After a tough decade in the 1990s, Acura dealers are enjoying the fruits of their labor, says Mike McGrath, owner of McGrath Acura of Westmont in Westmont, Ill.
McGrath, chairman of Acura's National Dealer Advisory Board, says it is the board's job to help keep the momentum going and keep the factory's "feet to the fire." He has been on the dealer advisory board for 2½ years. He took over his year-long stint as chairman in June.
A clearly defined brand image for American Honda Motor Co.'s upscale brand is at the top of McGrath's wish list. He says lobbying for more new products is on the agenda, too. A convertible, a hybrid and a V-8 flagship sedan would fit nicely into Acura's lineup, he says. The company has not committed to those vehicles, he adds.
McGrath has been a dealer for 35 years. He started with a Lincoln-Mercury store in Elgin, Ill. Over the years he has operated Pontiac-GMC, Dodge, Mazda and Subaru franchises. He sold those dealerships in the late 1980s.
In addition to his Acura dealership, he now operates two Lexus dealerships in Illinois. He is getting ready to open McGrath Acura Downtown, in downtown Chicago, late this year.
McGrath shared his vision for Acura with Staff Reporter Arlena Sawyers.
What is the hot product? What's not?
The hottest-volume product is the Acura TL. It's our No. 1 selling vehicle. The MDX continues to be great, though it's in its last year of production in its current state. And our hottest product as far as availability and sales is the TSX. We sell them as quickly as we get them.
Actually, all of our products have been well received. The RL, we've seen a little inventory backup on that, mainly because the price jumped so much from the prior model. The transaction price jumped maybe $10,000 for the 2006 model.
What new products are on the way?
We're getting a brand-new sport-utility, a smaller sport-utility called the RDX that will be out in roughly June 2006 as a 2007 model. We don't currently have a model in that size or price range. That should promote some incremental sales.
What challenges do Acura dealers face in the next year?
The ongoing quest is (for Acura) to further define their brand image. It's been a little muddled over the years. They haven't had a clear public brand image. There's a lot of work going on behind the scenes to further establish that through marketing and product. I believe their direction is sporty, performance-oriented and high-technology luxury cars.
What is the top priority of the dealer council in 2006?
Dealers have seen a huge turnaround in the franchise over the last five or six years, and we want to keep that going and expand upon it.
Does Acura listen to its dealer council?
Very much so. We truly feel we're partners with them. At a meeting in California (in early December) their whole staff, including Mr. (Koichi) Kondo, who is CEO of American Honda, was there. Dick Colliver (executive vice president of sales) and John Mendel (senior vice president of automobile operations) were both there, and every staff member who heads up every department, including marketing, sales, parts and service, Internet - I mean everybody was there.
They do care about what we say.
What's your major goal for the upcoming year?
Acura dealers, particularly in the early 1990s, really struggled. Sales were down around 80,000, 90,000. A lot of dealers were losing money.
Then starting in 1999, with some new products, the franchise started to turn around. Every year after that it has gotten progressively better.
My goal is to keep the momentum going. Keep the attention on the new products, the exciting products that we have. We have a lot of room for improvement in the marketplace with performance products.
The S type was something we had for a while, and they abandoned it. Hopefully we can get Acura to go back to S-Type versions of our products, which are performance versions.
We're getting a good indication that they are looking at that pretty strongly. Our products are already sporty - they're just not as performance-oriented as an S type would be.
There is a tendency when you're doing well to rest on your laurels. I think our job as the dealer advisory board is to keep their feet to the fire, to make sure they continue to study new products and keep growing this brand.
What is the No. 1 thing the factory can do to help dealers?
Great product that is well received by the public.
What are the dealer council's top concerns?
They're (the factory) working, and we're working with them, to develop a clear brand direction, a public image, so to speak, for Acura. One product we're looking for is a V-8 flagship sedan, something that further defines us as a luxury division.
