Wyatt Johnson Automotive Group’s Katherine Cannata says inventory management key in downturn

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“The industry’s fun,” she said. And she’s using skills acquired in her decade in certified public accounting to boost profitability for the family dealership group, Wyatt Johnson Automotive Group, and help it grow. Wyatt Johnson represents nine brands at seven dealerships in Tennessee. The group, which posted $320 million in revenue in 2018, sells an average of 800 vehicles a month, split evenly between new and used.

Cannata is dealer principal for the group and shares operating duties with her brother and brother-in-law in an arrangement the family figured out after her father, Sid Johnson, died in 2007. Her philosophy as a dealer: It’s more important for retailers to focus on their own profitability than on market share pushes from automakers. Motivating employees and holding them accountable is a big part of that profitability puzzle.

Cannata spoke with Retail Editor Amy Wilson this month on the sidelines of the Automotive News Retail Forum: Chicago. Here are edited excerpts.

Q: How did your dad approach succession?

A: He liked the business so much, I don’t think he really planned on going anywhere anytime soon. So we did a lot of work between ourselves after my dad passed away to figure out what roles fit what person. It took a year or so to figure that out. But when we did, it became a very cohesive, great team.

You joined the dealership group in 1999 in a part-time position after planning not to work in the family business. What about the experience made you decide that you could have a long-term role and add value?

Because I did add value. I’m very, very grateful for the opportunity. I was learning so much. At the same time, my ability to understand and analyze the data and present it in a way that other people can understand and know what their impact is on the financials, I think gave great value to our company. Coming from the outside, not in the car business, I asked a lot of questions that were probably annoying to a lot of people at the time, but I just brought a different look that they hadn’t seen before. So that was pretty rewarding for me because it started paying off in profitability. And then we started being able to afford to buy other stores.

How do you harness the value and energy of your employees?

Our employees are critically important. When we hire somebody, we want them to stay with us for 30 years. We want to be a career choice for them. So we spend a lot of time training, but we also spend a lot of time just getting to know them. Our training budget is usually double the average dealer. And then we do a lot of accountability work. And a significant amount of rewards: trips to Mexico with your significant other, Rolexes to our salespeople who make one hundred grand a year. We hand out longevity checks. We hardly ever hire a manager from the outside. Of our 66 managers on staff today, only four were hired from the outside.

How do you use data analysis as a vehicle for accountability?

We’ve been very transparent with all of our financial data. A year and a half ago, we implemented this report card process. It’s made a difference in the level of ownership each of our managers has. Each manager has a set of 10 to 20 metrics in four categories. And every month, they are graded on their performance in those categories. And they have to present their results to the leadership team once a month and then talk about how they’re going to get better. That level of accountability has really made a difference.

How do you think the customer experience in the industry will change? What are customers demanding?

We are working very hard to become a much faster and easier store to do business with. We feel like it’s easy because we do a great job of getting to know the customer, build relationships. But going forward, that speed and ease is going to continue to be more and more important.

Expansion is one of your goals. You’ve added stores and entered the Nashville market. Do you want to buy more stores there or look at other markets?

Yes. I really think if you’re not growing, you’re dying. But that doesn’t mean growth can’t come from within your own stores. We still have a lot of growth we can do internally. I do think in the next two or three years, or whenever this downturn comes, there will be a lot of dealers that are not prepared for that and that are ready to get out. And that might be a buyer’s market. So I’d like to think we might sit by just for a little bit and see what happens over the next two or three years.

What are your thoughts on stair-step incentive programs?

Stair-steps are bad for the dealer body and the manufacturers. I understand that manufacturers are just simply trying to sell more cars and reward the dealers that are selling more cars. But the unintended consequence is that it’s devaluing their brand. The extreme examples are Toyota, which doesn’t have stair-steps, nor does Subaru. And those are two of the most valuable brands with the best residuals on their cars, too. The blue-sky multiples you pay for a Subaru or Toyota store [are] twice that of a Nissan store, which has these big stair-step incentives. From an industry standpoint, the manufacturers doing heavy stair-steps should just pay attention and realize it’s not a short game — it’s a long-term game.

What is your outlook on balancing your company’s profitability with market share and being No. 1 in market share?

I want to do right by the manufacturers. I want to represent them well. I want to be an awesome dealer. In order to be an awesome dealer, I feel like I have to have an awesome team of people. So I defer to, how are we going to pay our staff and our salespeople? If salespeople can’t make a good living, they’re just not going to stick around. And if you’ve got a new person coming in the door every month, then our customers think, “What are you running here? Is this a zoo?” We want professional salespeople who know the product, know what they’re doing, give customers great advice, and so we lean a little bit heavier to managing profitability.

What is your approach to automakers’ dealership image program requirements?

That’s so hard because I love beautiful buildings. I want our buildings to be beautiful, and they are. But anytime a manufacturer asks you to spend your money, it’s a difficult pill to swallow. Personally, I really haven’t had a bad experience. We’ve done a Buick-GMC renovation that we resisted a lot. Once it was finished, we loved it. And profitability kept going up. We’ve built a brand-new Kia building from the ground up, a brand-new Volkswagen building from the ground up. Of course, they want all of these fancy things that are expensive. At the end of the day, those stores are performing very well. Rent factors are great. So it’s all worked out for us.

What is your outlook on the future of brick-and-mortar stores in auto retailing?

If I knew that, then I would be brilliant. I don’t know. I listen to both sides. One side says, “Oh, we’re gonna go to all-online car sales, and you’re only going to need a distribution center.” But a car is the second-largest purchase most people make. And I see the customers. A lot want to see it and touch it and go through some options. And so I’m thinking we need buildings for that, and we need certainly a service facility. I still believe that for a dealership, brick-and-mortar is going to be very important.

I think about Apple, which sells a ton of stuff online. If you’ve ever been in an Apple Store, it’s packed. They keep having it grow larger because there are so many people in there touching and playing with those devices. It’s hard to display vehicles if you don’t have a place to display them. So I’m going to gamble on that [and say] brick-and-mortar is still important in 10, 20, 30 years.

How is Wyatt Johnson Automotive Group poised to survive and thrive should there be a recession or a more substantial economic downturn?

We are prepared for that. First of all, one reason we’re going to survive and thrive is because we’ve done really well in the good times. And we haven’t spent all the money; we’re prepared for those down times. And so even if we make less money, it’s just part of the cycle. The last [recession] in 2008, we had to help out some people a lot. There were a few more handouts when things that they didn’t [control] affected their pay. And so we’re prepared to do things like that if necessary.

But the service business is really critical. We implemented a service [business development center] last year, which has really helped increase our service business. We also are continuing to focus more and more on inventory control. In a downturn, inventory management is one of the most critical parts of your business that you’ve got to manage.

Hopefully, [the next downturn] is not going to be as drastic as 2008. Hopefully, it’s just going to be a dip. When we had the recession in 2008-09, we had capital. But the credit markets tightened up. We researched, extensively, the buy-here, pay-here market. And we opened a buy-here, pay-here store in 2010. So we put our capital to use and also were able to loan money to people who couldn’t get financing at our retail stores. So it’s important for dealers to remember that in times of recession is when you are really forced to become more creative and forced to figure things out. And it’s really a wonderful time to fine-tune your skills and even create more business opportunity.



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