Why a Subaru dealer says ‘no thanks’ to nonlocal buyers willing to pay more

Jeff Shutt and Alex Casebeer know that the fundamental strategy followed right now by their dealerships might seem a bit out of place for the times, given short inventories, outsized consumer demand for new vehicles and the financial rewards reaped from meeting that demand.

Yet what Capitol Subaru of Salem and Capitol Auto Group in Oregon are doing is pretty simple, and — they hope over the long term — potentially more profitable, even if it costs them revenue upfront and flies in the face of what a large number of their fellow dealers are doing.

They're saying "no thanks" — specifically to prospective buyers from outside their primary marketing area — even when those buyers offer wads of extra cash above sticker, which is where Capitol prices its vehicles.

"We have to take care of our local customers first," explained Shutt, general sales manager at Capitol Subaru, part of the family-owned group that also has a Toyota store and a Chevrolet-Cadillac store on the same campus.

"We get calls again and again, especially on these harder-to-get vehicles, and we're getting them from everywhere, because we sell at MSRP. On the [Subaru Solterra], we got a call from Washington, D.C. The same happened with the [Toyota] Prius Prime; we were getting calls and emails and leads from all over the country."

Dealers doing what they're supposed to be doing — selling and servicing customers within a general geographic area, their "primary marketing area" which in the case of Capitol is roughly a 20-mile radius around Salem — is so fundamental to the franchise business model that it wouldn't normally be a best practice. But with inventories at or near historic lows and consumers searching across the country online for new vehicles, taking care of the homefront becomes increasingly important for dealers who need to build and maintain relationships with repeat customers, says Casebeer, president of the group.

"We keep talking about the big picture — not today, but maybe three or four years from now — it does us literally no good to sell a car to somebody from Idaho," argues Casebeer. "Yes, we might make $5,000 right now, but the lifetime of that customer is gone — no parts, no service, no trade, no referrals, nothing."

Casebeer says the temptation to "get greedy" and sell over sticker to whomever comes calling is always there, and he argues that many dealers have fallen into that trap.

"We could be selling a lot of different ways and charging way more money than we are, but we have to take care of our backyard. People are going to remember how they're being treated right now, and they're going to remember that when they buy their next car."

Most automakers, of course, attempt to police their dealer networks through metrics such as sales efficiency, and selling new vehicles to consumers outside of a dealership's primary marketing area "is hurting you on your sales efficiency in the way that [automakers] look at things," Casebeer said. "It's macro, dealer-type stuff, but we have to worry about it. You can be sure [automakers] are checking every credit app, every driver's license, just to make sure."

Capitol Subaru sold 1,300 new cars in 2020, and sold more than 1,700 new vehicles in 2021, Casebeer said. Through May, it was tracking to be among the top 20 Subaru stores in the nation by sales.

Part of that growth comes from protecting the home turf, Casebeer says, especially at a brand such as Subaru, which has traditionally run with very lean inventories.

So does protecting a primary marketing area mean that Capitol never sells new vehicles to anyone outside of its area?

No, explains Casebeer. "If there are extra cars, or it's near the end of the month and it means making a sales goal, then maybe you let one go. But there aren't very many extra cars right now, are there? So it takes discipline."

It also takes training, says Shutt.

"The conversation and the training we've been doing is really just about that. It's being honest with a customer, telling them that our priority is our local customer and that, while we're not going to say that we're not going to [sell] to you, we are going to tell them that they're not going to be on the list as far as priority goes," in retailing a vehicle. "And they can get upset about that, but I think most of the time, the customer understands."

Casebeer says it's important to remember why that customer is calling into the dealership in the first place, instead of contacting their local franchisee.

"They're probably mad at their local dealer for not taking care of them," he said. "That tells me there's a problem somewhere."