With Silverado, dealers will ‘hit the ground running'

This is the year of the truck for Chevrolet dealers, as they ramp up orders of the redesigned 2019 Silverado 1500 and await its larger heavy-duty sibling in the second half of the year.

More than 400 commercial-certified Chevy dealers also are beginning to take delivery of new medium-duty Silverado models, which General Motors expects will lead to three adjacent sales for each unit sold.

The Silverado family will assist dealers in offsetting lost sales of the Chevy Cruze, Impala and Volt, as will the arrival of the resurrected Chevy Blazer crossover, said Chevrolet National Dealer Council Chairman Mike Bowsher. General Motors has announced plans to end production of the three sedans this year.

Bowsher, 42, owns Carl Black Automotive Group, which has four dealerships with General Motors brands in Georgia, Tennessee and Florida. He spoke with Staff Reporter Michael Wayland about the production cuts and new and redesigned Silverado models, among other opportunities and challenges for Chevy dealers in 2019. Here are edited excerpts.

Q: How was 2018 for Chevy dealers?

A: We had a good year overall. Obviously, we have a new launch going on with Silverado and a selldown of the old body style. I would tell you that the network is in a lot better shape coming out of '18 and into '19 than we have been the past several years with past model years and cleanup. We're in really good shape at this point, which allows us to execute on the new Silverado models. We won't be wrestling past model years. Cleanup's gone extremely well. We've had a good year, but we need to do more.

Why has it gone so well?

What they've done is they focused the intensity, incentive dollars and marketing on the current model year — probably longer on the past model years than they've done in the past. Typically, they may have moved on the new model sooner than they did this time, which has allowed the dealers to sell down. When dealers are overstocked with past model years, they don't take the new product.

The fact that GM invested that incentive play and actually helped us really clear out our inventory, has really made us nimble and able to move and jump into the first quarter on the new T1 Silverado. It's really going to allow us to hit the ground running in 2019.

Is the Silverado the most important product for Chevy dealers in 2019?

Absolutely. It's the biggest launch that we've had in Chevrolet history. Especially, with the increased capacity and things like that. We will have more crew cabs than we've ever had because we've always had to wrestle the double cab with the crew cab, now we can get all the crew cabs we want.

Between the half-ton, the HDs and the medium-duties, we have to execute that launch flawlessly this year, as well as the Blazer launch. That Blazer is a huge add to the Chevy network because that is the sweet spot of the market.

Obviously, if Cruze goes away and allows more dollars and things like that to launch small SUVs like Blazer, we're OK with that.

There's been some criticism of the Silverado HD design. Are you concerned?

They have five different HDs. I have seen them. I don't see any problem with design at all. Once people actually see this truck in person, they will understand. They don't see quite how large it is in the pictures. This is a home run, especially when you get into 3500 and the dually models and all that stuff. I just think we have a big hit on our hands, and I think GM will really capitalize now on the HD market. We may not have been able to so much in the past; 2019 will be the year of the HD for GM.

GM has announced the end of production of the Chevrolet Cruze, Impala and Volt. Are Chevy dealers worried about those going away?

This is going to be a phaseout deal. We will have Cruze for four or five months throughout the year. What we need to do is analyze our opportunity in terms of increased capacity on Trax, Malibu, Sonic and Spark. Obviously, we'll be working really close with GM Financial on that because it's not really hard to take a Cruze-type customer and put them in a Trax. People love SUVs. That's an easy walk.

What we have to do is make sure we increase capacity and programs with GMF in place to capitalize on that market. No question there's going to be a hole with Cruze going away but we think we can fill the majority of that with that increase in volume and go to market with Spark, Sonic, Trax and Malibu.

And if all this frees up dollars for GM for more profitable SUVs and other things in the future for both the dealers and GM, that's what we're willing to accept.

Are there any additional vehicles dealers would like to have? Is there more room in Chevy's lineup for more crossovers and SUVs?

Yes. We would love to see additional small SUVs. That market is so hot. It's grown like 500 percent in the last three or four years, where the car business overall has declined about 20 to 30 percent. It's going down, so anything we can do to get additional SUV models, Chevy dealers would love to keep pursuing that.

GM plans to pivot toward electric vehicles. How has that mission been communicated to dealers? Any concerns?

That's something that we're going to have to continue to walk into. No one really understands how big that market is yet. It is out there and growing, but if GM continues down the path of adding more electric vehicles and things like that, we're going to have to get the network up to speed and infrastructure in place — charging stations and things like that, not to mention training. We're going to have to implement those things.

As they come out with new products, the leadership and dealer council are going to have to educate the entire dealer body on being prepared and up and ready to do this.

Is Chevrolet offering financial support with new and emerging markets such as electrification and services such as subscription services?

GM is in the middle of doing several pilots in many different aspects of the business and we're waiting for results to see if there's need for any type of national rollout or national play to happen. All those aspects we are looking at to see what opportunities may or may not be there before we come up with any type of program.

How is the council's relationship with GM?

This council and leadership have the best relationship that we've ever had. There's not a go-to-market, there's not a new model or launch ever that we're not intimately involved in with leadership to make sure it's brought to market the best way possible for the consumer, GM and the dealers.

[U.S. Vice President of Chevrolet] Brian Sweeney and his team have been outstanding to work with and transparent on all aspects of our business, and we appreciate that.

