With Mini's U.S. sales at less than half the 100,000 that was once the brand's long-term outlook, dealers of the quirky small cars are at a crossroads.
The brand's U.S. deliveries slid 9.5 percent last year to 47,105 vehicles, and Mini leaders don't expect U.S. sales growth in 2018. Executives have backed off their 100,000-vehicle annual sales projection and are pondering whether to make Mini vehicles electric-only in the U.S.
All the while, American consumers continue to favor light trucks at the expense of cars, particularly the small models for which Mini is known.
It all has Mini dealers longing for clarity.
"I don't think the dealers have a very clear vision of where the car line is going long term," said Jason Willis, member of the Mini National Dealer Council. "There is a lot of pride on being a small-car performance company, so my guess is we will continue to be a small-car company. But as far as electric and how we fit in, we're still waiting to hear that plan."
Going all electric may not be a realistic vision, he said. In the Midwest where Willis Auto Campus in Des Moines, Iowa, operates, electric vehicles generate a lot of chatter but not much demand, said Willis, fixed operations director of the seven-brand group that includes Mini.
Dealers expect to learn more about BMW Group's plans for Mini in April when dealers and U.S. and global leaders meet in Las Vegas. Willis, 39, spoke with Staff Reporter Amy Wilson.
Q: With the shift to light trucks continuing in 2017, how was last year for Mini dealers?
A: 2017 was a challenging year. Our smaller cars like the Hardtop and the Clubman declined around 20 percent year over year. Our upside was with our all-new Countryman, our smaller SUV. That was up 17 percent year over year, and the convertible continues to be strong. But the heart and soul of the Mini line were down, which led us to about a 9.5 percent decline year over year.
Can Mini turn around sales in 2018?
I see the year being fairly flat. We don't have new product in the pipeline for 2018, so we'll be working with the same vehicles.
Is staying even the best-case scenario?
We always want more, so I'm not sure being even would be OK. But it's what Mini is shooting for — to stay at that even mark.
What are the council's 2018 goals?
Our biggest goal is to get a clear vision from Mini and the BMW Group of where the car line is going — whether we're going to continue to be a small-car brand. Are we going to go fully electric? What is the game plan over the next three, four, five years?
Mini's U.S. sales peak was around 66,000 vehicles. At one point, annual volume of 100,000 was anticipated. Can Mini get back to 66,000 at some point? Is 100,000 still possible?
From the communications we've had here, the 100,000 number shared with us three or four years ago is not the long-term goal of Mini going forward. As the market has shifted, Mini falls in more of a specialized vehicle [category rather] than the volume vehicle they were once anticipating. No, I don't think 100,000 cars a year is realistic — 67,000 certainly can be. With some added focus on marketing and a gotta-have vehicle lineup, we can absolutely get there.
Do U.S. dealers think Mini should get into bigger vehicles or go fully electric?
We're in the wait-and-see pattern on what electric vehicle demand really is going to be. Here in the Midwest, there's a lot of talk about electric cars but very little demand. Dealers just want to have a plan for the future. To be an electric-only car company, I'm not sure that is the goal that the dealers have. But to have some electric vehicle options to differentiate us in the market is a want.
How was Mini dealership network profitability in 2017?
Profitability has definitely been a challenge for the dealer network. A lot of our facilities have been built for that 100,000-car vision from a few years ago. So with 47,000 cars being sold and the size of our facilities, that has made it a challenge. We are working with Mini on options we can do together as a team to help dealers get back to a profitability state.
Did the profit picture get worse in 2017?
With less cars sold, dealers had to be much more aggressive closing car deals and coming to agreements with customers. So our profit margins on sales definitely shrunk year over year. Overall dealer profitability is worse in 2017 than it was in 2016. It was [because of lower] new-car volume and new-car grosses combined.
[Mini went from 45 percent (56 of 124) of its dealerships being unprofitable in 2016 to 54 percent (69 of 127) of its stores losing money last year, according to figures provided by Willis.]
Are there steps dealers want Mini to take in 2018 to help profits even if sales are unlikely to change?
Yes. Those range from more advertising dollars to make Mini more well known in the marketplace to additional points in the markup of the vehicle and help in the residual values. We're supposed to get more information over the next couple of months of what they're able to do or not.
Will dealers get answers at the make meeting during the NADA convention?
There is a BMW Group meeting after NADA in April. That is when some of the board members from Germany will meet with dealers and share some of that plan.
How do dealers want to change the markup structure?
The profitability potential of a Mini is relatively low compared to other manufacturers who sell in similar price ranges. It does make it very difficult to turn a profit when you want to keep good salespeople, good sales managers and you still have the overhead. There's a lot of expense in being a car dealer, and we need to make sure we have enough profit in the car to be able to still pay for those expenses.
We're asking for a larger back-end percentage on the vehicle. The markup on the front end is OK, but that front-end gross is always part of the negotiating process and very often gets chipped away.
Dealers have asked for more marketing support for a while.
