got my inspections licked. I’m good. They’re tight. They’re good to go,” you probably do. That’s great. But there’s a whole nother handful of folks that are like, “Yeah, we do a pretty good job of inspections.” But then you stand in the middle of their bay for three minutes and you see the things that are missed, and you look at the product that’s given to the customer, which is lackluster professional, then you know that we’re not doing a very good job. And then you got a whole nother subset of folks that aren’t looking at anything under the vehicle, doing customers a complete disservice.
And so if the majority of your cars are coming through your tire tech and your GS’s hands, that’s where the majority of your productivity based incremental income is going to come from with your inspections. And so to me, it’s why not pay people on the inspection if that’s a significant part of their job?
Neal:
Oh, I think so. And additionally, you have to think about all the waterfall effects from that inspection. That is a key driver of the rest of the business of the one to one to one. It’s so critical that that inspection process be present and be a key driver. From a marketing standpoint, we look at driving oil changes and driving tire businesses, two of the three legs of the stool as well. So just, my gosh, it is so critical that that job, beyond doing a good job in servicing the vehicle, that inspection is paramount to the success of the rest of the building.
Randy:
From a data perspective, I’ve probably got some members out there right now going, “Well, wait a minute, 2022, we were 41.5% percent tires and now we’re 37% tires.” That would mean basically we’ve done a better job. And that’s true. There are freaks out there that are learning from the service market and they’re starting to step up and they’re doing a much better job with it. But by and large still, if you’re still 7% off that one to one to one, that’s a lot of cheddar. That’s an awful lot of money that’s sitting there, not to mention professionalizing the experience. And I think that’s really what it comes down to is we professionalize our experience when we make commitments and we make promises to our customers.
And I would argue that if I walked in any number of independents today throughout the country, that there would be very few that would promise to me, make a commitment on exactly what they’re going to expect and when they’re going to get those results back to me and when I can plan to have my car back. And we can agree to those things from customer and from sales advisor perspective. And so really, if you think about professionalizing your business, if you make a commitment up at the front counter, then the gals and the guys behind you that are doing the work on the car, you’ve made a commitment. They’ve got to do that work.
So if you want to figure out how to get more inspections done on your vehicles, start promising it to your customer and have your sales advisors promise it to the customer, and then you’ll have to do it and you’ll have to present them something and the customer will ask you, “How did this go? What repairs do I need to look to plan for in the coming future?” And so all of a sudden you’ve got a bit of behavior that’s changed just based on making those commitments and making those promises to customers.
So to me, you want to take it one more step and everybody that’s a member knows exactly what I’m going to say right now is you should charge for that time. I don’t care if it’s $5.95 for a comprehensive vehicle inspection or $25.95 or $59.95, $14.95, whatever you want to call it, charge for that so that you’ve got the commitment on both ends, that you’ve got money tied into a promise and a commitment to a customer, which means you’ve got to execute on the back end, which means you’re going to find more work, which means your mix is going to get better and you’re going to put more towards the bottom line. Just makes sense to me.
Neal:
No, it makes total sense. I’m thinking years and years back, I had a belief that no consumer was willing or wanted to pay for that inspection. And I can tell you sitting here today as a consumer, I’d love to pay for that because the thing that’s… It’s not the money, it’s the inconvenience. I don’t have my car, you have it. I have to range transportation. Just the whole process is such a hassle, I would pay extra for cheap insurance that I didn’t have to come back again so soon. So I think that the consumer, especially if you’re positioned towards the right kind of consumer, they will embrace it.
Randy:
There’s another side to professionalizing it that I don’t think we need to lose track of is as the number of rooftops in our industry continues to grow, which it has, year over year over year, the number of people employed has also grown year over year over year. We all know that big box and private equity has come in and bought a lot of those locations and they’re taking a greater share of the total rooftops. Now, I’m not necessarily convinced that they’re taking a greater share of business necessarily because those are big ships. Big ships are harder to turn and steer. They don’t necessarily professionalize and are certainly not as nimble in being able to professionalize those independents that aren’t such a big ship. Sure, there’s some independents out there that are really big ships, but by and large, the greater majority of them are going to be super regional, call it 15 to 20 locations or less.
And so we can turn that ship a lot quicker, and if it’s to our advantage to professionalize for the customer’s needs and for our own business needs, that means that we have an advantage over big box and private equity in the fact that we can more swiftly and more professionally address our customers and the true needs that they want, then everybody else can. And that’s a huge advantage for us over the coming years as people continue to buy more rooftops from a private equity and big box perspective so those folks that are remaining in the truly independent space end up with a little bit of an advantage because we can just be that much more nimble and we can be just that much better. And really, you’ve got buying local and feeling good, and you’ve got this good value centric service that you’re able to provide, and you’re able to do it without having to change the entire world like a big box or private equity would.
