Money helped keep some smaller stores alive
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Most of the $180,000 that Tom Wagar's Buick-GMC dealership received from General Motors' Essential Brand Elements program over the past few years was intended to go toward a makeover of his Gaylord, Mich., store.
But only about one-third of it did. The rest went to pay bills.
"For a lot of smaller dealers, that money has helped keep us in business," says Wagar, who expects to sell about 220 new vehicles this year. "It's not like we socked it away. We've already spent it."
Now Wagar is dropping out of the program, not convinced the $550,000 renovation required to meet GM's image requirements would pay off in the long term. He's among what are likely hundreds of smaller GM dealers who are reaching that same conclusion.
For nearly three years, they have received much-needed bonuses for being compliant with the Essential Brand Elements program -- about $100,000 a year for a Chevy dealer who sells around 225 new vehicles annually. It required relatively light lifting: Dealers had to hire a GM-selected architect, for example, while meeting training, digital-marketing and other standards.
Deadlines and math
But dealers aren't required to put money in escrow for renovations. Many of those smaller dealers now face deadlines to break ground on their projects; after doing the math, some are deciding it's better to forgo four more years of payments than to renovate.
GM says that's fine. And dealers can keep the money they have already been paid.
"We're not going to claw it back," Alan Batey, GM's U.S. vice president of sales and service, told Automotive News in September.
"I've got dealers that decided not to do it, and I agreed with them because it didn't make sense to them with their business and with where they are," Batey says. "For the high majority that committed, who are doing it, the result is fantastic."
Fears of a 2-tier dealer network
If a chunk of GM's dealerships drops out, dealers fear that it could lead to a bifurcated retail network. Many dealerships, especially large ones, will have crisp new stores and potentially extra money to play with from an overflow of Essential Brand Elements funds, giving them a price edge over those that abandoned the program.
Smaller dealers are more likely to wind up as the have-nots. Because the program pays based on vehicle-order volumes, it's tougher for small dealers to generate enough bonus cash to finance construction costs.
"It's a great program, but it needs to be adjusted based on the size of the community and the dealers' volumes," says Byron Hansen, who sells all four GM brands at his store in Brigham City, Utah.
Hansen also plans to drop out of Essential Brand Elements. He spent $3.5 million nine years ago to build a new store and doesn't think it makes sense to spend another $500,000 to meet GM's image guidelines.
Wagar used about $35,000 of his bonus payments to install a drive-through service lane. He also painted the store's exterior and inside: bright white in the showroom and butterscotch in the sales offices. "It all ties in nicely. The store looks fresh," he says.
As for leaving the Essential Brand Elements money on the table, Wagar says it "has gotten us through a tough time."
"Now," he says, "we're going to find out what it's like to be a dealer the way it used to be."
You can reach Mike Colias at mcolias@crain.com.