Mini did change advertising companies. So we have a new advertising game plan that will be much more focused on the vehicle and the luxury and the performance and the fun that Mini brings and less focused on social issues or other types of advertising Mini has done in the past. The Super Bowl commercial last year, the theme was that Mini is for everybody, but it was very little about the car.
Do dealers think that Mini, given its limited marketing budget, needs to focus more on the product itself?
Correct. The dealer council has seen some of the [new] creative, and we're happy with the direction we're going. Mini puts a smile on people's faces. It's fun, it's exciting, it's performance-oriented. That's the message you're going to see more.
Will more marketing dollars be spent in 2018?
There is a lot of negotiation taking place right now between Mini USA and headquarters over in Germany. Our representatives here at Mini USA are fighting for a bigger advertising budget, and we're hoping to hear good news.
Mini has the freshened Hardtops and convertible this year.
Yes, 2018 is a very short model year. Early second quarter [is] when we'll see the '19s. We don't have any new models planned as far as [redesigns] for the next two or three years. Small refreshes are what we're seeing.
The redesigned Countryman came out about a year ago with a plug-in hybrid variant arriving last summer, and sales increased. Can the Countryman grow again in 2018?
Absolutely. The car is in a competitive segment [and] is top of line from a price point standpoint and product content and performance. Again, it comes back to marketing. When we talk to our shoppers, not many know the car exists. That's our biggest mission both as dealers and for Mini: to just let people know the car is out there and give them a chance to see it.
What is missing from the lineup?
As demand for small cars continues to lose traction, I'd love to see a game plan for at least being where the marketplace is. Whether that be more toward the SUV range, we would love to see that. There are brands similar to Mini where they have a lot of pride in small performance cars. They have come out of their shells and evolved and have a small SUV, and those car lines thrive because they took the risk to follow the marketplace. The two that come to mind are Porsche and Jaguar.
So dealers want a crossover or SUV bigger than the Countryman?
I believe there's room in the model lineup for that. I also believe there's room for a halo car, whether it be the Superleggera, the two-door convertible concept shown two or three years ago. We continue to have customers come in and ask about it and wonder when they can buy it. That is a wow, got-to-have product, and that is the type of thing that really shows what Mini can be.
Mini has confirmed it will have an electric vehicle in 2019. What do dealers know about it so far?
It is going to be very similar to our current Hardtop. We're excited to have it. It's another option out there for us to attract new buyers.
What is Mini doing to get dealers ready to sell full EVs?
Technicians are going through classes. Requiring special tools to be ready for more demand. Getting the electric plug-in posts for our parking lots and our service departments to keep those batteries charged and care for our guests while they're here.
How is inventory? Do dealers need more or less of anything?
Leadership did a great job stabilizing production to get inventories in the right place. The biggest challenge keeps going to the sales volume piece.
How do dealers view Thomas Felbermair, vice president of Mini Region Americas, after more than a year in his position leading Mini in the U.S.?
Thomas is a wonderful partner. He's a gentleman who will listen, and we know he's going to battle for us and work on behalf of the dealers. His biggest challenge is painting a picture of the challenges of the U.S. market to Germany. He's fighting for our profitability. He's fighting for more advertising dollars. We all have faith in him, but I know he has a big challenge on his hands.
How is dealers' lease business?
Leasing is very important. Mini has always been around one-third leasing and two-thirds finance and cash. Having that low lease volume is one reason you see a lower loyalty rate. We'd love to see more leasing. When you look at where Mini lease rates fall, we have an uphill battle comparing our residuals with those of our competition. We'd love to see more focus on lease options and the attractiveness of leases.
What leasing mix is ideal?
The demand is there to at least get to 50-50.
Dealers are asking Mini to put better lease terms and higher residuals in place?
Yes. Right now, as we go against some of our competition, we are a more expensive lease by a pretty decent margin. More focus on that residual value, being able to get that bumped up, would put Mini on more shopping lists.
How did Mini's bonus program for used-car sales help in 2017?
When given a goal, everyone shoots for it. There was a lot more focus on turning those cars and putting more cars in certification and having more product available. It was successful. That program has been replaced with a different pre-owned bonus program that does not seem as lucrative. Now the bonus is smaller and only on the actual pre-owned car sold. It's not paid out on your number of new cars sold.
The change has certainly been part of the conversation the council has had with Mini USA. They're listening to us. They're asking questions. So we'll see where that goes in the future.
Is Mini reducing its requirements on dealerships and dealership renovations, given the volume downturn?
Mini has been very lenient. [The brand's executives are] realizing the situation some dealers are in. Mini has also been very open to what works in individual marketplaces and ideas each dealer has to make their store more attractive to customers. They've been great partners and not demanding on changes.
Is Mini looking at trying a subscription model?
Not that I've been told. But as our industry is rapidly changing, we have to continue to evolve and be ahead of the curve. It would not surprise me at all if a subscription of some sort does become available within the Mini line.
However the subscription service evolves, dealers have a very important role in the purchase process. As long as that subscription service is a partnership with the dealer network, I think that will get support. If it ever becomes a manufacturer direct purchase process and we're no more than a delivery service, that's where you're going to see a lot of pushback.