The Crimson Press Curriculum Center

First Page and the Assignment Questions:
In December 2003, Howard Hakes, vice president of Hitchcock Automotive Services, reflected on some of the challenges his team faced in managing his company’s stable of automobile dealerships. He illustrated his points by discussing the challenges faced at Puente Hills Toyota, Hitchcock’s largest dealership, although all of the Hitchcock dealerships faced essentially the same problems.

This is very much a people business. It’s people who give us our biggest successes as well as our biggest challenges. At our Toyota store, in sales, I would say that about 20% of our people are loyal to the company and really want to do a good job. The other 80% are just in this for the money … and they can make more money here than anywhere else. Our compensation attracts some very talented people. But some of these people are sharks who try to get away with whatever they can. Others have personal problems. They live from paycheck to paycheck; that is their mentality. Still others are cancers whose bad habits can spread. We coach and counsel; we give written notices; and for most of the employees, once they get the message that is the end of the problems. But for some others …

I think the key to management in this business is all about managing attitude. How can we keep the team moving in the same direction, to get everybody to be part of the team, and prevent the cancers from spreading?

THE COMPANY AND INDUSTRY
Hitchcock Automotive Services was a privately held corporation comprised of seven automobile dealerships—three Toyota dealerships and one each for Volkswagen, Ford, Hyundai, and BMW—and a large body shop. All of the entities were located in Southern California. Four of the dealerships, including Puente Hills Toyota, were situated adjacent to each other in City of Industry, California, about 25 miles east of Los Angeles. The others were located in Anaheim, Hermosa Beach, and Northridge.

It was important for the dealerships to keep two important constituencies—manufacturers and customers— happy. The manufacturers allocated larger numbers of their best-selling models to their better performing dealers. The manufacturers evaluated their dealers in terms of their abilities to fulfill their market potential: to meet sales targets the manufacturers set for each geographical trading area, known as the primary market area. The dealerships also had to satisfy the manufacturers’ licensing and certification standards. The manufacturers regularly performed compliance audits to evaluate dealership practices in comparison with the established standards. However, Howard Hakes believed that short of flagrant violations of standards (e.g., selling competing brands under the same roof) fulfilling market potentials was the primary factor affecting the dealers’ relationships with the manufacturers. Customer satisfaction was obviously important in obtaining repeat sales and, hence, future profits.

Assignment

1.   Evaluate the performance measurement and incentive systems used at Puente Hills Toyota. What changes would you recommend, if any?

2.   At Puente Hills Toyota, most employees' variable incentive pay increases linearly with performance, however performance is defined; that is, the higher the performance, the larger the bonuses that are paid. In most large companies, however, particularly at managerial levels, no bonuses are paid until a minimum level of performance, such as a budget goal, is exceeded. What are the advantages and disadvantages of using a reward/performance function like Puente Hill Toyota's?

3.   (When used in conjunction with Kooistra Autogroep.) When comparing the use of incentives in the Puente Hills Toyota and Kooistra Autogroep cases, do you believe that incentive pay is truly effort-inducing; that is, will it drive employees to perform at their best? If you believe incentive pay is not, in whole or part, effective in making employees work harder, then what other potentially useful purposes does variable incentive pay provide for organizations relying on it, if any?