The flap over factory-owned dealerships kept NADA's outgoing chairman on the move meeting with members and automakers
The growth of factory-owned dealerships was without question the most explosive issue of 1999. Dealers' fear of competition with their manufacturers prompted hundreds of letters and phone calls to the National Automobile Dealers Association leaders.
The outcry prodded NADA to alter its official position on factory-owned dealerships. Jim Willingham, NADA's outgoing chairman, describes the developments that led to the organization's about-face in an interview with Staff Reporter Donna Harris. Following is an edited transcript.
I'm told that you traveled more than any other NADA chairman. Is this something you felt was necessary? You probably have weathered one of the toughest terms of any recent NADA leader because of the rise of factory stores.
I am coming up on 300,000 miles this year. We have spoken to 27 state conventions this year. That has been the overriding factor of my year - the emphasis that General Motors and Ford have placed on their factory-owned dealerships. The reason I wanted to accept so many of the invitations to speak to the state conventions is that it is a chance for me to speak to dealers all over the country and to listen to the dealers, have a dialogue and have them tell me where we should be headed in the new millennium. It has been a very rewarding year.
What did you learn from dealers? Did that have anything to do with NADA shifting positions on that issue?
You would think 100 percent of the franchised dealers would be against any type of factory partnership or competition with their franchised dealers. However we do find some who thought it was an opportunity to sell their dealerships for more money than the market would pay at the time. And some other dealers said, 'Bring them on. We can whip the manufacturer.' It was a matter of explaining the situation to the dealers. You can do just so much of that with letters and faxes and bulletins, but it's always good to get face-to-face with dealers. That was my plan, to talk to and listen to as many dealers as possible this year.
So your travels resulted in NADA shifting its position?
Yes. Of course, the executive committee and the board of directors were the ones who made the change. We bring the message back and suggest it. What happened was that dealers were selling out to the Ford Retail Network (now the Auto Collection). The plan was for Ford to own, say, 35 percent, go into a market where they had too many Ford and Lincoln-Mercury dealers and start a separate corporation called Ford Investment Enterprise Corp. The dealers would sell their dealerships and take stock and some cash into the group and one of the dealers would be chosen to lead. Other dealers would be given other assignments if they wanted to work. Others would just exit, take their money and go away.
Of course, the overriding factor here was the long-term ownership. Ford intended to keep their 35 or 45 percent of the stock ad infinitum. At the outset, Ross Roberts was heading up the Auto Collections. He kept pointing out that this was a laboratory experiment. They wanted to buy these dealerships, put them into FIECO and be more successful. Our point from the beginning was that Ford Motor Co. is going to live forever. But dealers are going to die, their interests are going to change, they're going to want to go a different direction, and who's going to be the buyer for that stock but Ford?
When Ross Roberts addressed our board of directors, we asked if Ford would end up controlling all of these stores. That was our fear. When NADA took the position that we would have members who belonged to the Auto Collections, they were a group of dealers who had been NADA members and they were going to be running the operation. If a manufacturer determined it wanted to go into this type of a factory-dealer organization, it had to be extremely careful that there was no favoritism. It must have a complaint resolution procedure that would handle complaints, not in 30 days, but in 10 days. Ford agreed to this, as did General Motors with their San Fernando Valley auto superstore.
Our prediction came true much sooner than we anticipated. It was just before midyear when the Tulsa Auto Collection came apart. Four of the five dealers exited and left just one dealer, and I believe Ford's share was somewhere around 90 to 92 percent of the stock. In October, Salt Lake City, which had originally 13 dealers, eight of the dealers opted to sell their stock and now Ford owns 70 to 72 percent of those shares. That gave Ford total control of the stock as well as the dealerships and we felt that really just made it a factory store.
What impact did GM's retail initiative have on your stand against factory stores?
On Sept. 27 we had a meeting in Detroit with Roy Roberts and his staff. We flew to Detroit, met with them and General Motors had invited their handpicked dealer advisory forum. It was a great meeting until we had a break about 2: 30. Then Mr. Roberts came back and handed us a press release that was going out in two days and asked us to keep it private. It was on GM Retail Holdings. The dealers were stunned when they heard GM was going into 130 markets and buying back up to 10 percent of their dealerships and operate with retail management.
We immediately reminded them that none of the factory stores had worked and even the Ford Auto Collections were in deep trouble. We reminded them that General Motors had owned many factory stores across the country and had never been able to operate them profitably.
That was the straw that broke the camel's back with me. The dialogue we had just seemed to have turned in a different direction. At our meeting on Aug. 6 and afterward the letter that he (Roberts) and I wrote jointly said that no GM initiatives would come out without dealer input. Of course, there was no dealer input into this GM Retail Holdings. Subsequently, we had an executive committee meeting and I called (GM Chairman) Jack Smith and asked for a meeting, which he granted us. We flew to Detroit on Oct. 13 and met with Mr. Smith and we had a very good meeting. He just said he didn't want to own a bunch of factory stores.
How do you think that happened? First GM says it is going to own factory stores, and all of a sudden Smith turns around and says we're not after all? How could GM change its mind?
