NADA study questions value of factory-driven dealership renovations
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Mercer: There is no "silver bullet" solution. |
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LAS VEGAS -- The National Automobile Dealers Association's long-awaited study of automakers' facility-renovation mandates concludes they cost too much, produce uncertain results and matter little to shoppers.
Outgoing NADA Chairman Stephen Wade sought the study after hearing from frustrated dealers in meetings around the country. In August, NADA hired industry consultant Glenn Mercer, a former McKinsey and Co. partner, to conduct the project. The results were released Saturday at the NADA convention here.
Mercer says there is no "silver bullet" solution. He criticized factories for failing to make a business case for renovations. Both sides, he said, need to "turn down the heat" in regard to rhetoric, complaints and accusations.
Among his conclusions:
• Program costs are excessive, and manufacturers and dealers should work together to trim costs. Mercer said dealers typically spend 20 to 30 percent more on a manufacturer-guided project than if they were doing it on their own.
• A shopper's perception of a dealership's facility is among the least important factors in selecting a vehicle or dealership. Shoppers are "indifferent and unimpressed," the study said.
• Manufacturers should do more to make programs affordable for small rural stores.
• Manufacturers and dealers should more closely examine whether dealerships constructed today will be overbuilt for a future in which online car purchasing is likely to increase.
Mercer, speaking after the study was released, said he personally was surprised by the difficulty automakers had conceptualizing the value of facility renovations -- particularly given the auto industry's intense focus on quantification in other areas of the business.
"I can't imagine going to the board of directors of any of these companies with a $1 billion request for new model delvelopment based on: 'Our customers want it; we think it would be great,'" Mercer said. "That was shocking."
The study, built around 75 interviews with dealers, automaker executives, economists, accountants, architects and others perceived to be familiar with dealership economics, is largely anecdotal and contains few hard numbers or dollar figures.
Consumer sentiment -- which found that "nicest facility" was the lowest-ranking among eight factors cited by people in selecting a dealership -- was measured by surveying "a few hundred in-market consumers."
GM reaction
Don Johnson, GM's vice president of U.S. sales, said the study's results didn't contain any surprises but "reinforced some of the things we were already doing right and that we can work harder on the dealer-communication piece."
GM, in a statement earlier today, said 3,400 Chevrolet, Buick, GMC and Cadillac dealerships in the United States "will upgrade their retail facilities to meet brand standards. To date, more than 1,000 dealerships have either completed their upgrades or are under construction."
Johnson said that dealers who have completed store overhauls have, on average, seen new-vehicle sales increases of 5 to 7 percent. That's an anecdotal estimate and varies by dealer, he said. He said those dealers also have seen service business increase.
Johnson also said that GM's field personnel work with dealers on a case-by-case basis on whether to cut them slack on, say, whether they can go with a cheaper vendor.
"We make a practical, business-based decision on whether the exception will be granted," he said. "But fundamentally, we still have some core elements of our image, look and feel that in some people's view we may be too inflexible. When you look at the financial support we're providing the dealers, a lot of that is to ensure we get this minimum level of compliance."
Modernization still needed
For their part, automakers say stores need to be modernized to improve the customers' experience and strengthen the brand through a uniform look. In a competitive market, automakers have said the first impression a store makes could be the most vital.
Mercer said he found that dealers agree that they need attractive, updated facilities.
But factory-mandated improvements have long riled dealers. To keep up with their respective manufacturers' ever-changing image to the consumer, dealerships are often left to finance the "image program."
In a fragile economy still emerging from the weakest U.S. auto market in nearly 30 years, the factory demands have hit some dealers hard. Some say the requirements have forced them out of business.
While Mercer also noted that facility requirements have driven dealers to close or sell, he found that timing is actually in dealers' favor. Improvements in the economy, strengthening dealer profits, low interest rates and cheap construction costs make it a good time for dealers to invest in facility renovations.
Still, the study results have NADA seeking improvements from the automakers.
"We are really asking the factories to sharpen their pencils, put new batteries in their calculators and go back and try again to explain, quantify, justify the revenue side, the value side of this," Mercer told Automotive News.
The value is most difficult to discern in what Mercer describes as the standardization requirements of facility programs. These are the design elements that aim to ensure that every dealership of a given brand looks alike — and they create the most contention because the benefits are very unclear, Mercer said.
AutoNation Inc. CEO Mike Jackson praised the conclusions, saying they erase doubts he initially had that the study would lead to anything effective or compelling.
Going too far
Jackson, who heads the nation's largest dealership group, said he doesn't object to manufacturers setting appropriate facility standards and corporate identity guidelines. But in the past few years, he said, automakers have gone too far.
"We're no longer talking about putting McDonald's arches on the building," Jackson said. "We're talking about making every aspect of the business, of the building, of the facility, meet a corporate ID program. Well, that's of questionable customer value, very expensive and very inflexible. Where does it all end?"
Jackson also strongly objects to the manufacturers linking compliance with facility standards to the price dealers pay for cars through the use of volume-based incentives. That connection is "what is mind-boggling" and has made the facility issue so controversial and important, Jackson said.
While the NADA study does examine the incentives element, Mercer said he couldn't come out with anything "incredibly conclusive" on the issue. Incentives have both negatives and positives. He urged manufacturers, as they develop and refine facility programs, to seek lots of input from dealers on how such payments could be made.
You can reach Amy Wilson at awilson@crain.com.