Neal:
I think that makes perfect sense. And much like we looked at the dealers as being a big threat years ago and then saw change starting to creep into our markets and instantly how are we going to compete with them on price? It’s not about competing with them on price. Price is important, but the independent always has a leg up when it comes to the customer experience and the customer coming back.
Randy:
Yeah, yeah, for sure. Even though there’s a lot more money being spent in the dealerships, really nice chairs, really nice TVs, they’ve got people holding doors for you, really good coffee, all those good things, we can do all those things too. We just need to figure out a way to be able to scale it and do it on our own so that we can continue to keep a healthy line. And I think if we professionalize our business through the service end, then that trickles back out into the customer experience no matter what. And whether you have a $5 cup of coffee or a $3 cup of coffee, who caress, it’s still a pretty good cup of coffee, but the service is better. And that’s what people are really in for as long as you meet their needs from a this is how you look, this is how you smell, this is how comfortable and how amicable all of your staff are and how wonderful they all are, that type of thing, then I think the advantages is to the independent and the wind is totally at our back right now.
Neal:
Randy, right in that same thread, thinking about professionalizing and growing and improving our businesses, I know you’re a pretty prolific reader. Let’s shift gears for a second. Tell me about a book you’ve read or something that stuck with you lately that we ought to take note of.
Randy:
So I’m actually going to go away from my personal and go back into the business. One of the things that we’ve recognized is we don’t really work on soft skills very well in our industry, and we don’t often take advantage of all the things that are out there for us to be able to professionalize our own careers in a significant way. And so I have started to hear of a bunch of dealers that are starting their own book clubs, which is great. So you’ve got a little bit of that professional entrepreneurial type spirit that’s getting trickled back into the business, and then you can talk about it and how to apply it. And we’ve learned from that because this next year we’re going to be doing leadership library with all of our members. So we’ve got a certain set of books that we’ve chosen as titles for managers, a certain set of books that we’ve chosen as titles for service managers, sales, et cetera.
And so going back through this, I had to go back into one of the more influential books that I read when I was in my young twenties, which was The One Minute Manager. The One Minute Manager just applies so well and so easy in the work that we do, because it’s chaotic on a constant basis. We don’t really break apart time in any significant way. A lot of folks don’t break out time in any significant way to do any type of training or leadership training, especially when it comes to soft skills. And it’s a really short book. It’s got a really quick and easy message about praising and then making sure that you’re doing corrective things along on the back end, and you’re doing this and all short little spurts that can fit into your day so that you don’t have to take three hours after hours or three hours before hours when the shop is open or closed to be able to make a meaningful impact in your business.
And really, the lessons that come out of the book, they end up being something where a manager can use it, a service manager can use it, a salesperson can use it, and even the folks back in the shop that are working with others, if you want to be constructive as a team and you can learn how to talk in short little spurts where you’re just being constructive along the way and you’re helping boost people up where they need the support to be able to achieve your common goals, then you don’t have to do it in more than one minute bite-sized pieces.
Neal:
And hands down, the fastest paced position I’ve ever held, one minute is about all you have. So I see the perfect fit there.
Randy:
Yeah, you saying that takes me back to an effective service manager in my mind is the person that’s not doing any single thing any more than five minutes. If you are running a quality service, you can’t be head and hands under hood, head and hands under dash. You can’t be out counting inventory and doing all these things during the middle of the day. You got too much going on, it’s too chaotic. You got to be putting all the pieces together. And if you can do that while you’re coaching along the way in a constructive manner, then everybody’s learning little tidbits here and there.
Neal:
Perfect. Well, Randy, I can’t thank you enough. We’ve been talking with Randy O’Connor, owner of Dealer to Dealer Development Group. Randy, where can people learn more about you and the group?
Randy:
D2Ddevelopmentgroup.com, you can hit us up there. You can get a contact form where you can get in touch with me, or you can check out my LinkedIn profile if you like, Randy O’Connor, O apostrophe, C-O-N-N-O-R, and you can reach out and you can give me a call.
Neal:
Fantastic. Randy, it’s been a pleasure.
Randy:
Neal, always great to see you. Always great to talk to you. Thanks for taking the time to help support the dealers.
Neal:
Anytime. Talk to you soon.
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