Rather than take sides in the dispute between dealers and the factory over retail sales indexes, we'd like to see an end to such disputes altogether.
How? Brian Maas, head of the California New Car Dealers Association, offers a hint.
Automakers "should be able to evaluate their franchisees on some criteria," he says. "The question is which criteria and how are those criteria developed and applied?"
Let's address that question.
The definition of RSI is fairly straightforward: total retail sales divided by a factory-prescribed sales target. But judging by the California New Motor Vehicle Board's findings in the franchise termination case involving General Motors and Folsom Chevrolet in California — in which testimony included statisticians scanning census tracts and debating regression analyses — determining that denominator is a squishier exercise.
In GM's case, it takes into account the brand's statewide market share, broken down by segment, and applies it broadly to the number of registrations in a dealer's territory, a measure of the pool of available customers. But as Folsom and New York dealer Beck Chevrolet have argued successfully, it fails to account for varying market conditions from region to region: Sacramento vs. Sausalito, say, or the Bronx vs. Buffalo. And in Folsom's case, it failed to account for the dealership's bread and butter: its fleet business.
That's a recipe for conflict, especially when RSI is used not as a yardstick but as a weapon to push out underperforming franchises. RSI and other sales effectiveness metrics are useful, as Maas suggests, in motivating dealers to compete and excel, as long as the underlying targets are not calculated or enforced capriciously.
In setting sales targets, franchisers should be obligated to consider the nuances that make a dealership or its territory peculiar, or the ways dealers differentiate themselves to survive in a competitive market, such as Folsom's emphasis on fleet.
At the same time, dealerships should be obligated to challenge unsustainable targets upfront, not just use them as an excuse when they're threatened with termination.
The result will be negotiated agreements that set achievable goals and head off conflicts before they reach a termination hearing.