Longtime North Carolina dealer Don Flow wasn’t even on the Audi National Dealer Council in 2020, but in 2021, he’s the chairman. Flow, 65, wants to spend his term as chairman launching what he hopes will be a longer-term study about just what works and what needs work in the way Audi dealers do business with the factory.
Flow is CEO of Flow Automotive Cos., a dealership group headquartered in Winston-Salem that has 44 new-car franchises, including four Audi stores, and sold more than 30,000 new and used vehicles last year. He says Audi dealers recovered well in the second half of 2020. Flow said he anticipates a big boom in business as vaccinations spread and the threat of COVID-19 lifts.
Flow spoke with Staff Reporter Larry P. Vellequette. Here are edited excerpts.
Q: What was 2020 like for Audi dealers?
A: Audi dealers were similar to almost everybody else. From about March 15 through April was a time of just an unparalleled lack of clarity on what was gonna come next. If there was ever such a thing as a fog of war, it was that 45-day period. Every part of the country was having different reactions, and there was no kind of normalized role, no reflection on what we’re going to do next. Who’s going to close? Who’s going to open with what restrictions? How dangerous is this? What are the relative implications of all this for everybody?
Most of us were focused during that period just on a plan for survival. But the really amazing attribute of Americans is, we are a resilient people, and we adapt, and suddenly people start to say, “OK. It appears to me that we can survive this” with wearing masks and social distancing and cleaning. And slowly, we begin to open back up again. By June, things were significantly different, and I doubt if any of us could have ever predicted the last six months of the year in the car business. It would have been impossible to predict that.
It was certainly a crazy year.
One of the things that happened was we got back into equilibrium of supply and demand with product. And the fact of the matter is, when that happened, margins returned back to their historic levels — and not where they’ve been in the most recent past. Floorplan costs became the most positive thing we can imagine with them. Interest rates are nearly zero, inventories were nearly zero and we learned to sell much deeper into our days’ supply than any of us ever imagined, in a way that we thought was impossible. We were able to sell into our future vehicles coming to us in a way we’ve been unable to in the past.
And then most of us adapted to some level of online processing of selling new cars and servicing vehicles. By May, when there was probably the most fear of what would happen, people started coming back. Many of us were doing 60 or 70 percent of our sales origination online at that point — though it balanced back out by the end of the year, but it’s still higher than it was. Now, most of us have developed processes that allow us to go as far with the customers online as the customer wants to go. That’s how we ended the year.
How do you and your fellow Audi dealers feel about 2021?
We start this year with a lower days’ supply than usual, but feeling quite good about where we are. And I always say that, if the vaccine rolls out in a timely manner, my experience is that when Americans have the euphoric moment, they celebrate. And one of the things they do is they buy a car. So, depending on the timing of this, we may well see Q2 or Q3 being superb quarters. Some of it’s catch-up, but it’s a common experience we have in America, when we have those things happen to us, and so I think dealers should be very positive looking forward to this year.
I think January and February will require tight management and tight planning, excellent execution and cost management, along with everything else, to get to the other side. But by March, we should begin to have a mental shift, even if people have not had a vaccine yet themselves, they’ll know people that have vaccines, and they’ll be able to feel it’s coming.
You mentioned dealers selling deeper into their days’ supply than ever before. Obviously, we know that dealers have had to change their operations. But have customers changed their need for immediate deliveries?
That’s an interesting question. During this period, customers would often find there was a limited selection, so they would choose things that might not have been the highest desired vehicle, but it was an acceptable vehicle because there weren’t as many choices, and they would take it gladly, and without disappointment. So I think it always brings us back to this trade-off between complexity of offers, chasing the last single-highest offer, the potential product out there, versus the question of, is there a range of products that are satisfactory to people? And what are the trade-offs when we chase the absolute optimal versus what was satisfactory?
That’s an interesting point for an Audi dealer to make, given all of the model derivatives that Audi offers to customers and the brand’s efforts to simplify its product lineup. What does that mean in terms of the inventory you carry?
I would say the most important thing Audi did this year was to make a pivot in terms of the percentage of sedans versus their SUV lineup, their Q lineup, and they did a very nice job of that. Every brand has had to acknowledge and embrace the consumer shift toward SUVs and move forward. Whether that stays a permanent shift is not clear.
There’s a history in America of younger people rejecting what their parents and grandparents drive, and if they’re all driving SUVs, what will young people do? I think if I were a car manufacturer, I would be careful about totally abandoning the sedan market, at least I’ll call it the design-oriented sedan market, which is typically where young people are oriented toward more expensive cars and vehicles like that. But we’re all going to learn this together.
