Those who trot out the mantra that ‘motor retail will change more in the next five years than it has in the past 50’ would certainly have had it right in 2015.
The following two years – which gave us the dieselgate scandal, the run-up to and continuing fallout from the Brexit vote, and the Government’s wobbly footing following this year’s general election – have transformed the face of the motor retail business. All those events have dented the confidence of consumers and businesses.
As Paul Tanner, managing director of Alan Day Volkswagen, mulled over 2016 results showing a pre-tax loss of £349,729 (for a year in which turnover rose 0.4% to £88.27 million), he acknowledged that there is a sense his three-site operation has found itself facing a ‘perfect storm’.
Everything from anti-diesel sentiment in the city to terrorist attacks have fed into a climate that has left the London-based business trying to “keep our heads above water” in 2017, said Tanner.
He believes the start of the group’s current woes was clearly the dieselgate scandal that engulfed Volkswagen Group when US investigators uncovered evidence of NOx emissions ‘defeat devices’ in September 2015.
For the 2015 calendar year, Alan Day’s pre-tax profit fell to £396,870 from a record £1.24m in 2014.
Tanner said: “Since the emissions issue, we haven’t made money as a business.”
Speaking to AM shortly before the publication of the business’s 2016 accounts, he said: “In 2015, we made money. Then, as soon as the emissions hit, from that point we didn’t make money. Last year was a very difficult year.
“(Volkswagen) said to us ‘you have to invest in customer satisfaction and help us turn around what’s happened’ and we’ve done that. We can’t do any more our end.”
Tanner said it is now up to the Volkswagen brand to revive its image through new product launches, a push on its Euro 6-compliant engines and a “bold” electrification strategy (which will lead to infrastructure expense for its retailers).
Until then, Tanner is pinning his hopes for a brighter future on the possible addition of another manufacturer franchise to the Alan Day portfolio, keeping an open mind on the future shape of the automotive retail space, and continuing his group’s focus on customer service.
In 2016, Alan Day’s Hampstead site was named as Volkswagen UK’s top dealership for customer care and service, with the Southgate branch coming a close second.
Along with a natural work ethic that found its way into the affections of former business owner Alan Day, Tanner said he has built his business around the desire to make customers happy.
Getting out of the blocks
Tanner celebrated 30 years with the Alan Day group in June, a natural point to take stock of his automotive career.
The oldest of 10 children, he lived with his grandmother from the age of 12, a move he made to “get his own bedroom”.
Standing more than 6ft tall, he excelled at sports, initially as a trainee with Watford Football Club and then focusing on athletics with Shaftesbury Harriers.
He then became a motorcycle courier. However, the threat of injury on the motorcycle led the 19-year-old into a job as a driver with Alan Day.
As a hurdler, Tanner shone, representing Britain at two European championships and joining a training group aiming for a place at the Olympics.
He recalled: “I’d train in the morning before I went to work and then after work until about 9pm. It was all going well, but when I was 21, I detached my hamstring from my glute.
“I couldn’t continue. I gave up the athletics. It was a big, big blow.”
Tanner, now 49, said he refocused on his work. A rapid rise prompted by “father figure” Alan Day soon followed.
Opportunities in the parts department, as an auto electrician, as parts manager, and then service manager followed quickly.
Tanner got his big break in 1998, aged 30, when Day appointed him as dealer principal for the Southgate site – then VW’s largest UK showroom.
The later acquisition of the City and Hampstead sites brought a promotion to brand director.
Tanner’s early days at Hampstead are an indicator of his approach to customer service: “On my first or second day in this office, it was about ten past six and I saw a lady come in and a member of staff come out, waving his hand, saying ‘we’re closed; you’ll have to come back tomorrow’.
“I ran down the stairs. She was collecting her car and had been caught in traffic on the bus. I said ‘no problem, we’ll get your car now’.”
Tanner added: “If a customer comes in here and we’re here, that’s it, we deal with them.”
In 2006, Tanner bought Volkswagen’s side of the Alan Day business for £2.39m, including £776,270 goodwill, after the group chose to focus on Honda franchises in Enfield, Hendon, Portsmouth,
Southampton and Winchester. At the time, Christian Day, then group managing director, said the restructuring was due to the cost pressures of running dealerships within the M25, and the VW outlets only made “a small profit”.