I don't think they expected the amount of dealer discontent over it and General Motors is the largest investor corporation in the world. Trying to be the man who runs those 300,000 employees with all the different corporations and countries, there's no way Jack could have been right on top of North America's plan to do this. There seemed to be a disconnect there.
Another thing that surprised us was that Jack Smith had not seen the NADA dealer attitude surveys. They stopped at the North America level, I guess. He did not realize the scores were so low compared with other manufacturers.
GM still plans to invest in retail operations.
They have now told us that all of their stores will have dealer partners who have the opportunity to buy the facility out over a period of time and that's the direction they are going and they are going very slow. I speak with Darwin Clark, if not every week, about every other week. He is now the CEO of GM Retail Holdings and where there are complaints coming in we have been able to resolve them quickly and expeditiously. They claim they are going to run the stores at arm's length, that there will be no favoritism and they will have a dealer operator in there.
It was after this meeting with Mr. Smith and at our October board of directors meeting that we passed a resolution that any factory-owned or controlled stores could not be members of NADA, that we were no longer embracing any factory-owned or controlled dealership. We just don't think a factory-controlled store in competition with its independent franchise dealers has a place in the marketplace.
That was a resolution. Is it in the bylaws already?
It is in the stages of being changed in the bylaws. It takes time.
How do you explain NADA's radical change in its position toward admitting factory stores as members?
We just see too many opportunities for mistakes in distribution and different things with a factory-owned store. There are just too many chances that they'll get favoritism sometime. A dealer like myself, we've got $5 million invested. We paint the building the color they wanted. We put the signs up. Then in one sweep of the pen they buy the Cerritos store eight miles from me, which is the largest GM store in California. They purchased that Sept. 1. We're communicating with Darwin. We have a dispute resolution (procedure) set up. We have to see how slow they go and if they run into the same type of problem we saw happening at Ford.
What are you doing to monitor that situation? Are you comfortable with it? Ford said it was just going to run a couple of stores as an experiment and all of a sudden it wanted to go into 130 markets. And GM seemed to take you guys by surprise. If the company can change that quickly and it hasn't learned from its history of not being able to operate factory stores, don't you have to keep a really close watch on it?
We certainly are trying to and the dealers who are operating in the same market with them are communicating with us on advertising they see that could be construed as illegal or unfair. We are monitoring this. Darwin Clark tells me GM owns eight stores at this time.
Does that include Wes Rydell's San Fernando Valley stores?
No, those are separate. Rydell's got his money in and he's operating.
I thought that was a partnership, too.
Well, it is. Any store like the GM Motors Holding store to assist a minority or undercapitalized dealer is a factory store. They keep the controlling voting stock until you buy them out. We've had those for 50 years.
But I didn't think that was the typical Motors Holding arrangement.
Well, it wasn't. California dealers filed with the California New Motor Vehicle Board. They did an investigation and they did in fact find that he (Rydell) had written a check (for the operation).
So how many stores does GM really have?
I do know they bought two stores in New York. They said they had some buy-sells out that they would probably have to complete, but it didn't sound like there would be over eight to 10 stores nationally. They're not counting the Boston superstore or the superstore in San Fernando Valley.
How do you keep unity when you face divisive issues like the factory store issue?
The independent franchise dealer who is left, if he devises an exit strategy and wants to sell out, there's nothing we can do about it. If a manufacturer wants to go into a state and open a dealership and that state doesn't have any franchise laws, we're not a union. We're not allowed to boycott. We don't have that many arrows in our quiver. We can't just attack; we have to sell it on the value of the independent dealer.
We have to protect that independent dealer. We have to protect his investment. That's the major reason we were formed - to protect the independent dealer. We're hearing from the majority. They're continually complaining and writing us letters and telling us the reasons. I've hundreds of letters from dealers telling us why General Motors shouldn't be in the retail business. That's our stand at NADA. The independent franchise dealer has worked for 100 years.
Why these two manufacturers (GM and Ford) want to mess with the independent franchise dealers, we don't get it. But you have to understand they change leadership. You've got MBAs coming out of Harvard and Yale and MIT and they have these great ideas, but they need to spend a year in a dealership in the field before they let them loose.
Are they going to do that? Have you suggested that?
I have suggested it. In the old days, General Motors required their district sales managers to work in a dealership for 90 days and see how it works. There needs to be some thought given to returning to those kind of training (principles).
Are they responding now?
I think so. We requested that they restore the elected dealer councils so the dealers could name the people, instead of GM hand-picking the ones they want. They are doing that.
At first, you didn't want to get involved in lobbying state legislatures and you started off with a hands-off approach to the factory stores issue. How has that changed?
In the past, NADA has furnished a model franchise law and any state could go choose from that model the parts they wanted for their franchise law. We never had gone to the state house and lobbied for state franchise laws. That has changed. With factory stores, when state dealer associations want to make their laws stronger, we're going to assist them.
What kind of a baton are you passing to Harold Wells, your successor?
He has been in every meeting. Harold's in the loop. He's right in the middle of it. We think we've got their (GM and Ford's) attention. We think they're listening to the dealers. We've got dealer input in a lot of areas and we have elected dealer councils. We even have an e-commerce committee of dealers to give General Motors direction on e-commerce. We've made a lot of progress.