Your tenure as chairman was supposed to end in 2018. Is that relationship a reason why you stayed in the position?

Yes. Right now, we've got a good thing going. And there were a lot of personnel changes in GM. We wanted stability between the council and leadership to continue and make sure that all things were implemented the right way. I agreed to stay on one more year, so I'll be through '19.

What challenges do Chevy dealers face in 2019?

The challenges are kind of the same as our opportunities. We're going to have Impala and Volt all year in '19, we're going to have Cruze for four or five months.

What we need to do is to make sure programs are in place to support the additional models and capacity, where we're going to lose Cruze. We have to execute even more successfully in '19 than we did in '18.

Challenge-wise, it's also an opportunity. We have more capacity. We have more available units to sell in '19 — thanks to the trucks and other new products — than we had in '18.

Our biggest challenge is to make sure we execute the Silverado launch, Blazer launch and work with GMF to ensure we have the programs in place where we've lost Cruze and those other models.

New-car margins are getting squeezed throughout the industry. What are Chevy dealership managers doing to help profitability and reduce expenses?

Yes. The margins have been compressed. There's no question. In terms of additional profitability, there are several things. Accessory sales have been exploding, and used cars continue to be huge. Especially with the gap between the new-car pricing and used, that's a huge opportunity for dealers to see increased profitability.

F&I income has continued to climb nationwide, so that's an opportunity, too. [GM's Standards For Excellence] is done for 2019 and is very fair with increased payouts for dealers to allow us to make even more money.

So, we work really close with GM and Chevrolet leadership on additional ways to bring profitability into the market. If restructuring does anything and allows for more fire power, incentives and things like that, then we're all going to sell more cars and that increased volume is what we're all looking for.

Is profitability a concern as sales slow and cars go away?

Absolutely. At some point the market levels off, it always does. So, what we have to do is be more profitable per unit. We do that through F&I income, accessory income and used-car income, fixed gross income.

Usually when new-car sales level off, you see an increase in service and parts business because people keep their cars and take care of them for longer.

We're going to have to make sure those programs are in place and they're fair, reasonable and the payouts are higher. With GM's incentives, we will capture more than our fair share of the market.

How are rising interest rates affecting Chevrolet dealerships? Are Chevy and GM Financial doing anything to help mitigate challenges created by higher rates?

GM, in the second quarter, gave us an increase in floorplan credits to help offset the rising interest rates. But yes, it is a concern. As for now, the market's been good enough that we've been able to manage that. If interest rates keep rising, it's definitely going to affect inventory levels, which could hurt both General Motors and the dealers.

Are incentive levels in line with what dealers need?

We always want more, but I think what you've seen, and all the moves General Motors has made recently, that's going to allow us a lot more firepower in the go-to-market incentive strategies. So, more to come on that.

Does Chevrolet use stair-step bonus programs? Are targets set fairly? What do Chevrolet dealers think of those programs and targets?

Our SFE program for 2019 takes a multiyear average for all dealers of all sizes and it makes it fair across the board because it gives you a percentage of what you sold and that's how the objectives are constructed.

It's not an arbitrary number that they assign the dealer that could be good or bad. It's based on what I sold over a multiyear period and gives me my average, so it's actually what I sold. That's the fairest way you can do it.

Is that a new way of doing things for Chevy?

Not really but the multiyear average gets more in-line and takes out peaks and valleys.

Are there any other changes to the SFE and Essential Brand Elements programs that will help dealer profitability?

EBE for 2019 will be a conformance program. If you are in these multiple programs, you get the money. You get paid. Some of the money was transferred over to SFE. That was to increase the payouts for all dealers in SFE. So those who sell will be rewarded and those who do not will not.

GM recently increased factory programs and tech assistance to dealers that were typically offered by third parties. How are such programs going?

It's a blended approach. You can use the factory programs and they're good, but you're not boxed in to have to use that. If there's a third party that comes along that is absolutely on fire and moving the market, you can jump to that.

For example, chat's really good at GM. I can use chat but if I want to use an outside third-party chat company, I can do that. I may have to pay more and I may not get some subsidies for that, but you're not restricted or required to only use that.

GM would be foolish to tie dealers into that. As fast as technology is moving, there's always a better mousetrap. GM realizes that and has built in flexibility, especially in 2019.

What we've asked GM to do on behalf of the network is to go in and negotiate with vendors based off our scale to get the best pricing possible, and they've done that. It's really paid dividends. Our expenses have been reduced greatly.

How has that occurred?

The programs are pretty good because the dealer councils have been intimately involved with negotiating and making sure all the aspects of the program are implemented into the deal. They didn't just blindly go do this on their own. They worked with the dealers really close on all aspects of digital, DMS and everything to do this.

The programs are good and any GM dealer that went with that program has a good solution. What we asked for was flexibility at some level for new technologies to come across because they come so fast and so often. We want the ability to be able to try them and GM is acute and aware enough that if this is something that's now a new industry standard, they will move quick to put it into the program. They've gotten a lot more nimble.

Should we expect GM to increase such offerings and services going forward?

Digital. All things digital. This is an approach asked for by the dealers because there are 10 million digital vendors. So, what we asked for is they pick a bunch of winners, vet them and hammer them in terms of expense on the size and scale of our network to lower expenses and costs. But with that, they're allowing flexibility for new technologies to come in and out.