Marc Graham has seen it all unfold. He knows where the automotive industry stands.
If you’ve listened to any of the news coming out of Detroit in the past two-plus years, you know the automotive industry has seen better days. And it’s not just the automakers; it’s the service providers and component suppliers that rely on the automakers for their business.
So when you find out that Graham is the president and CEO of AAMCO Transmissions Inc., in charge of piloting 5,000 employees and franchisees through the recession, you might think he’s been bailing water in earnest, just like the rest of the industry.
You’d be wrong. AAMCO is actually growing, for a very simple reason: It service the cars that increasing numbers of consumers are keeping in lieu of making new auto purchases.
“This is one of the few areas that actually lives quite well in a recession,” says Graham, who also heads AAMCO’s parent company, American Driveline Systems Inc. “As we’ve gone through the last couple of years, in a situation where consumers cannot or do not buy new cars, they’re leaning back toward an area where they’re taking care of an older car. In the past, when they reached a certain point with maintenance costs, they’d just buy a new car. Today, they’re investing in that vehicle and bringing it back to an as-new mechanical condition. That works extremely well for the automotive aftermarket, and specifically AAMCO.”
But converting AAMCO into a full-service aftermarket auto repair brand has been the prevailing challenge that Graham has faced over the past several years. For more than 40 years of its existence, AAMCO specialized in transmission repair. But as transmissions started to resemble computers instead of mechanical components, Graham began to realize that his company needed more than transmission repair to sustain itself.
“If you’ve driven an older car, you might remember a transmission slipping or feeling a clunk or a grind,” he says. “But in recent years, transmission failures have become more electronic. You might have a light come on in the dashboard or a symptom that feels more like a fuel starvation. So as we looked at that, we said that we really have to start covering the entire car if we’re going to protect our transmission business.”
Graham needed to convert AAMCO from a niche player in auto repair to a comprehensive auto maintenance company. He had to build the case and convince thousands of franchisees — most of whom were running successful AAMCO stores under the old model — that it was a necessary move for the long-term health of the company.
Build your case
This wasn’t Graham’s first business transformation. As the head of Jiffy Lube, Graham oversaw a similar diversification from a core oil change business to a preventative auto maintenance business.
“We were quite successful with that, years ago,” Graham says. “We added about half a billion dollars of profitable revenue to their franchises.”
But AAMCO was even bigger, and even more entrenched in their market niche, with almost half a century of living by a successful transmission-based business model. Graham had to meet his 5,000 employees and franchisees head on, with some corporate vision-based evangelism — though based far more on data than cheerleading.
“What we did, and what we continue to do now, is maintain that constant exposure to doubters of what is working and what is not working, what the successes are, and doing it in a very factual formula,” Graham says. “For me to sit in front of an AAMCO franchisee and say, ‘This is the right thing to do, just believe me,’ works for some situations. But when you talk about the true dissenters, they need to see facts. I’ve dealt a significant portion of my life with the mantra, ‘You can’t hide from facts.’ So as you look at your successes and you’re able to show increases in revenue and strong return on investment, show strong profitability, and continue to show that to the doubters and dissenters, little by little that group erodes into a group that is now the adopter.”
But hammering away on the facts is one thing. Showing your people how your planned company shift will benefit them is something else. You have to put the new business model in a frame of reference that shows each person the benefit on an individual level.
Graham could see the revenue-based benefits that awaited a diversified AAMCO brand. But what his franchisees wanted to see was how the change would affect profit at the store-operator level.
“All of us at the CEO level, we talk about revenue, revenue, revenue,” he says. “But one of the things you hear a lot from the AAMCO team is profit, profit, profit at the operator level. So I’m not showing them revenue. I’m showing them an income that they can attain, and I’m also showing them how this strategic direction supports them in an eventual sale, in the increase and equity of their business.”
Graham and his leadership team constructed the message by breaking down AAMCO’s business from the standpoint of sales, revenue and profit elements as it pertained to their core business of transmissions. Then Graham took the new business and did the same dissection.
“We proved to them that there is a significant amount of volume in the new business, and that volume could be transferred at an equal income rate as the core business,” Graham says. “On a global level, we showed that the opportunity was significant, and underneath that, we showed that it wasn’t just revenue, it was profit. And the last part of the message was underscoring that this great transmission business could be enhanced by total car care. If you take total car care, here are all the reasons why it is going to support and grow the transmission business. That is the hardest thing to hear and understand when, after 40-plus years, they’ve been running a business in a very specialized, one-method platform.”
Work with the stragglers
Graham had to get his franchisees to think about the business in new ways, which meant getting them to realize that each store could utilize its resources in new ways. For most simple auto repairs, such as brakes, AAMCO stores were already outfitted with the tools and manpower to take on the added responsibility, meaning very little in the way of capital investment. But for more complicated repairs, such as air conditioning, investment was required on the store level, increasing the skepticism of some franchisees regarding Graham’s plan.
