Q&A: DAMON SHELLY, BMW NATIONAL DEALER FORUM

New products, revamped stores top BMW's agenda

Damon Shelly
Age: 55
Dealer since: 1990
Dealerships: Irvine BMW, Irvine, Calif; Shelly BMW, Buena Park, Calif.
Average monthly sales: 325 new, 200 used
Quote: "They are trying to be more reasonable. Their leadership is sensitive that BMW dealers have invested money over the years. They realize their worldwide standards and design story has changed and they have to bring the U.S. in alignment with the worldwide design."
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BMW of North America is working on a facilities program for dealerships, says Damon Shelly, a California dealer and chairman of the BMW National Dealer Forum.

Initially, dealerships that were built more than a decade ago will have to comply with new standards, he said.

BMW also will consider tying more of its dealer margin to customer satisfaction targets.

Shelly spoke with Staff Reporter Diana T. Kurylko.

Q. How was 2013 for BMW dealers?

A. BMW dealers had a good year overall -- 309,000 units was a record, plus record pre-owned sales at over 180,000.

We are looking forward to a better year in 2014 with a full year of the new X5 and 4 series, plus new additions like the i3 and i8 and the 2 series.

What new vehicles boosted sales the most?

The new X5 and the 4-series coupe have been really good for us in the last couple of months. They look like winners. More long term, BMW is bringing in more diesels, and the other piece they committed to is bringing the xDrive all-wheel drive, and that has been phasing in. They were able to manage the supply better. In 2012, there were some trying points and there was some feast or famine. Last year those things came together.

BMW is rolling out a new facilities program for dealers. Are there elements that will be challenging?

No, the challenge is communicating that it is more than a facilities plan.

BMW is trying to solve how to work with this very broad product range of 100 different models within the next couple of years and to integrate into that solution how to work with the new consumers from a new technology standpoint, together with warming up the sales environment. The old facilities program was white, silver and stark.

It is facilities, processes and people and looking at a global solution for all of it. The most expensive piece, and one that creates more questions, is the facilities program.

What will be new in the facilities, and what is the timetable for making changes?

It really depends on when you built it. They are looking at dealers who built their facilities more than 10 years ago.

Those are in the first phase. They had to have their plans to build and their commitment by the end of 2013, and to start construction within a year or so.

There are dealerships that are less than 10 years old, the nearly new, and they will have to come up with plans by 2016. BMW will give them some time because they have just invested.

They are trying to phase it [based on] when construction was completed. They are trying to be more reasonable.

Their leadership is sensitive that BMW dealers have invested money over the years. They realize their worldwide standards and design story has changed and they have to bring the U.S. in alignment with the worldwide design.

Have dealers embraced the BMW Genius programs, where you put experts who don't sell cars into showrooms just to explain vehicle technologies and features? There's also the BMW Genius Everywhere program with new Internet and multimedia technologies. BMW says these programs will help attract customers.

Dealers are slowly embracing it. Elements of that -- the virtual product presentation technology -- are still in pilot. Dealers are still teasing it and working with it and trying it. I think the idea makes a lot of sense. We haven't really nailed down how it will be implemented.

Will you each have to have a genius in the dealership? By when?

We haven't talked deadlines. I am assuming by the time my new facility is finished. Dealers are taking the concept and implementing it in a way that works for their market and system.

We do have delivery and presentation specialists -- maybe we'll be adapting those people and recasting their role. I do not think it will be a gigantic shift for us.

What major issues do BMW dealers face?

The big issue that we face long term and strategically is that five or six years ago, BMW had 40 products.

But in the next couple of years we will have 100. How do we represent, stock and market those products? That will be a challenge. All the luxury manufactures are moving downstream with less expensive deals -- and how do we adapt with that new customer? The new customer is different than the old customer. Millennials are different than baby boomers.

And all of the luxury manufactures are struggling with this export issue: the gray-market vehicles. There are no easy solutions. There is no silver bullet or fairy dust. The manufacturer realizes how difficult it is, and dealers know it is not good for the brand worldwide.

Has BMW upped its measures to punish dealers who sell vehicles that are exported?

All the manufactures are looking at different ways to discourage the dealers.

Why does BMW continue to score poorly in the NADA dealer attitude surveys?

