Doreen is the CEO of Car Destination, Inc. – a super dealership that sells new cards, SUVs, and pickup trucks from five different manufacturers, and also has a large used-car lot. Car Destination has been profitable over the years, even earning a small profit during two different economic recessions. Yet Doreen has the nagging thought that Destination is slipping a little behind the times.
In talking with an outside advisor, Doreen said, “The vehicle-sales business is changing more rapidly than we are changing. Fewer consumers are influenced as much as they were in the past by the sales representative. Instead, they search information out on the Internet on what they think the price of a vehicle should be. Also, they shop online to find the lowest possible price for what they want. When they arrive at the dealership, they even know what accessories and features they want, so they are less influenced by what our reps have to say. Another problem is that a greater number of customers who do come to the dealership to purchase a car or truck don’t want to haggle with the rep.”
Based on these concerns, plus some discussions with a few automobile executives, Doreen decided to change the business model at Destination. The new business model she wants to introduce to her management staff and to sales representatives requires that sales representatives no longer work on commission. They will now be salaried associates who try to satisfy the needs of customers. Furthermore, Destination will now offer fixed sticker prices on all new and used vehicles. No more negotiating with customers about price. Doreen calls a meeting for the following Monday morning with all of her managers and two of the senior sales representatives to discuss the new business model. She labels the new model “The No-Hassle Destination!”
Doreen describes the new business model, using a PowerPoint presentation to support her talk. She speaks for 15 minutes without accepting comments or questions, but she does notice a few grimaces and anxious expressions on the faces of the Destination staff. Doreen finally says, “Okay gang, I’ve talked enough for now. Let me know what you think about our new business model.”
Tony, a veteran sales representative, speaks first: “Doreen, it’s good to know that our CEO is up-to-date on the automotive sales business. But Saturn tried what you are talking about. The company lost tons of money, and finally was eliminated by GM. The sales reps did everything but hug and kiss the customers who drove off the lot with a new Saturn,” (The rest of the people present laugh nervously.)
Melody, the used-car sales manager, offered her opinion: “Doreen, with due respect to the wisdom of our CEO, “The No-Hassle Destination” may not work here. Maybe we could act like CarMax associates – we hire a bunch of good looking sales reps, dress them in khakis and polo shirts, and teach them to keep a smile on their faces all the time. But when our clientele comes to Destination to purchase a used car, they like to negotiate. I love the look on the face of a customer who has just been given a discount. Buying a used car or truck is a sport. It’s not like purchasing a six-pack of beer.” (The rest of the people present laugh loudly at the beer analogy.)
Sam, the new-vehicle sales manager, said with a concerned expression: “Doreen, I think the business model you propose probably works well in some situations. But we should think this through quite carefully. Our best reps are making a ton of money. If you put them on a fixed and modest salary, our stars would leave for the competition. A fixed salary is probably okay for the CarMax associate, but I think experiences pros much prefer commission sales.”
Kaleb, the director of finance, offered a suggestion: “Doreen, I say let us wait a bit before introducing this model. We need to study the potential impact of the new business model on our profitability. We are a consistently profitable super-dealership. A key factor is that the salaries we pay sales reps are quite low because they earn so much on commission. This helps lower our fixed costs. We could wind up with a handful of sales associates who produce very little in relation to their salary and benefits.”
Feeling frustrated, Doreen said, “Let’s break for now and return to discuss this tomorrow morning. You folks don’t seem ready quite yet to shift to “The No-Hassle Destination”. As she gathered her notes, Doreen thought, “For the new model to work well, I will have to change some of these negative attitudes.”
To successfully complete this assignment, you should comprehensively and critically address the following:
What are the issues or problems facing Cars Inc?
What course concepts can be applied to understand, alleviate, or solve any of these issues or problems?
If you were Doreen, how would you proceed?
Please be detailed in how you would address the situation(s).
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