They have other products in development like the new NSX, which is two or three years away, which will have bigger than a six-cylinder engine. It has been rumored that a 10-cylinder is being developed, but we don't know for sure.
The NSX is a two-seater, higher-cost, limited-sales vehicle. They only sold about 200 or 300 of them a year for the last few years. So it's not a big seller for us. It was $90,000. It was discontinued this year.
A couple more things we're looking for: a convertible. We don't have a convertible in our lineup.
Another thing is hybrids. Honda has hybrids. Toyota has hybrids. The Lexus line has two hybrids. We have no hybrids yet. We thought that, being the technology division of American Honda, we would be the logical division to have a hybrid drivetrain.
This is a wish list. These are the things we're hoping for, things we'd like to see.
How is the factory responding to those concerns?
Typically, they'll say "we've taken it under advisement," or "it's under further study." Being on a dealer advisory board and dealing with some of the top executives in these corporations, you get an understanding that there is a lot that goes into future decisions. Nothing happens overnight.
There is a tremendous amount of cost. Research and development and production and you name it, that they have to weigh. It's very complex and very competitive.
How satisfied are dealers with Acura?
NADA comes out with a survey twice a year to indicate that.
I would say that we have come from being one of the bottom franchises in the survey as far as dealer satisfaction to being one of the top. In the last (2005) survey we held our own.
There was a little concern that the additional sales have created a higher days-supply situation, which puts more pressure in the marketplace. Overall, dealers are much happier than they have been in the past.
Are your dealers making money on new-car sales? To what extent do you cover your overhead from fixed operations, such as parts, collision, service?
Yes, they are.
All Acura dealers' fixed operations are growing as our units in operation continue to grow. That creates a bigger owner base that is servicing its cars with Acura dealers.
There are new standards being developed now to create more service bays and larger facilities.
The goal for every dealer, not just Acura dealers, is to have 100 percent service absorption, which means their fixed operation's gross profits cover their fixed expenses.
Quite honestly, very few franchises do that. I would guess that Acura's absorption is somewhere around 70 percent.
Do Acura dealers have the right product mix and overall marketing strategy to be successful?
As I've said, we've enjoyed great success over the last five years, and we want to keep expanding on it. If the product keeps coming and we can further define the brand image for Acura, then we've got everything going for us.
Can you get the vehicles you want?
Do you have to take many that you don't want?
There is no pressure to take vehicles you don't want. Anybody can turn products down.
Have you seen a decline in customers wanting fuel-chugging vehicles?
No, we haven't seen a lot of decline. The MDX is our only sport-utility. For the most part, it drinks more gas than your typical sedan does because it's heavier, bigger and requires a more powerful engine.
We haven't seen a big drop - a little bit, but part of it is because it is six years old. The brand new one comes out in October 2006.
Another nice position that Acura enjoys: Not having a V-8 may be an advantage with the high gas prices. Our corporate fuel economy is higher than most of the competition.
How many of your customers ask about hybrid vehicles?
We're getting people asking if and when we're coming out with one. In the beginning, the first purchasers of hybrids are people that are passionate about the environment and want to make a statement.
I think they (Acura) are taking a wait and see attitude to see how it plays out.
How does Acura handle local marketing? Are dealers satisfied that it is fair and effective?
There are three tiers of marketing. There is national brand marketing that Acura does; there's co-op marketing where all the dealers chip in to a fund.
In some markets you have that and some markets you don't. It depends on the dealers and what they want to do. And the third tier is what dealers do on their own.
When it comes to dealer co-op marketing, they don't demand that you do it. They give you the opportunity and they provide creative for it. They've been good about not forcing you.
How does Acura's advertising work? Does the dealer council have a real voice in it?
We're right on the cusp of going in a different direction. I would say school is still out on that on one.
It's very difficult to get across what they're trying to get across in a 30-second TV spot. They're using sophisticated, digital technology to show all these fancy things in their ads.
Some people get it and some don't. The market and time will tell you whether it's working or not.