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Category Archive: Family Business

Kendall Rawls

Generational Tensions: 4 Barriers to Automotive Leadership

Stressed boss and her female colleagues posing in office

Ensuring the future success and sustainability of a dealership is not based solely on operational knowledge and efficiencies. In addition to creating robust processes, identifying and developing future leaders is critical to building sustainable dealership value. But first, you must overcome the leadership barriers that sabotage your goals.

Generational tensions

In the past, when someone took on the position of “dealer,” it was assumed employees would fall in line and follow the owner’s lead. Today, with up to five generations working together at the same dealership, this expectation doesn’t hold true. Instead, good people check out or leave after a transition in leadership if they don’t feel respected for their contributions and see opportunities for growth.

Generation X and even the up-and-coming Gen Y/millennial leaders have to navigate an additional barrier that can be awkward and uncomfortable. These up-and-comers must earn the respect of the team around them for them to be seen as a true leader. This is a drastic shift in leadership from previous generations where moving into the dealer role was an expectation given tenure and relationships in the dealership.

Contributing to the problem is that the automotive industry has changed so much. No longer is real-life knowledge and experience enough to sustain and lead a dealership into the future. Innovations in technology, a lingering fear of economic uncertainty, ongoing regulatory changes and generational perspectives of “old school” and “new school” way of thinking can build organizational tensions, impacting performance. Put simply, what may have been good enough previously is no longer good enough to lead your organization into the future—instead, formal education, operational training, and a thorough understanding of best practices will be key.

The “old school” versus “new school” issue often causes Gen X and millennial team members to conflict with their baby boomer leaders and employees about fundamental issues impacting the business, such as:

  • What work means. Perspectives of how work fits into our lives—the type of work culture one finds inspiring and the gratification they want from their career—are in constant flux. It’s not uncommon for Gen X and millennial workers to want more time outside the dealership, and older employees/leaders may interpret this as poor work ethic.
  • The nature of leadership. Generational perspectives on who should be considered for leadership may differ. Some feel leadership positions should be earned through tenure, while others think it is earned through performance.
  • How the pecking order works. When performance is rewarded over tenure, older staff may struggle with accepting the authority of younger personnel in more senior positions. (This is especially problematic for employees in family business—heavily scrutinized, your advancement may be viewed as favoritism.) This volatile mix can send an entire dealership into chaos. Loyal employees feel betrayed, and rising stars can find that they lack the buy-in to make changes. After all, the best operations person in the world can’t accomplish a thing without employee support!
  • How to lead effectively. Differences in leadership styles can damage relationships. There are some leaders who feel that motivating others is best done through a directive approach – “Do what I say because I hold the power.” Others appreciate and are driven more by personal influence – “I feel respected for my contributions. I understand the mission; so, I am on board.”

Although they can be subtle, these dynamics impact you and your developing leader’s ability to build respect and trust, as well as motivate and inspire your team to commit to the organizational mission and vision.

Leadership challenges derail performance

If you want to ensure your dealership is driven by strong leadership—today or in the future—knowing how to inspire a variety of people and having the necessary skills to stay operationally cutting-edge are two critical leadership barriers you and any developing leader must overcome.

However, you cannot address these problems simply by working in or “growing up” in the dealership. That’s why The Rawls Group partnered with NCM Associates to create the NCM-Rawls Dealer Executive Program™. The NCM-Rawls Dealer Executive Program™ combines NCM’s operational excellence and Rawls’ deep understanding of how to develop a high-performing dealership culture. Our collaboration allows us to go deeper into leadership development and tackle some of the harder issues and topics that most programs are afraid—or do not have the knowledge and expertise—to offer.

Whether you work with NCM-Rawls or pursue learning on your own, I urge you to think differently about how you want to lead. Choose to invest in yourself, as well as future leaders, to build solid leadership skills based on knowledge and real experience gained working in the dealership. If you do so, I’m confident that you will not only overcome these leadership barriers, you’ll create a thriving dealership for years to come.

Learn more about the NCM-Rawls Dealer Executive Program and how it can prepare you and your successors to lead your dealership into the future.

Permanent link to this article: http://blog.ncm20.com/2017/04/generational-tensions-4-barriers-to-automotive-leadership/

Jeff Faulkner

Emotion Triumphs Over Reason – The Dynamic Process of Succession Planning

mazeWhoa! I was totally not prepared for the meeting I just had with my client. I thought I was. In fact, I was very prepared based upon our last meeting and all the decisions that had been made. However, life, and clients have a way of throwing you curve balls. Sybil showed up again!

The bottom line is that I came into this meeting ready to facilitate the client making some substantial asset transfers to his youngest son – it was supposed to be a slam dunk. The transfer was going to be of B-Member units in a real estate LLC. The transfer was for tax planning purposes and to bring the youngest son up to parity with his older brothers on transfers that the father had previously made to them. The transfer would have had no impact whatsoever on the client’s control of the asset or on his income. Simple, right? No brainer, right?

