Store redos still bring iffy returns
NADA will keep pressure on factories to slow down
 | Mercer: Stores for the needs of tomorrow |
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With industry sales getting better, manufacturers' facility renovation programs aren't as painful for dealers as they were a year ago. But expansive new dealership buildings still aren't worth the millions of dollars dealers invest in them, a National Automobile Dealership Association study concludes.
Also, dealers and manufacturers need to be more mindful that the facilities created today be flexible enough to support the requirements of the dealership of the future, study author Glenn Mercer said. Mercer was scheduled to reveal study results at this past weekend's NADA convention in Orlando.
The finding on the payback for dealers who invest in facilities is an echo of phase one of the study, released at the NADA convention in 2012.
"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, told Automotive News. The dealers association will continue to "keep the pressure on and try to get the manufacturers to slow down."
The stakes are high: $9 billion to $14 billion is spent annually on U.S. dealership renovations, Mercer estimates.
Though phase two affirmed last year's findings that the programs cost too much and yield uncertain results, NADA fell short for the second straight year on quantifying the return on investment dealers get for facility spending.
Data not available
After phase one failed to produce concrete return-on-investment 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 renovations.
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. "We thought someone who had hundreds or more of dealer clients might have tracked this closely."
So Mercer researched a collection of 27 dealership case studies -- most in the United States but some in Canada -- to draw up some guidelines.
He sees no payback at all for stores in good shape being asked to conform to factory image standards. But stores that were decrepit to begin with could recoup their investment times three 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.
Building a Borders?
Beyond the payback question, the study takes a stab at predicting 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.
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, 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."
1. Facilities spending is not as painful for dealers as it was a year ago.
2. Return on investment is better on service expansion or updates of decrepit dealerships.
3. Payback is nil for already updated stores complying with factory image standards.
4. Dealers should be more creative and manufacturers more flexible in planning the dealership of the future.
Source: NADA's Mercer Report Phase 2
You can reach Amy Wilson at awilson@crain.com.
