North Country Auto, Inc. was a franchised dealer and factory-authorized service center for Ford, Saab, and Volkswagen. George G. Liddy, part owner, recently developed new control systems for the five departments within the company; new car sales and used car sales, service, body, and parts. Mr. Liddy wanted to see each department ran like a separate business.
He was trying to motivate his department managers to see how beneficial this would be in the long run, not only to the company, but to themselves by compensating them for the success. It seems like such a great plan; run each business as its own and hire different managers to find the best way to increase profit margins within their departments.
This, in theory should work out great if everyone is on the ball and working for the bottom line. However a problem does arise when one department’s profit turns into another department’s loss. The problem occurred between the new car manager, the used car manager, and the service manager. In the case the new car manager was trying to make a sale and did so by allocating a high “trade-in” value for a vehicle, but when the “trade-in” vehicle arrived at the used car department is was not worth the same amount he allocated.
This in turn caused a loss for the used car manager. The used car manager then turns to the service department to bring up the condition of the “trade-in”, and the service manager then turns to the parts department to order parts has to pay the markup rate for the parts, which brings down profits for the service department, and brings down profits for the used car manager.