Funding came from a Volkswagen sponsored dealer programme.
Tanner Automotive was formed and with it came a slight shift in focus.
He said: “Alan Day’s focus had been profit, then customers, then the staff. When I took over here, we got all the staff together and said to them our biggest focus is customer and staff satisfaction. Profit will come.”
While Tanner acknowledges that he still prizes the same work ethic so highly valued by his previous employer, he believes structured career progression and wages are key staff motivators.
Wages have proved to be a key area of restructuring for the Alan Day business over the past 12 months.
Tanner said: “You’re going to have to pay quality wages if you want the quality staff in London. That’s just something that I have to accept.”
Alan Day’s service advisers are on £42,000-a-year on-target earnings. Until recently, their basic pay was £22,000 to £23,000, but Tanner said he has had to increase that to £28,000 as premium rivals attempted to poach his staff.
Parts and servicing have been a success story within the business. In 2015, it established a new Volkswagen Trade Parts Specialists (TPS) site at Park Royal, with a staff of 16. The venture hit 105% of target in 2016, delivering a useful 3% margin.
The business’s workshops are operating at 80% capacity, with add-on work taking the total to about 110%, Tanner said.
Running at a 40% return, 10% higher than most VW retailers, the aftersales side of the business is running efficiently and looks likely to grow after becoming an Audi authorised repairer at the City site, but staffing costs remain a headache.
“Our technicians are on £22 an hour,” said Tanner, describing his wage bill as “without doubt, the business’s biggest issue”.
Alan Day Volkswagen has experimented with customer hosts – similar to Arnold Clark’s ‘product genius’ staff – but eventually decided to recruit more sales executives instead, “over-staffing” sites to provide better customer service.
Tanner appointed a group HR manager shortly after he acquired the business. A desire to attract a young, enthusiastic and loyal workforce prompted changes to recruitment, training and wage structure.
New sales executives join the business on a fixed annual salary of £25,000, but they can opt instead to take an £18,000 basic-plus-commission package. This has proved to be the norm, despite some industry commentators suggesting that staff now prefer a fixed wage.
Meanwhile, managers have been removed from a commission-based scheme. Suggesting the commission-led model was “unfair”, Tanner chose to “pay them what they would have earned [with] on-target earnings, adding a bonus for over-achievement”.
He added: “It was an expensive shift, but over the 11 years I’ve probably lost 20% of my managers and they would have only gone for relocation or an opportunity that they couldn’t turn down.”
Training and the team ethic
Alan Day’s staff training is provided by Volkswagen and by a third-party provider, Contact Consulting, which also operates a “nurture programme” for potential future managers.
Managers also get one-to-one coaching with trainers who have worked with brands such as Louis Vuitton, Disney and Nestlé, giving insight from other industries.
There are currently 11 members of the Alan Day workforce on its nurture programme and 19 managers undergoing face-to-face development. Tanner said: “When Alan Day put me in charge, he just said ‘crack on son’, so this means a lot to me.”
Staff retention within the business stands at about 75% – four other members of staff joined Tanner in celebrating 30 years of service in 2017.
Tanner allocates a budget to his teams to host a bowling night or meal out together on a quarterly basis, relating them to performance where possible.
Sites compete against each other to raise funds in a string of charity-driven events, including the “Tough Mudder Dubbers”, a team of employees who undertake endurance events for charity.
Tanner has formed a band, The Days, in which he is on lead vocals, alongside a partsman, a driver, a sub-contract windscreen fitter and a teacher-cum-drummer, filling radio slots and entertaining staff.
Sponsoring the Saracens rugby union team, meanwhile, has led to the support of the Saracens Sports Foundation.
Tanner is one of four staff members from the business who volunteer as coaches for disabled youngsters on a weekly basis and also fund away days for the 11- to 16-year-olds. Their work won them the Premiership Rugby BreakThru Award in 2016.
“There’s a good spirit within the business. It’s something I’m most proud of,” said Tanner.