After going around and around about the gifting of these assets and the zero impact on his control and income, it became apparent to me that I was not dealing with rational thinking, but fear-based emotions. Upon exploration, the client indicated that he is indeed afraid of giving up everything he’s worked hard for. Further and deeper into our discussion, he suggested that he felt like he was also giving up his reason for getting up in the morning, obviously bringing into question his will to live (complicated by recent health issues). I reminded him that there are several things for him to consider – first and foremost is that we are playing a game against the IRS and did it really matter if the net worth was being built in his name alone or in the family name.

Further, to give away assets for this purpose doesn’t mean that he has to give up his desire to get up in the morning and keep doing what he does best. A transfer on paper was not being done to limit his involvement or prohibit him from working in his business which he clearly had a strong passion for. I also reminded him that he has over $10M in investable assets that he was not bringing into this transfer conversation. I suggested that since real estate is what makes him feel secure, then perhaps he should invest some more of his portfolio into real estate. In contrast, I suggested that if he earned a meager 5% off the investment portfolio, he was secure. He could take half a million a year out of it without ever depleting the principal. I also described several other advanced estate planning techniques that would preserve his control and his income.

In the end, I left the meeting feeling defeated and drained. It was like we were staring at death’s door all day – and I was talking to a man who was fighting a losing battle between reason and emotion. Despite my best efforts to get the client to go ahead with the transfers he had previously decided upon, it was clear he just was not ready and backed away hard. I fought valiantly, but in the end I recognized that this was an emotional conversation and no amount of technical expertise on how to get the job done was going to address his feeling that by moving forward with this transfer, he would be giving up his reason for living. Now, it’s time for me to go back to the drawing board and come up with a new game plan that will achieve this client’s succession goals while keeping him in his comfort zone.

General Management Training from the NCM Institute

Permanent link to this article: http://blog.ncm20.com/2013/12/emotion-triumphs-over-reason-the-dynamic-process-of-succession-planning/

Loyd Rawls

Bigger versus Better: Business Growth and Succession Planning

Business growth is important to succession planningSuccession planning is all about the long-term continuation of success through the next generation of owners and managers. Discussions of long range success generally bring up the subject of growth. This is a natural discussion because inherent  with the concept of being successful is the assumption that successful businesses are vibrant and “growing” businesses. Furthermore, there are many who believe that succession and growth are synonymous. This belief is based upon the assumption that if you are preparing for the continuation of success there must be growth because competition is increasing and margins are decreasing.

Predominantly, growth is needed for succession because assuming the business has the same margins in the future as it does today, it must grow if multiple successors are going to achieve the attractive lifestyle of the current owner. As I’ve said many times, the first succession imperative is “teamwork.” I now contend that the second succession imperative is “growth.” The status quo is not an option for the future. In order for a business to withstand the challenges associated with the transition of the ownership, leadership and management, there must be growth.

Growth from my perspective can come in two forms; bigger or better. What I have witnessed in my many years of working with business owners is that their fundamental assumption of growth is “bigger.” Bigger involves expanding operations via opening new outlets, starting new businesses or buying businesses. However, I contend that the first and most important growth objective for those seeking succession is not “bigger,” it is “better” — as in increasing volume, efficiency, net profit, management teamwork, management  bench strength, etc. At the risk of sounding crazy, I contend that “better” is the foundation upon which a prudent business owner pursues “bigger.” The low hanging fruit of growth is in “better”. The freedom from the burden of additional debt is in “better.” The peace of mind that working capital is sufficient to withstand unforeseeable challenges is in “better.”

Reciprocally, I contend that bigger and better are not good teammates. Bigger does not naturally make you better. In fact, bigger can dilute management disciples and distort long-standing core values and processes. Bigger reduces working capital or increases debt. Bigger creates a level of stress that generally creates a distraction from the business basics.

No doubt there are benefits of bigger including economy of scale, greater profits, reduced market vulnerability, reduced product vulnerability, more excitement and more opportunity for successors to show what they can do. However, as Howard Hughes discovered with the “Spruce Goose,” bigger is not always better.

GMEPbanner

Permanent link to this article: http://blog.ncm20.com/2013/08/bigger-versus-better-business-growth-and-succession-planning/

Joe Basil

Musclecar Dream Engine Comes True in Modern Technology

LT1This column is typically reserved for “next practice” tips for better retail automotive management, but today we’re paying homage to the source of our passion for this industry — the allure of the automobile and all it signifies. It stole our hearts and captured our imagination with dreams of speed, power and freedom on the open road. For me, the passion was sparked by the Chevrolet musclecars of the 1960s and 70s.

