Diversity, equity, and inclusion in auto retailing

Auto Dealer

Diversity, equity, and inclusion (DEI) is top of mind for many in the auto industry as leaders set goals and strategies that will shape the industry for years to come. To explore DEI in auto retailing, we conducted a Q&A with Damon Lester, head of the National Association of Minority Auto Dealers and owner of Nissan of Bowie, and included Jason W. Smith, head of Dealer Commercial Services at Truist, and Wendy McSweeney, ESG Impact Advisor for the Commercial Community Bank and former Chief Diversity, Equity, and Inclusion Officer at Truist.

Where are we today with diversity, equity, and inclusion in the retail auto dealership business?

Lester: Dealer ownership is a key measure of DEI progress in the auto retailing business. At the end of 2021, there were about 1,300 ethnic minority car dealers (ethnic meaning African American, Asian, Latino, and Native American) out of 18,000 dealerships—7% of dealerships are minority-owned. We’ve got a way to go.

We’ve seen substantial improvements in year-over-year growth in DEI initiatives because of the commitments original equipment manufacturers (OEM) made in the wake of the Black Lives Matter movement and the shift in many parts of our society to focus on DEI at large. The media and publicity around the lack of diversity have brought awareness to the issue.

How are we progressing toward having a more diverse group of leaders in the next generation of industry leaders?

Lester: The responsibility for developing minority leaders falls both on retail dealers and OEMs.

At the retail dealer level, data shows a lack of diversity in upper management positions. While more minorities do find opportunities at the general sales manager (GSM) level, there’s still a limited path to becoming a general manager. In general, minorities are underrepresented among dealership owners and managers.

How can this change? It starts with dealer owners stating a clear intention to hire, groom, and give opportunities to a more diverse group of candidates. Without that clear direction, it’s easy for leaders and managers to fall into the long-standing, familiar patterns of hiring from the same sources, developing those they’re most comfortable with, and promoting based on long-standing relationships. Until leaders and owners commit to creating a more diverse organization and to collaborating with managers to make that happen, change will be limited.

With 109 new minority dealers in just the past year, OEMs have started to follow through on their diversity commitments made in response to the social justice movement. Several OEMs have created minority associations—often built around each brand—that have 100% access to OEM leadership along with senior and middle managers as well. They’re demonstrating the commitment and taking the time and energy to prepare a more diverse group of leaders for dealer ownership.

Also, OEMs are making sure there is diverse representation on dealer councils. This serves two purposes— underrepresented leaders have another development opportunity and dealer councils get richer perspectives on issues that affect minorities in the industry.

How are we progressing on increasing minority ownership of dealers?

Lester: Minority ownership of dealers is moving in a positive direction, but not as fast as we’d like. Many of the OEMs are setting bold goals and beating them. For example, Ford got a third of the way to its five-year goal in just the last year, and Stellantis added 28 new minority dealerships last year—the largest net gain in minority dealers after Ford.

Remember that much of the auto retail industry originated in family-owned multigenerational businesses which African Americans couldn’t even own until the post-Civil Rights Movement. Majority owners had a 60-year head start, cultivating third, fourth, and fifth generation dealerships while 95% of minority dealerships are first generation. Closing that gap requires that leaders across the automotive industry make an active effort to provide opportunities to minorities. We need to spotlight diversity and inclusion and how minorities add to the industry and help it grow. This is not a zero-sum game—we can expand the pie, and it doesn’t have to reduce the opportunities for non-minority owners.

There are headwinds—valuations and dealership consolidations in our industry are running at an all-time high and are making it more challenging to reach DEI ownership goals. And the traditional family-owned dealership is fading as consolidation brings about larger dealerships and more corporate-owned stores. That doesn’t favor minorities looking to enter the business with their first dealership.

Smith: Valuations at dealerships are at a record level, which compounded with this 60-year head start, make it harder for someone to enter this capital-intensive sector given the equity and debt requirements.

McSweeney: It’s substantially more difficult for an ethnically-diverse or gender-diverse dealer to break into the business while the gap gets larger as non-diverse dealers—the critical mass in the industry—continue to grow their businesses.

Lester: It’s hard to buy a dealership because you need financing, and the lenders are going to require a substantial equity or cash infusion. While you may find the money to buy the dealership, you may not have the money to adequately capitalize it and sustain it after the purchase. During the 2008-2009 recession, 40% of minority dealers in this country disappeared, and many of them were first-generation, family-owned businesses, averaging two stores. Minority dealers don’t have access to the excess capital needed to weather storms like larger multi-generational family businesses can.

As you’re looking for capital, be sure to check out the major OEMs—some have direct financing initiatives to support minorities.

Smith: In addition to traditional financing, family offices are looking for investment opportunities, and private equity (PE) firms like the high rates of return on equity in the auto industry. Additionally, there are investors with an ESG (environmental, social, governance) focus that might be particularly interested in backing a minority-owned dealership.

How is the industry progressing on DEI initiatives, such as recruiting talent into dealerships, developing them into leaders, and building diverse teams?

Lester: Over time, we’ve learned that diverse teams are oftentimes higher performing. To build those teams means making decisions that will result in more diversity in recruiting, talent development, and team building. Teams often follow their leaders, so we need to keep developing more diverse leaders, from first line management up to the top positions at the dealership.

Fair and open hiring processes draw people of color to these positions in the first place. You may have to reset your recruiting sources and messaging and actively recruit from schools with large minority populations. And, once in the business, you’ve got to support minorities and retain them—the next recruits are going to look around your business, and if they don’t see people who look like them, they might not feel comfortable that they’ll have a community of people like them or even question whether you have a supportive environment for minorities.

McSweeney: If we grow and create increased opportunities for diverse candidates, research shows that diverse teams produce and generate greater profits than non-diverse teams. At Truist, in addition to entry level positions, we’re filling middle and upper-level positions with alumni of schools that have more diverse graduates. 

How will DEI initiatives affect my bottom line?

Lester: While we believe a commitment to diversity should come from doing the right thing, there’s a strong business case as well.

For example, hiring Hispanic/Latinx managers shows you understand the needs of bilingual customers and are committed to the community—the result could well be increased sales.

The enhanced creativity, fresh perspectives, and broader buy in from diverse teams translates into better financial returns for your dealership. It’s really that simple.

McSweeney: For a purpose-driven company like Truist, what’s good for our clients, teammates, and the communities we serve is good for our business. From the beginning, Truist has led with DEI, and we’re seeing that commitment pay off in the value that Truist delivers.