If I were to summarize the results, on the positive side, they did a lot better on the people questions -- BMW attitudes on leadership and people. Where they got hit again was on policies and dealership value. The value one confuses me because BMW dealerships are among the most valuable in the industry. There is great demand for BMW franchises. On the policies, that could be tied to some angst about facilities, or it is a delayed effect. As people scores start to improve, others will follow. Or perhaps it is the nuance as to how things are being communicated. It is a disappointment to me as a dealer. Such negative scores are not helpful to us in the long run.

What needs to be done to improve communications?

Perhaps an earlier heads up on a policy change or the nuances of the language and how it is communicated.

Are BMW dealers profitable?

They are. We want to be more profitable. That is one of the things the forum will be looking at next year.

Has BMW made changes to the dealer margin, tying more to performance goals and facilities?

That will be under discussion this year. A decision has been made to have those discussions. No proposals have been put forward yet.

How are dealers preparing for the i3 battery-electric car that goes on sale this year? Will it be a game changer?

It will be a game changer. It will be coming in the beginning of the second quarter. We are ordering our i3 platforms to showcase the vehicles. We are getting the showrooms set up.

We have to put in proper electrical for display and charging, training, tools and equipment and this year there will be salespeople training. The marketing hasn't launched yet. There is a lot going on now to make sure we are prepared.

How many i3s are scheduled for the United States annually?

We ask that question and we get a smile. The i8 sports car will be low-volume, and the i3 will be higher. I am glad to hear it because BMW is taking a major leap with the carbon fiber technology and the concept of the i brand.

What did dealers ask be changed after the 2012 loaner car problem when you were forced to put considerably more loaner cars into your fleets?

The dealers did not like that. They were not happy. BMW responded over the course of 2013 and reduced that substantially. That situation is beginning to improve.

Are dealers still being asked to take more loaner cars?

We have to take loaner cars, but the situation of buying too much is much improved. I cannot say it is over, but it is improving.

What new year-end programs were added in the last quarter of 2013 to boost sales?

BMW had 18 pages of programs. There were programs on everything.

Customer service has become a battleground for luxury brands. What is BMW doing to boost its low customer satisfaction scores?

It is surprising, and it is a disappointment. We are looking at it from the angle of the manufacturer and product quality and reliability and whether we are asking the customer the right questions and looking at the right things. Neither the manufacturer nor the dealer can accept poor scores.

How will BMW respond to the new Mercedes-Benz CLA compact sedan priced at $30,000?

They don't have a small front-wheel-drive four-door like the CLA, but their real response is the 320i, which is a rear-wheel-drive BMW 3 series with a smaller engine and with free maintenance included. And they are coming out with the new 2-series coupe and convertible. While they are $32,000, more than $30,000, they do come with rwd and full maintenance. That is currently how they are addressing the CLA.

The new-generation fwd BMW cars arrive in 2015. How many different fwd vehicles will come to the United States?

It is it too early to say. I have seen one early model, a good-looking city car. You know it will drive well, but a lot will depend on how they will look.

Will a compact front-wheel-drive dilute BMW's image?

I do not believe so. All the luxury manufactures have compacts and fwd in their lineup or are bringing it in. As long as it represents the BMW characteristics, it will not dilute the image but bring newer and younger buyers to the brand.

Are dealers satisfied with BMW marketing? What message are they sending to Trudy Hardy, the new vice president of marketing?

We are more satisfied than we were last year. One message we are giving Trudy is get more budget. She has so many important launches coming this year. With such a broad product range and important launches, we worry as dealers that there is not enough to represent those things.

What do you have coming in 2014?

We have the i brand -- i3 and i8. We have the 4-series convertible and we have the 2 series.

Are you happy with what the factory is doing to support dealers' CPO sales?

There is a CPO committee. They have been working to getting it back to being an industry leading program. Announcements are being rolled out to upgrade the program. It is evolving.

What are BMW dealers doing to attract more F&I business?

It is less about attracting more F&I and more about making sure that everyone we get in F&I is treated equally and fairly in compliance. We have a great relationship with BMW Financial Services. We have to make sure all consumers are treated fairly.

You have a lot of new product coming, but what's missing?

The product committee has asked for a full three-row vehicle.

Will you get it? BMW CEO Norbert Reithofer said a few years ago that this kind of vehicle wouldn't fit BMW's sporty image.

We are keeping our fingers crossed. It is tough to enter a new area. I think Reithofer is open -- he is interested in the idea. We are not being completely ignored, but it is a big decision.

You can reach Diana T. Kurylko at dkurylko@crain.com. -- Follow Diana on Twitter


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