For all you other musclecar motorheads who used to have hair with a color other than gray, the 2014 C7 Corvette Stingray LT1 engine is a motorhead’s dream come true. It’s got all of the technology you dreamed of in the day but had no idea how to bring it to mechanical life. Just go back to the 60s and early 70s, when you were 18 and building that small block drag car. Yeah, when you pulled up to the Sunoco gas pump and cranked the octane lever to 110+; when the gas filler was behind the tail light on a fin or behind the license plate; when you burned a full tank of premium on a Friday or Saturday night street racing with your hottie.

That’s when you spent hours and hours talking to the guys at the track, trying to get the latest tricks from the speed shop and spending lots of bucks building that small block to put out every bit of horsepower you can squeeze out of it. You remember, putting in that highlift cam, swapping out the stock intake for an Edelbrock high-rise topped off with an 1100+(or larger) CFM Holley. Pulling off the heads and putting on the double bump angle plug 2.02’s. And since you switched the rear end gears and you threw out the stock distributor you had to replace it with an HEI mechanical advance and had the advance curve tweaked. Oh and don’t forget those “Hooker Headers” and a couple of Cherry Bombs just for effect.

And then when it came to race day, on the track or on the street, you checked the temperature to see if you were going to swap out those jets on the Holly, reset the base advance, and maybe adjust up those rocker arms to change the cam timing. All of those little tweaks you did under the hood with tools are now being done by computers in milliseconds without ever touching a wrench.

Back in the day, I was a musclecar motorhead and even with gray in my temples, I guess I still am.   That’s why I’m so excited about a very special event coming up later this month in Tonawanda, New York.  Where the heck is Tonawanda, New York?Tonawanda is a suburb of Buffalo and it happens to be the home of the GM powertrain plant where the 2014 C7 LT1 Corvette Stingray engine is built.

The C7 LT1 has it all. Let’s start with 450 hp out of 6.2 L. By the way, that’s 378 cu in. No need to make any adjustments anymore since we now have computer-controlled direct injection, variable valve timing with 2.13 intake valves, and computer-controlled ignition timing. By the way, remember using “plastiguage” to check your bearing clearances? Now the clearances are measured in microns. A micron? Yeah, a micron; that’s one millionth of a meter.

So how would like to see these engines being built? On August 23rd and 24th the General Motors plant in Tonawanda is having an open house. So what? It’s an engine plant, you might say; well, there’s history that goes with this plant and the Chevrolet musclecar engines it produced. When they look under the hood of 60s and 70s musclecars, collectors always look for a little rectangular sticker on the valve cover that reads “Produced by Chevrolet Tonawanda.” Not only is the Chevrolet Tonawanda engine plant noted for producing 60s and 70s musclecar engines and big block marine performance engines, it holds the world record for the most number of engines produced in one day — 8,832 (in 1988).

The plant is celebrating its 75thanniversary and is having an open house and classic car show on August 23rd and 24th. You get a full tour of the plant and the actual crews that build the engines will be explaining and showing you how they do it. I was in this plant quite often in the 1970s when we had a Chevy store close by and serviced the plant cars. I went on the tour a couple of years ago and what a drastic contrast!

It’s a great opportunity to fly into one of Buffalo’s  private aviation strips, bring your off shore boat and do some “street” racing on the Niagara River or Lake Erie, or just cruise your favorite musclecar ride to the car show. Last but not least,don’t forget to visit Frank and Teresa’s Anchor Bar (where chicken wings started) for some wings and “beef on weck.”

For details just go to GM Powertrain Tonawanda Engine 75th Anniversary on Facebook (https://www.facebook.com/75thanniversary) or give me a call and let’s wax nostalgic about the days of our shared musclecar mania!

Formerly of the Basil Automotive Group, Joe Basil is a 20 Group Moderator for NCM Associates.  NCM has many GM nameplate 20 Groups including Buick, GMC and Chevrolet dealer groups. For information, call 877.803.3631 or to reach Joe directly, email jbasil@ncm20.com.

Master-Your-Destiny

Permanent link to this article: http://blog.ncm20.com/2013/08/musclecar-dream-engine-comes-true-in-modern-technology/

Jeff Faulkner

Business Structuring and Family Harmony

passingthetorchBusiness Structuring is a critical component of succession planning that can have a huge impact on family harmony.

Throughout the course of this article, I’m going to describe three different family business situations that I’m currently involved with where Business Structuring is causing havoc.

