Case Background/Summary A. The Company 1. Started by Walter Sullivan in 1983. The current site of operations is located at a busy urban highway intersection. Extensive renovation of the 30 yr. old building was done. 2. Walter Sullivan is well known in the community. 3. The company has both front-end (sales department) and back-end (service department) operations. 4. Sales department is composed of: a sales manager, seven salespeople, an office manager, and a secretary. 5. Service department is composed of: a service manager, parts supervisor, nine mechanics, and two service writers. . Sells both new and used cars. Large proportion of new car sales included trading-in old cars. 7. The company would also buy well-maintained cars at auctions and resell them at the lot. 8. Uses a third-party detailer and body shop for restoration of old cars 9. Considered at the lower end of the mid-sized dealership category with annual sales of 1,100 cars (both new and used). B. The Decision Maker 1. Carol Sullivan-Diaz has a bachelor’s degree in Economics as well as an MBA degree. 2. She is familiar with the operations by working for his dad during her student days. . She worked in the Health Care Industry with expertise in new service design, complaint handling, market research, and innovation of the day care programs. C. Status and Finances of the Company 1. Company financial position has been deteriorating for the past 18 and the company has been in the red for the 1st half of the year. 2. Car sales and service revenues are dropping and Industry forecasts of future car sales are looking grim. 3. In the last 12 months, Sullivan Auto World’s gross margins were 4. 6% and 24% for car sale and services, respectively.
These were insufficient to cover the dealership’s fixed expenses and are below industry standard for contribution margins. 4. The trend in selling gross mix is now shifting from sales to service while sales margins for new cars were substantially lower than that of the used ones. D. Service Operations 1. The service department has new machinery and ample space for additional customers. 2. The service writer position has a high turnover rate. 3. Miscommunication in the Services Department is evident. 4. Bad service environment and wrong customer interphase. 5.
The service work orders are not computerized; most of the paperwork is handwritten. 6. Service manager is very gruff and argumentative when dealing with customers. E. Customer Survey Results 1. Level of customer satisfaction is low - placed at bottom 25% of all Ford dealerships. 2. Worst ratings for service included convenience of work schedule, service hours, and appearance of the service department. 3. They scored average on promptness of service, availability of parts, and quality of work. 4. Poor ratings scored on politeness, understanding of problems, and explanation of work by the service department. 5.
More than half of customers say they would use other Ford center for service repairs. F. Options •Sell the business to Bill at fair value of the net assets plus $250,000 in goodwill. •Turn the company around in a year or two for a better selling price and higher goodwill. Problem Statement Should Carol Sullivan pursue turning around the financial performance of the business? If so, what business strategies must she implement to revive Sullivan Auto World? Case Analysis To be able to provide appropriate resolution to the problem, it is important to have an in-depth scan of the company’s internal and external environments.
Table 1 below provides a look at the Strengths, Weaknesses, Opportunities and Threats present in the company’s business environment. Table 1. Sullivan Auto World SWOT Matrix STRENGTHS •Located in a busy urban area •Walt Sullivan is well known •Contribution margins for services is higher than car sales •Service department has new machinery and ample space for more customers •Business include trading in old cars for new ones •Has experienced managersWEAKNESSES •Weak financial position •Contribution margins are below industry standards •High employee turnover •Bad service scape •Lack of automization Bad customer interface in the Services Dept. •Looked at the service dept as just a necessary adjunct of the business OPPORTUNITIES •Selling gross mix is now shifting from sales to services •Sales margins for used cars are higher than new ones •Customer are fairly satisfied with promptness of service, availability of parts and quality of workSO STRATEGIES •Expand and improve the service repairs business •Decrease inventory of new cars by trade-in and other promotions WO STRATEGIES •Motivate service dept. employees to improve performance and customer interphase •Automate processes Renovate service area and make it visible to customers •New culture: Service Repairs is vital part of the business THREATS •Industry sales forecasts is low – economic slowdown •Customer dissatisfaction in politeness, understanding of problems, explanation of work in the service dept. , convenience of service hours and appearance of service dept. ST STRATEGIES •Be the preferred service repair provider instead of focusing only on car sales •Use health care experience in improving the management and marketing of the services dept. WT STRATEGIES Emphasize Services through improvement of Physical Environment, motivation of People and making processes efficient The SWOT analysis reveals that Sullivan Auto World’s financial problems stemmed from the inappropriate business strategy given the current condition of the business’ internal and external environment. Walt Sullivan’s focus on sales and giving less importance on the service repairs is not helping the business at this time where there is impending economic slowdown. This is coupled by the fact that they are not able to address customer and employee issues in the service area of the firm. (Tony, kindly add beef to the indings. Basically, we just want to show in the case analysis portion what the business have done wrong that lead to the current situation. Point out that current strategy does not fit what is needed) Alternative Courses of Action 1. Sell the business now to Bill Froelich. Selling the Auto World to Bill will leave the family only with a fair valuation of the assets and goodwill of $250,000. This is way too low in terms of comparing it to the standard goodwill of $1,200 per vehicle sold during good performing years. However, selling the business will take away the obligations and risks of further losses from Carol and the family. . Turnaround the performance of business in 1-2 years. Improving the business will be a tedious task and might require additional investments. However, successful implementation of strategies will provide better value for the company. It can then be sold at a higher price to Bill Froelich or it may provide decent returns enough to have it retained and just hire an experienced manager to handle the business. Recommendation (Tony, please expound on these thought: We recommend that turn down Bill’s offer since we identified that there is an opportunity for improvement of the business.
We then focus on providing steps to improve the business by saying that the company should reallocate efforts and resources to building up the Service Repairs Business given that customers are less likely to buy new cars and more likely to maintain their old cars. Then, kindly include some more recommendations as to how to improve customer interphase, processes and employee motivation) Suggestions for improving the dealership’s services A. The servicescape needs to be re-engineered to create the right impression for the employees and the customers.
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The servicescapes also needs to be managed to facilitate effective delivery of service processes. Improvements to servicescapes: 1. Put signage outside the facility to showcase the dealer’s car services. 2. Re-design the entrance to the service area such that customers can drive their car directly to the service area. 3. Refurbish and paint the service facility to make it tidy and grease-free. This could facilitate the behavior of the sales people to introduce the service department to their new customers. 4. Allocate a waiting area for customers i. e.
Air-conditioned room with chairs or sofas, magazine or television, wi-fi and other amenities to enhance the customer’s service experience. 5. Put signs and symbols that will convey the dealer’s image (e. g. high quality, safety first, do it right the first time), help the customers be guided through the service processes to manage their expectations (e. g. service process flow diagram) B. Redesign the service process 1. Redesign the entrance to the service area such that customers can drive their car directly to the service area. This leads to customer convenience and improve the service experience. 2.
Computerize the service work order process to increase efficiency and productivity in writing up orders and scheduling the work. C. Complaint Handling and Service recovery 1. Provide service guarantees such that if a service delivery fails to meet standards, the customer will be entitled to a form of compensation, such as discount on labor cost, refund or credit. Effective service recovery can avoid switching customers and restore confidence in the service department. 2. Train the employees, especially the service writers and front liners, to handle customer compliant by setting guidelines and procedures.