With inventories still way down but production picking back up, do you think dealers will return to the bad habit of stuffing themselves with inventory if given the chance?
I have learned to be very careful about predicting the behavior of entrepreneurs. Some see opportunities everywhere, or see problems to be solved and act quickly. That is part of the dynamics of capitalism, and it works in all that noise and mess, that somehow new value is created all the time. That’s part of the genius of America.
I would say that most of us think that the first two quarters of the year we will have slightly better inventory but not dramatically different. And then we’ll have a better picture by the summer at what we’re looking at and what the demand is in the market.
What do you want to concentrate on as chairman?
I wasn’t on the board last year, but Audi asked me to be on the board this year, and my fellow board members asked me to be the chairman. But I told them I would only do it if we consider thinking about this in a different way, so we’ve created these foundational commitments to how we will work together.
And to make it easy, we’re going to work on what I call the five T’s: truth, because we’ll look at reality and be data-driven; transparency, any information available to one party will be shared to all parties; trust, no one will try to take advantage of another party; teamwork, we’re not just going to cooperate, but we’re going to co-labor; and telos, which is a fancy word for end point, because our end goal is to create a premium brand that creates distinctive excellence, as measured by the customer experience, and by the dealership operational experience, which includes productivity, efficiency and sustainable profitability.
This will be the lens through which every decision we make will be made. And we’re going to break our work down into four buckets for the year: areas of excellence, areas of improvement, areas of innovation and areas of elimination. Working on task forces, we’ll merge all those up together and rank them in importance for the year and work on those.
And the idea is: What are the things we can change in 12 months, and what are the things we can change over 36 months, so that when my term is up, there’s some movement going forward instead of starting each year from scratch.
That seems like a more aggressive role for the council to take on.
If we’re serious about how to really reach Audi’s full potential in the premium segment, we’ve got to put a stake in the ground to do this, because one of the things we know is that we have some, but minimal, input really over plotting design. So what are the things that we can impact? Those are the things I described, the things that will help the brand from a customer-experience level and from a dealer level, eliminating bureaucracy and improving productivity and efficiencies. Anybody knows how to jack up profitability in the short term. Our business is sustainable long term with profitability that builds upon itself. So what’s that going to look like in today’s world and how do we go from here to there?
Profitability has been such an issue for Audi dealers for so long. I know we’re coming off this window at the end of 2020 where it was good, but how can it become sustainable?
One of the things we’ve learned during this nice time is to think about profitability is driven by the following areas: volume, margin and the cost to create that margin. We have to look at those three things and ask, what is the appropriate level of volume to sustain this level of margin and what is the cost to do it? So the formula sits within there. We need to deconstruct that, look at that and see what it’s looked like in the past, how it is measured up against other premium brands, where it’s been excellent and where it’s been deficient. That’s part of what we’re gonna do.
Let’s talk product. What’s missing from the Audi lineup?
Well, right now, I would say that the Audi lineup has all the ingredients for everything we need. Previously it was a model mix availability — as the industry shifted more to SUVs, Audi lacked some of that, we were selling things that had less demand by nature and that held down margins.
But now, the allocation is much more oriented toward SUVs, where the market demand is. And Audi is going electric, and that is like Audi in essence launching a brand within a brand. And we need to be effective and work with Audi to make it successful. It’s not just about selling a number of cars; it’s central to our future as a brand.
What does that mean for the E-tron and future Audi electric vehicles?
Selling these vehicles requires full communication, where it’s not a company that sells internal-combustion powered cars and we say, “Oh, we have these electric cars, too, over here.” It has to be core to our brand, but there are costs incurred with that all the way. And all of the brands are struggling with that.
Audi has taken steps recently to simplify its U.S. offerings so that there aren’t so many different options. What has that meant for dealers in terms of inventory?
Well, it was a really good year. For many of us, we felt that that was more valuable, because all of the constant derivations, and stocking for that 1 percent buyer searching for a specific car, hunting that specific customer.
That’s not the case now, and that’s OK, because the quality of the cars [is] so much nicer, the performance of the cars [is] so much nicer. There’s just a wider variety of quality vehicles available.
What was your dealerships’ experience launching the E-tron?
Two of our dealerships are in Charlottesville, Va., and Asheville, N.C. — college towns — where we had more early adopters, based on the cultural environment, than we had in Winston-Salem or Greensboro, N.C. That’s part of what’s happening all over the country, where we’re seeing electric vehicles roll out in waves. But I think there’s a trust with the Audi brand that transcends some of that.