Situation 1: Active and Inactive Shareholders

The first story is a highly complex third Generation Family-Owned business which consists of a real estate and a separate investment business with four family shareholders.  Two shareholders, father and son, are active in the operating businesses and two shareholders, sister and a sister-in-law, are not active but are financially dependent upon the business. The ownership of the separate entities add even further complexity to the situation in that, the operating businesses own a piece of the real estate,  numerous trusts own a piece of the real estate and investment businesses, and the operating businesses have multiple owners consisting of other entities that the family shareholders control. I have done my best to explain this situation as simple as possible, but due to the bizarre nature of ownership, I have likely confused you.

When we got involved, none of the family members, or any of the family’s advisors for that matter, completely understood the structure.  And for a simple family, it didn’t make sense and was causing relationship stress. The two inactive family shareholders were growing increasingly frustrated because they could not predict their income stream with any reasonable accuracy and consequently, could not plan their lives accordingly. The son was growing increasingly concerned about his fiduciary liability with his siblings.

This structure has worked under the father’s leadership because the daughter and daughter-in-law have believed that things are being done in their best interest. However, nothing could be further from the truth. To create dependence in any human being is never in their best interest. If these issues are not worked out with a new, simpler structure, the likelihood of the next generation living under these conditions is highly speculative at best, and more likely pointing toward volcanic explosiveness.

Fortunately, all family members have come to understand the issues and are cooperatively working toward a straightforward structure that is easy to understand and that creates predictable and meaningful sources of income. The initiation of the process towards an uncomplicated structure, in and of itself, has created a more harmonious family environment. The inactive family members’ frustration levels have subsided, and the son’s fiduciary liabilities have been reduced, as they all see movement and growth toward independence.

Situation 2: Blended Family Business

The next situation involves a blended family business that has two children from each side.  Two of the four children are actively involved in the business, one from the dad’s side and one from the mom’s side. Both active kids want to be able to run the business at some point, but the entire family has strongly suggested, if not warned, against the two active kids working together.

Here’s the problem, the business is made up of five different franchises underneath one corporate umbrella. That’s right; all five businesses are inside the same corporation.  And, the bulk of the family’s net worth is the operating business. What’s a family to do?

Well, you could start by forcing the kids to grow up and learn to cooperate with each other, so they could work together. On the other hand, if the family is right in that there is absolutely no way to make this happen, we’d then be setting them up for failure and family disharmony. So, why not build in some flexibility? An IRS Section 355 divisive re-organization, or tax-free spin-off, of the separate businesses is in order.

While this will most certainly be a costly initiative that is dependent on IRS approval, it will create the flexibility for the active kids to remain in business together if they show that they can mature beyond their sibling rivalry issues. In the event they cannot, well, we then have the flexibility to divide the businesses up and allocate one or more to one child and one or more to the other child.

Further, we will also segregate the real estate that each business is sitting on into separate entities to provide additional planning flexibility, not to mention, much needed additional liability protection. While this environment is not perfect by any stretch of the imagination, it most assuredly creates an environment that is more conducive to the maintenance of family harmony in the long run.

Situation 3: Good tax planning but not necessarily good succession goals.

The tax-driven planning accomplished in this case is particular to the client’s state of residence. Similar to the situation in situation number two, this one involves an operating family business and business related real estate, with two children active in the business and one not. The typical structure is to have a lease agreement between the operating business and the entity that owns the real estate, thereby generating a long term and reasonably dependable source of income for the owners of the real estate. Many business owners establish such a structure to provide them with retirement income once they decide to leave the business. Others, as in this case, use this type of structure as a way to create equality between their children, with those active in the operating business paying rent to those not active in the business, and giving the actives the option to buy the real estate. Not perfect, but it works in a lot of cases.

In this particular case, however, the owner did not set up a lease agreement between the two entities; rather, he established a joint venture between the operating business and the underlying real estate to avoid paying sales tax on the rent transaction. The way this works is that the real estate and the operating business share the net profit of the business. Makes sense, huh?  Except that in this most recent economic downturn, the operating business lost money a couple of years in a row, thereby generating no profit to share with the real estate. Rather, the operating business, which thankfully was well capitalized, loaned money to the real estate to pay its share of the income taxes. Now, the real estate (inactive child) owes money to the operating business, with no other source of income to pay the loan. The actives could buy the real estate, but then it would be a reduced figure due to the loan that would be due them.

Obviously, this is not a great deal for the inactive child. Unwinding the joint venture is not going to be an easy thing to undo. But for the sake of family harmony in the long run, that’s what this family has chosen to do.

In sum, when structuring your business and your acquisitions of other businesses, real estate, etc. that you make along the way, please keep in mind that someday you will likely be in a position of leaving it all to your kids. Always ask yourself, “What impact will the decisions I’m making now have on the long term continuity of the ‘golden goose’ and the maintenance of family harmony?” You owe it to yourself and your family to make these decisions as wisely and with as much foresight as possible. It impacts more than just today.

Permanent link to this article: http://blog.ncm20.com/2013/06/business-structuring-and-family-harmony/