The following story seems unbelievable, really. But it’s true. How do I know? Because it happened after I left one of the big dealerships I used to manage. It’s a case study for what not to do when it comes to dealership management. It’s evidence that employee training is crucial and by telling this story, I hope to stop anything like it from ever happening again.
The Cast of Four Characters
- A hard-working General Sales Manager
- A disengaged Corporate Office
- An untrained Payroll Clerk
- A careless HR Director
What’s most scary about this story is its simplicity. There were only a few signposts that needed to be observed, but because those were missed, a perfect storm materialized.
In my 25 years in auto retail, I’ve seen a lot of mismanagement and the ensuing losses. I’ve never had a shortage of stories to illustrate why it’s important to have checks and balances in the store’s operation. Employee training mitigates some of these losses, especially when there’s leadership to support the outcomes.
How ‘The Perfect Storm’ Can be Detrimental to Your Financial Health
The story begins with a GSM who had done his job well.
He was part of the team that turned a mediocre store into one of the largest dealerships in the U.S. The store became #1 in their region and the GSM was compensated well for his leadership and management efforts.
The GSM was not the easiest to get along with for some of his staff but that was mostly because he was strict and didn’t tolerate lack of production. However, the way the corporate structure was set up made it a breeding ground for undermining by subordinates.
One day, an unsubstantiated complaint was sent to the organization’s corporate office. The GSM had always had a uncompromising style of management but his results were indisputable. The store was selling 200 new and 100 pre-owned high-line European cars per month for about $1.2 million in gross profit. He ran a tight ship and as often happens, some of his less-productive staff didn’t care for his management style.
A corporate office inquiry is conducted as “standard operating procedure.”
A few weeks later, acting on the made-up complaint, the corporate office sent in a team of attorneys and auditors to investigate. It was overkill to say the least and very disruptive to the store’s operation. Everything comes to a standstill during these events, especially employee productivity and sales. In some cases, it’s warranted but in this particular situation, it could’ve been handled with much less drama and without the fanfare.
It took them two weeks and they never found anything wrong. However, perhaps to justify the two week investment, the HR Director decided to terminate the GSM anyway.
Enter the Inexperienced Payroll Clerk
The store’s payroll clerk was asked to prepare the GSM’s final check. This payroll clerk was in a job that was beyond her capabilities. It had been apparent to management but no one ever took action to turn the situation around or make a better hiring decision.
The payroll software was tricky and because the payroll clerk had never been properly trained over the year since she’d been hired, she still couldn’t navigate it correctly.
In her defense, this particular software was not made for car dealership operations and very often, you had to come up with a work-around to get what you needed done. Using it was a decision that had been made at the corporate level.
In order to cut the GSM’s final check for $20,000, the payroll clerk needed to override the default “number of hours” and manually enter $20,000 as a one-time salary. Unfortunately, she entered the 20,000 into the ‘hours’ column and the software computed the payment of $2.8 million.
The untrained payroll clerk never checked her entries nor the resulting amount…and unsuspectingly sent the payroll for processing.
Ding, ding, Payroll’s done! Enter the corporate HR Director.
The HR Director, who’d been the catalyst for the GSM’s termination, sent a note saying he wanted to deliver the GSM’s final check personally so that he could make sure it was “done right”.
When the processed documents came from the payroll company there was no check printed because the GSM had been on ‘direct deposit’, where the funds were automatically sent to his bank account.
…and here’s where the final act in the perfect storm came to pass.
Absurdly, the HR Director never opened the payroll documents. He only met with the GSM and handed him the unopened envelope containing the payment notice that $2.8 million (less taxes) had been deposited into his account!
When the GSM opened the envelope and saw the amount, he asked the HR Director if ‘this was for him’. He was told, “Yes.”
The GSM asked a second time, “Are you sure this is for me?” Disgusted that he was being questioned twice the HR Director again replied “Yes!”
“Hey, where did my $2.8 million go?”
The dealership’s operating bank account was part of the corporate office’s account so the $2.8 million went unnoticed for a few days.
The corporate office only learned about the mistake after the bank called to verify the transaction. Apparently, it’s policy for the bank to call on any transaction over a million dollars. By this time it was too late though, the money had been gone for over a week.
Because the HR Director had confirmed that the money was his, the GSM decided to hire an attorney to handle the situation. It took the dealership two years to retrieve the money.
There are many moving parts to this perfect storm, right? You have…
- Lack of leadership
- Poor management
- Substandard hiring practices
- Questionable termination practices
- Bad processes
- Human error
- Unskilled employees
However, had the payroll clerk been trained properly, and monitored for her progress, the whole $2.8 million enchilada may not have happened.
Do you have voids in your operating processes that might come together one day to create the perfect storm? What would you have done if this scenario happened to you?
If you’d like help with setting up systems and processes to avoid situations like this, please get in touch with me here.