Chrysler puts away carrot, stick

DETROIT -- Chrysler Group is killing dealer incentives for customer satisfaction and eliminating penalties for dealers who don't build stores that meet the company's requirements.

In a sink-or-swim approach to customer service, the automaker is leaving buyer satisfaction up to its dealers.

The new program, called the Customer Experience Initiative, is a change for Chrysler. It's a stark break from the carrot-and-stick approach used by rival General Motors and is more akin to Toyota's relationship with its retail network.

Chrysler dealers who perform well will be rewarded with higher sales, not checks from the factory.

"If you perform at a higher level based on customer experience, your percentage of loyalty will grow, your percentage of service retention will grow," said Mark Engelsdorfer, Chrysler's director of market representation. "With that will come a pretty substantial growth in your operating profit."

The Customer Experience Initiative will rely on customer surveys that measure buyer satisfaction. But without penalties for negative scores, it shifts the responsibility to the dealer to fix flagging customer service.

Chrysler will gather customer feedback through follow-up phone calls, e-mail surveys and a reworked mystery shopper program, said Peter Grady, Chrysler's vice president for network development and fleet. Dealers will get updated consumer survey information electronically, Grady said.

"If I sell you a vehicle and you're treated well, you'll become an advocate for me, and you'll tell other people that I'm a great dealer and this is great product," Grady said. "The same thing happens on service."

On Jan. 1, Chrysler suspended its Dealer Standards program, which was designed to improve many aspects of dealer operations. Chrysler-Fiat CEO Sergio Marchionne said that the program had improved stores but that customer-satisfaction scores had plateaued.

The program, introduced in 2009, awarded as much as $200,000 per quarter to large dealerships that met factory standards for customer service, facilities and management. The group's smallest dealerships could earn as much as $4,500 a quarter.

A separate facilities program may be implemented in the future, the company said. Existing standards will remain in place, but dealers won't be penalized for failing to comply with them.

"I believe the nature of the dealer is that the only thing better than making $1 million this year is making $2 million, and the only thing that's better than making $10 million is making $15 million," Grady said. "I think a dealer is inherently a competitive animal that wants to always strive to always be in some kind of a competition to make more money."

In December, Chrysler Group's Jeep, Ram and Dodge brands finished in three of the bottom four places among mass-market brands in the J.D. Power and Associates 2011 Sales Satisfaction Index Study. The Chrysler brand placed ninth among 19 mass-market brands.

As a result, late last year the company began meeting with dealers in regional roundtables and seeking information on ways to revamp the program.

"We realized we couldn't bandage up the Dealer Standards program any longer," Grady said. "We had to go to a whole new platform."

Chrysler is testing the Customer Experience Initiative with 11 dealers in Phoenix. The company will roll out the program by region to Chrysler's other 2,513 dealers, including 177 Fiat dealers, by year end, Grady said.

Under the new initiative, Chrysler will begin by retraining its personnel in its nine business centers. Chrysler wants its field staff to act "more like consultants" than enforcement officers, Grady said.

The training has started in Chrysler's Western Business Center and will move south and east before heading north.

Chrysler's field staff will visit dealerships armed with consumer information to identify where dealers have opportunities to improve their operations.

In addition, a revamped mystery shopper program will pay more attention to how the shopper feels about the interaction with the dealership without the "checklist approach" that Grady said the previous program used. In an Automotive News survey last month of nearly 190 Chrysler dealers, more than two-thirds said they found no value in Chrysler's previous mystery shopper program.

"We have the same goal, the dealers and Chrysler," said Sid DeBoer, executive chairman of Lithia Motors Inc., which owns 25 Chrysler Group stores in 10 states. DeBoer was a member of the committee that designed the new initiative.

"We want them raving about our products, and we want them raving about their experience in our dealership," he said. "There's less penalties to it, and it's getting us more focused on the right things."

Chrysler dealers are in a better financial position to invest in their businesses now than they were in 2009 when the Dealer Standards program was introduced. Today more than 90 percent of Chrysler dealers are profitable. Three years ago only half were making money, Grady said.

The new initiative was largely crafted by a subcommittee of the Chrysler National Dealer Council. Though the council repeatedly requested a rewards program to accompany the new initiative, the council's chairman, David Kelleher, said the new program will help dealers without being overly onerous.

"The last program was all them. This one was all built by dealers," said Kelleher, a dealer in suburban Philadelphia.

He said the new approach removes the cudgel inherent in most factory relationships.

"It's a business investment instead of just the factory telling me to do it," Kelleher said.

Mike Maroone, COO of AutoNation Inc., the nation's largest dealership group, applauded Chrysler's direction even though he has not seen details of the Customer Experience Initiative. He compared the program to the way Toyota Motor Sales U.S.A. works with its dealers.

The new initiative "is really emulating a partnership," Maroone said. "Their willingness to walk away from the carrot and stick is really the right way to go."

Kim Carter, general manager at Bill Luke Chrysler-Jeep-Dodge-Ram in Phoenix, one of the Chrysler dealers in the pilot program, said the initiative will give dealerships more time to spend on improving customer experiences.

"I think it's going to be simpler to work with, and that makes it more likely to work," Carter said. The dealership sells between 120 and 150 new Chrysler Group vehicles a month.

"What they're going after now is what the customer truly experiences," Carter said. "That's the bottom line."