Cox signals concern about costs

Cox Automotive needs to watch its costs, the company told its employees in an internal memo obtained by Automotive News.

In the memo, Cox said slowing revenue growth has forced it to consider a number of measures to “address the worsening gap between revenues and expenses” as the company approaches the halfway point of the year.

Cox, which has been on an ambitious acquisition streak in recent years, says staffers should expect to hear from their leaders soon about plans to reduce total labor costs, halt or defer non-priority projects, “significantly reduce” travel and entertainment spending, and eliminate duplicative services and excess bureaucracy, among other things.

“We have to make enduring changes to the way we work and the way we spend,” the memo said.

But there are currently no plans to divest any of its businesses, a company spokesman told Automotive News in an email.

The memo comes at a time when Cox Automotive is looking to revolutionize the digital retailing experience through properties such as MakeMyDeal, which allows consumers to negotiate the terms of a deal online.

Cox is focused on bringing a transactional atmosphere to dealer websites that allows consumers to handle more of the buying process on the web.

Citing such Cox brands as Autotrader, Kelley Blue Book, vAuto, Manheim, and Dealertrack, spokesman Lou Laste wrote, “these and all of the other brands we have acquired will stay in place.”

The company has built a deep roster of brands, but Laste admitted that multiple acquisitions can produce the “inefficient and duplicative work” that Cox is seeking to cut. Laste said managing that work, and supporting the larger volume of work that comes with acquisitions, is a normal part of business operations.

“When you acquire multiple companies there is always going to be room for better efficiencies,” Laste wrote. “We continue to do the hard work of integration and consolidation.”

When asked how extensive the labor cost reductions will be, Laste said the company is still working through those discussions and will start by reviewing all open positions. He added that no one brand will be affected more than another. 

In the memo, Cox said its revenue growth has slowed due to market conditions and increased competition in the automotive industry.While revenues are growing at a 5 percent rate this year, the company said, that’s still well behind last year’s pace. The company wouldn’t disclose how much its revenue increased in 2016, or what its target growth rate is for 2017.

Expenses, on the other hand, have risen by 8 percent. This has led to an imbalance between revenues and expenses with a gap of around $100 million in the company’s 2017 budget, according to the memo. 

Although revenue gains aren’t as strong this year, Cox said in the memo that it has “no intention of backing down” from its vision to “transform the industry” or its “commitment to deliver game-changing solutions like connected digital retailing, open-platform [dealership management systems] and high-velocity auctions.” These projects, the memo states, have now grown in importance.

Laste said Cox has always managed its business with an eye on expenses. It’s just doing what “smart and competitive companies do in a changing industry — adapt or change to the demands of the market without losing focus on our vision and strategic plans,” he wrote. 

Cox told employees that the cost reduction programs and missed revenue targets are not a repudiation of its business model. 

The company believes it is “evolving and strengthening” for the long term.

Cox said it will be a “great credit” to the company when it delivers on its financial commitments to investors. The memo was signed by 14 executives, led by Cox Automotive President Sandy Schwartz and COO Mark O’Neil.

“Healthy companies like ours have a continuous focus on improvement, adaptation and change — including cost reductions to stay competitive,” the memo said. “We can make these surgical changes without altering our vision, without reducing our investment in priority projects and without sacrificing our client service.”