However, he does believe rates of staff and customer retention have been affected by recent terrorist attacks in the UK. The business’s City site lost two technicians after the attacks on London Bridge, three miles away, and Borough Market, 1.5 miles away, prompted them to find work outside the central location, he said.
Tanner also saw a drop in business of more than 40% at the City site following the attacks. Two sales executives left, claiming they could no longer hit their targets.
Tanner also concedes that the anti-diesel sentiments expressed by Sadiq Khan, the London Mayor, have played their part.
In April, Khan confirmed plans to introduce an ultra-low emission zone (ULEZ) in central London from April 2019 – six months earlier than expected – meaning drivers would pay £12.50 on top of the London congestion charge.
To reflect the switch in demand away from new diesel vehicle sales, Tanner has changed his used car stock profile to a 70:30 split in favour of petrol.
VW and a changing model
To reduce costs, Tanner is currently weighing up some significant changes to the business: “We know our model needs to change.”
Among the plans currently being considered is ditching larger showrooms.
“We will have to look at whether sites like [Hampstead] are going to be viable going forward or whether we need to look at a smaller site.
“You may be able to have smaller showrooms with bigger workshops. We’re looking at that, but also how we can maximise what we’ve got.”
He added: “Our rent and rates and the people costs are at least a third higher than most other Volkswagen dealers, if not a half. We’re constantly battling with that.”
Tanner said he is also speaking to other manufacturers in an attempt to move away from an over-reliance on Volkswagen.
“At our big site up at Southgate we’re looking if we can put another brand on the same site,” he said.
Eco-friendly initiatives are also being trialled as part of the new business model – Alan Day has already introduced a fleet of electric bicycles for use by customers of the service departments.
Tanner believes this focus on things green goes hand in hand with VW’s push towards EVs. At the start of September, the Volkswagen Group outlined its “Roadmap E” plan to introduce 80 new EV or hybrid models by 2025.
He said: “Volkswagen is aiming to have cars that will do 600km on a half an hour charge by 2022. That’s the sort of thing that will make a difference in consumers’ eyes, seeing Volkswagen in a totally new light, as a true market leader in EVs.”
Tanner sees the manufacturer’s rejuvenated product line as a central component of his business’s transformation – the new Polo hatchback, Arteon saloon and T-Roc SUV could all boost sales this year.
He said Alan Day had met a target for 2,500 new car sales in 2016, but fell about 200 short of its 1,800 used car target for the same period. It sold about 700 new LCVs and 300 used.
However, getting franchised dealerships ready to handle electric vehicles is not free, and dealers’ investment in VW’s transition towards EVs will soon extend beyond requiring two qualified master technicians on each site.
Tanner said: “At a Volkswagen conference in Berlin earlier this year it became apparent that we will have to get new mini sub-stations at the sites that can charge a vehicle in half an hour. It’s definitely the way forward, but it’s going to be a big investment.”
A rock star customer helped to ensure everyone at Alan Day Volkswagen was singing the same tune when it came to customer satisfaction.
A group of 20 long-serving staff found themselves partying with Coldplay after Tanner, himself a keen musician, went “above and beyond” with his sales service for the band’s drummer, Will Champion (right).
“I didn’t expect to get anything out of it, but it was a truly mind-blowing experience for me and my staff,” recalled Tanner.
He spotted Champion entering his showroom just days after buying 20 tickets for the band’s concert in London as a reward to his longest-serving staff.
After Champion was up-sold from a used Volkswagen Up to a Polo, he shared his plan to surprise his wife with the car on her birthday – the day after the band played in Manchester.
“He said ‘I want to come and get it on Saturday night if I can just get the keys’ but I said I didn’t mind meeting him,” said Tanner.
Ultimately, this led to a late night. At 2.30am, the drummer arrived at the Hampstead dealership, in a chauffeur-driven car, to collect the Polo.
“The next day he sent me a text saying she was over the moon and something was on its way to me,” said Tanner.
“He sent me 20 passes for the after-party. For me and the team – who were already looking forward to the gig – it was just amazing. A great reward for going above and beyond with our customer service.”