People power: Why dealerships should avoid the urge to cut staff in tough economic times.

For franchised dealers, making a good profit year after year is always a challenge, perhaps more than any other industry. Profitability in the automotive sector depends on many external factors, from consumer confidence to pre-registration levels, manufacturers' targets and rising overheads.

Recently, the UK has experienced a 'perfect storm' of falling sales and rising business rates, which looks set to push much of the dealer network into survival mode. New vehicle registrations fell for the tenth consecutive month in January, while dealer bills rose to £559.9 million in April last year, up from £496.9 million in 2010, according to reports. As one classifieds consulting representative cautioned, dealerships must adapt. The changing face of the motor industry if they want to survive.

So how do businesses within the sector adapt? Financial savings are understandably a priority, with many dealers now on a campaign to see how and where cuts can be made. Since staffing is one of the biggest overheads for dealers (up to 60% of expenses in some cases), it's no surprise that downsizing is usually done to secure the financial future of the business. is offered as a first step. In fact, it was the right move by the Volkswagen Group in late 2017 when, in addition to closing several showrooms, it decided to "reduce dealership staff to optimal levels."

But when profits are affected, is reducing the workforce really the best solution? As is often said, it's the people who make the business. While reducing staff numbers may help balance the budget in the short term, it is important to consider the overall impact on business performance. For the remaining employees, having sufficient resources to ensure 'business as usual' can be more of a challenge. With this comes the temptation to cut corners and ignore 'normal' processes. Before the dealership found itself struggling to maintain positive relationships with customers. Basically, what starts out as a quick fix can cause potentially irreversible damage.