Passion cools on facilities issue
Glenn Mercer: "The tomorrow question is: 'Looking beyond the next two years, am I putting money into a store that turns out to be wrong in the long run?'"
ORLANDO -- Factory-directed facility renovations still aren't worth what auto dealers are paying for them, even as the burden on dealers has eased in the past year, the latest study by the National Automobile Dealers Association says.
"This is receding somewhat among the dealership body as a burning issue," said Glenn Mercer, the study's author, noting that last year's press conference releasing phase one of the facilities study was "packed to the gills" versus much lighter attendance this year.
"It's still very important, but it may not be the most important thing on dealers minds right now," Mercer said. "A large part of the reason for this is the pain and suffering level has decreased."
With the latest evidence, the association says it will continue to resist manufacturer-directed programs.
Meanwhile, franchised dealers and their automakers need to work harder to make sure facilities created or remodeled today are flexible enough to support the needs of the dealership of the future, Mercer said.
"We need a cheaper way to alter the brand imaging of the store to reflect consumer needs without having to tear it down and rebuild it," he said.
The stakes are high: $9 billion to $14 billion is spent annually on U.S. dealership renovations, Mercer estimates.
"It proved very well that the buildings that some manufacturers are making you build from the ground up, that there really isn't a return there," outgoing NADA Chairman Bill Underriner, a Montana dealer, said in an interview. The association will continue to "keep the pressure on and try to get the manufacturers to slow down."
While phase two affirmed last year's findings, NADA fell short for the second straight year in quantifying the return dealers get on their facility investments. The study did say that those costs have become easier for dealers to bear as the industry continues to recover from its 2008-09 collapse.
No hard numbers
After phase one failed to produce any concrete numbers, NADA decided to take another stab at generating hard data on payback to help dealers make better decisions on their investments.
NADA in part turned to big dealer accounting firms looking for financial data representing several hundred dealers. The aim was to compare dealerships that had completed facility renovations against those that did not take on such projects.
But while the accounting firms were helpful, the data were not available, said Mercer, a former McKinsey & Co. partner.
"To be honest, it was a little disappointing," he said in an interview before today's results were released. "We thought someone who had hundreds or more dealer clients might have tracked this closely."
Mercer researched a collection of 27 dealership case studies -- most in the United States and some in Canada -- to draw up some guidelines.
He sees no payback at all for stores in good physical shape being pushed to conform to factory-image standards. But stores that were decrepit to begin with could recoup their investment threefold within three to five years. Dealers who expand their service capacity also can expect to get all their money back or more — if the local market is robust enough to fill the added bays.
Automakers typically have said stores need to be modernized to improve their customers' experience and strengthen brands through a uniform look. The companies also contend that the first impression a store makes could be the most vital in winning buyers.
Building a Borders?
Beyond the payback question, the study attempts to predict what the dealership of 2025 might look like.
"The tomorrow question is: 'Looking beyond the next two years, am I putting money into a store that turns out to be wrong in the long run?''' Mercer said. "'Am I building the next Borders store? Am I building a Blockbuster store just as everyone turns to Netflix?'"
His conclusion: Despite the fears about the effect Internet shopping might have on automotive retailing, don't expect today's dealership network to be decimated in the way that bookstores and the video-rental business have been.
Instead, as much as half of the U.S. dealership network may not change much at all during the next 12 years, Mercer said.
But some things should evolve. He predicts that a third of dealerships will adopt one or more significant changes to their physical facilities by 2025. Possibilities include opening satellite service centers, moving administrative functions off site and adding small demonstrator outlets in high-traffic urban downtowns.
The factories need to play a role in encouraging more creativity and flexibility in dealership design, Underriner said. Franchise agreements and state and local regulations often prohibit satellite service locations, for instance.
Two Toyota representatives who attended Mercer's presentation said that Toyota is always trying to figure out the wave of the future for its facility image program.
"We try to listen," said Preston Dyer, national market representation manager for Toyota Motor Sales U.S.A. "Our whole image program is to be flexible."
If a new idea flies in Peoria, Ill., for example, it may or may not work in other markets, Dyer said.
Toyota is already permitting some dealers with expensive urban downtown locations to have offsite service departments, Dyer said.
Manufacturer store designs should be flexible enough for the dealer to be able to reconfigure the dealership quickly and at low cost to comply with changing image standards, Mercer said. Instead of having to jackhammer up that gray tile and replace it with another shade, for example, a dealer could swap out digital displays or wall graphics.
Said Mercer: "There is real room to rethink and do better than just: 'Here's how a dealership works -- the sales are out front, and service is in the back.'"
You can reach Amy Wilson at email@example.com.