“If you look at what you have to have in a facility, first of all they already have an average of six or so bays, and they have the technicians with the skills to service a complicated part like a transmission. So for them to transition to brakes, it requires almost nothing in the way of investment,” Graham says. “But some areas do require an investment, and I tried to emphasize that it’s purely a cash issue. If you can get a quick return, that cash issue goes away pretty quickly. So ultimately, it’s a fairly low capital investment to get hundreds of thousands of dollars in new revenue.”
In communicating with reluctant franchisees, Graham kept coming back to the concept of return on investment, and holding up some of the early franchise successes as examples.
“Something we communicate to every franchisee, and something that I’d tell all CEOs, comes back to return on investment,” he says. “Capital, in and of itself, looks like nothing more than cash. When put against the opportunity of profitability and ROI, it becomes far more measurable.”
To leverage his leading-edge franchise successes with the new business model, Graham started to create a dialogue among franchisees, and dispatched members of the company’s franchise support group to maintain personal contact with franchise owners.
“You have to expose everyone to your successes,” Graham says. “Our franchisees came to a website called myaamco.com, which only the AAMCO centers can access. They can see the exposure of the successes. They can see the top 50 and top 100 stores, and how much they’re doing, how beneficial it is to those centers. It drives them harder to get out to those same levels of achievement.”
The franchise support group has been retrained on the sales and marketing, and profit and loss aspects of the company’s business, so that when they go into an AAMCO store and talk to the franchise owner, they can talk about the ways in which revenue and profit can be improved.
“They can sit down with the owner, walk them through the improvements in revenue, items that can improve the revenue, how they can attain profitability and how they can market,” Graham says. “That is a big separation from how it has been done in the past.”
Graham says that currently, most AAMCO centers are involved in the service items that required a more substantial capital investment, and are showing the returns on investment that Graham initially projected.
“Now we have a great story to tell from the standpoint of ROI,” Graham says.
Continue to set goals
Sometimes, Graham’s operations heads do a double take when Graham comes to them with a new opportunity. But for Graham, it comes back to setting goals for the company that are aggressive yet attainable. You find that sweet spot outside of your comfort zone but within your company’s capabilities, by looking at the metrics of the situation.
“Here is how I lay out the metrics, and then I sit with my operators and they lay out back to me how they see the metrics,” Graham says. “What comes from that is the believability that the opportunity is scalable. Then, back to the question of goals and what is palatable on an annual basis.”
When setting goals by which to advance a new plan, you can find yourself tempted to lose patience. There is a new market that needs conquering, and you don’t want to wait. But the data you collect, and the process by which you analyze it, can go a long way toward restoring your nice, steady pace.
“When you see a business that you can grow at a 4x or 5x level, and an existing business that can grow at a nice number, your patience level as a CEO isn’t high,” Graham says. “So a lot of the goal setting, at least in my experience, is offset by an understanding of what is palatable and achievable.
“I was asked years and years ago how I looked at a company that I was getting ready to operate, and I said, ‘I’ll look at a wall, and on that wall are all these different knobs I can turn. Every single knob can create a dynamic that would give us more opportunity and profitability, but I know that if I turn too many, we flood.’ So that whole idea of goal setting, it comes more to an understanding of what level of patience should be applied. You make sure that you’re accelerating the opportunity, but the people in the facilities are able to keep up and enjoy it at an appropriate rate.”
Several years into the new business model, AAMCO is succeeding in becoming known for more than just transmissions.
“On our whole strategy, our franchisees were quite engaged, are still quite engaged, and we have gotten adoption on it,” Graham says. “The big key is to step back and look at the entire landscape. Don’t dive into it. See what the other side thinks, and then try to re-convince yourself from the standpoint of, in our case, the franchisee. Why should I believe this plan? As you break it apart and dissect the landscape, you should be able to convince yourself whether this is the right path to take. Then, you have to listen to your constituency and make sure you are working with them to knock down the barriers to the opportunity.”
How to reach: AAMCO Transmissions Inc., (800) 292-8500 or www.aamco.com
The Graham file
Born: Monterrey, Calif.
Education: Stanford Business School
What is the best business lesson you’ve learned?
Step back, stand in the corner and watch what is going on around you. It’s a fantastic business lesson because the people who are high performers do all the work, but they could perform at an even higher level if someone in your position would be able to mentor them.
What traits or skills are essential for a business leader?
The biggest skill is going to be an open mind. It’s so simple for someone in my position to mandate what I think is right, but you have to refuse to impart direction in that way. You want the entire team pushing forward, which you get far more as a collaborator than as someone who is only dictating rules.
What is your definition of success?
Success means everybody in the process understands what they are doing, they’re driving toward a common goal, can explain the goal and perform at a level that is satisfactory to everyone involved in the process.