Coining Success

Coining Success

BUSINESS MANAGEMENT by Francis X. Gilpin | Associate Editor

Oscar J. Horton wasn't sure what to make of the job offer at International Truck & Engine Corp.

His boss wanted to promote him to vice president for labor relations at the Illinois commercial truck manufacturer. But there was a catch: Horton had three years to halve the $60-an-hour average cost of employing an International worker.

Although the competition's average employee cost was $27 an hour, Horton's boss was cutting him some slack. "I want you to get it down to $30," Horton recalls being told. "I think $27 would be gouging."

That cost-cutting experience helped Horton a decade later when he came to Tampa to turn around a money-losing International dealership. Sun State International Trucks Inc. has expanded profitably into Sarasota and elsewhere because Horton levels with workers. They know exactly where the company stands financially. But they also get a sometimes uncomfortably precise idea of how much - or how little - they are contributing to the success.

Back in Illinois in 1989, though, Horton wanted to double-check what he was hearing from the head of the unionized, century-old truck maker. "It took over 100 years to screw this up," Horton told the boss in his characteristically blunt fashion. "And you think in three years we're going to have somebody give up $30 an hour?"

Horton still recalls the cheeky reply. "That's the reason I want you in the job," the boss told Horton. "You grasp complex situations quickly."

It took five years, not three. And Horton says he couldn't get all the way down to $30 an hour to make International more competitive. But, by 1994, International's average hourly labor cost – wages and benefits – had been reduced to $38.

The same ruthlessness was required at Sun State International when he arrived in Tampa seven years ago.

Costly salesman

International Truck offered Horton the dealership at a cheap price because it was losing about $1 million a year. "Now, you couldn't tell it from looking at the owner," Horton says of his predecessor. "He had a Jaguar. He had a Mercedes. He had a boat. And he was gone all the time."

Horton consciously lowered annual sales in 2000 to $26 million, from a high of $33 million, because he wanted to eliminate unprofitable customers. Soon, he discovered the top salesman was his biggest problem in that regard.

Trucks under order were taking up to six months to be customized for delivery. Unfortunately for the dealership, International Truck started charging 8% interest after a month if the manufacturer hadn't received the sale proceeds.

Instead of making a nice profit on the sale of a $100,000 truck, Sun State was frittering it away. Taking a closer look at his top salesman's $175,000 annual salary, Horton says, "he cost us money."

Horton decreed that unnecessary floor-plan financing costs would be charged back against sales commissions. Horton changed Sun State's focus from customer sales to customer service.

"We're going to start selling parts and selling service. That's what the customer really wants," Horton remembers telling his employees. "If I bring my truck in at 8 o'clock and you tell me you're going to have it back to me by 4, either surprise me and get it to me by 3 or have it ready by 4. But two days from now won't work."

Sales and repair personnel were paired up to service large accounts such as Publix Super Markets Inc. and local beverage distributors. Mechanics went out with their new teammates on sales calls.

Horton says the sales force swore they couldn't sell more than 175 trucks a year when he arrived.

In 2006, Horton expects to sell more than 1,100. From the $26 million in deliberately suppressed sales in 2000, Horton is projecting 2006 sales of $110 million.

With delivery times shortened, Horton says Sun State's gross profit margin has widened from 20% in 1998 to 31% last year. He thinks this year it will be 35%, a healthy figure for his industry.

Raising the bar

Recent customer satisfaction ratings compiled by International Truck show Sun State scored no lower than 9.6 on a worst-to-best scale of one to 10 in all categories.

Horton says his employees achieved those scores while working under a considerable handicap.

"I wish I could tell you that every truck we sold last year was such high quality that they didn't ever have to come back," Horton says. "That's not the truth. International launched a batch of trucks the last two years that were absolutely horrible."

When new trucks under warranty were returned for repairs to Sun State, Horton dipped into his leasing fleets to keep customers rolling along. "It was nothing but customer service," Horton says of the dealership's high satisfaction scores.

The 53-year-old Horton sets production and sales standards, then compensates those who meet or exceed them. Employees get personalized bar charts with their paychecks.

"I tell them I want you to go home and show that bar chart to your wife and kids," he says. "If your bar is not at least hitting the graph consistently, you're going to be out of work. We're not going to sneak up on you and ambush you. You saw it coming."

Horton hands out coins to all employees that declare on one side: "Sun State stands for quality products, fair price and excellent customer service." Employees are expected to carry their coin at all times.

When Horton places his coin on a table in front of employees, they have to produce theirs, or they buy him coffee. Employees can similarly challenge Horton. "It's pretty powerful," he says.

About a month ago, one of Sun State's parts department employees dropped dead shortly after getting up for work. At the wake, Horton was surprised to see the family had placed the dearly departed's Sun State coin in the casket.

"His wife and his friends said he never went anywhere..." Horton starts to say before emotions get the better of him.

Horton, the demanding truck dealer, pauses and takes a sip of water before continuing. "He was a good guy," Horton says of his late employee. "But that means a lot to me."

Educating

employees

When Oscar Horton headed labor relations at International Truck & Engine Corp., he encountered a lot of hostility from union workers whose pay and benefits he was ordered to cut.

But Horton says he also encountered ignorance. He recalls one United Auto Workers member who demanded to know how International Truck's retirement contributions could be costing the company when he had yet to draw his pension.

That's why Sun State International Trucks Inc. requires all employees to take a financial literacy class. The instruction comes in handy because Horton shares monthly financials with all employees of the Tampa dealership he acquired after leaving International Truck.

During a recent speech at the Greater Tampa Chamber of Commerce, Horton defended the unusual financial transparency. "What is the harm?" he asked.

Fellow business owners in the audience suggested that the income statements and balance sheets that he posts for employees could fall into the hands of competitors.

"I don't care who in town knows what we make," Horton replies. "They can't duplicate it because we did it by getting the people involved."

If other truck dealers know his profit figures – so what? "I don't think there was anybody who thought we were coming here to get into business to lose money," says Horton. "They shouldn't be surprised when we're making money."