In the past few years, BMW has cut its dealer margin, slashed warranty labor reimbursement, made the bonus margin harder to earn, and changed programs with little communication, dealers say.
And that has made them mad enough to continually downgrade BMW in NADA's Dealer Attitude Survey. It has also put BMW executives on red alert, eager to heal strained relations with their U.S. dealers.
The survey, conducted twice yearly by the National Automobile Dealers Association, measures dealers' satisfaction with their manufacturer's policies, field and headquarters staff, and franchise value.
"If you look at the NADA survey, you'll find we're pariahs," said Jim O'Donnell, president of BMW of North America. "We are scoring badly in that study. It is beyond comprehension."
Profit margins for BMW dealers surpass the industry average, but O'Donnell said: "We obviously don't communicate our relationship well enough."
He added: "I am taking responsibility for that, and we'll work on that this year. We need to make the dealers feel that we value them."
In the association's winter dealer attitude survey conducted early this year, BMW ranked No. 18 among 34 brands -- down from 13th in the 2009 winter survey, seventh a year earlier and fifth the year before that.
About 40 percent of BMW's dealers participated in the latest survey.
Dealers say the main problem has been factory program changes that have cut have into their profits. But they say the situation has been made worse by poor communications.
"They look at their expenses and transfer from our bottom line to their bottom line," said George Sharpe, owner of Sharpe BMW in Grand Rapids, Mich. "They are always measuring return on investment."
Sharpe says BMW has drained dealer profits with a series of changes, including a 1 point cut in the base margin to 8 percent.
Nick Toomey, general manager of Rallye BMW in Westbury, N.Y., says BMW triggered dealers' anger in late 2008 by cutting the warranty labor reimbursement by 20 percent.
"That set the groundwork," he said. "The BMW dealer body has made a huge investment in facility. Every one of us has taken on a great deal of risk. We recognize the parent company has to be profitable, but some of the modifications to existing programs have been penny-wise and dollar-foolish."
Dealers are also still smarting from a radical change last year in their 5 percent bonus margin, or added value premium, as BMW calls it. Dealers previously got 5 percent of the base price of cars they sold "with no conditions attached," says Peter Miles, BMW executive vice president of operations.
Starting in January 2009, BMW tied 2 percent of the bonus to each dealer's used BMW and certified pre-owned car sales goals.
Dealers had to earn the remaining 3 percent by meeting new customer satisfaction targets. BMW set the targets because management was dismayed at the brand's failure to score top customer satisfaction ratings in major surveys.
Miles says BMW added the used-car provision because it expected a record number of cars to come off lease. Executives didn't want the 100,000-plus vehicles going to auction and lowering residuals.
"Our strategy was to push as much of the BMW product through the dealer network as we could," he said.
Miles said bonus payouts to dealers have been nearly the same after the change in the system.