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In auto retailing you can be too big for your own good

Donna Harris covers retail issues for Automotive News
Did you see how Toyota's suing publicly held Group 1 Automotive, to keep it from buying more dealerships? The suit claims the Houston company isn't up to snuff on certain standards in a separate contract it signed outside the normal franchise agreement.

This is one instance where it just doesn't pay to be big.

Manufacturers typically require their largest dealers to commit to stiffer standards when they reach a certain threshold -- owning X number of dealerships in a market or selling Y percentage of national new unit sales.

Get that big and you have to jump through tougher hoops -- higher customer satisfaction scores and/or higher market penetration can be a requirement, for example. These dealers are also required to build the latest and greatest dealership prototype.

Several years ago I learned from Toyota's national accounts manager that one of the standards required of the largest dealership groups in order to continue adding Toyota and Lexus stores was that they meet or beat their annual sales volume for the previous year. That might have been okay back then when the industry was on a roll, but not now.

We all want higher volume and economies of scale. But in the auto retail business, sometime bigger isn't necessarily better.