Subaru dealers: Love Promise keeps a check on markups

Subaru dealerships are generally sticking to sticker prices, in keeping with the brand's Love Promise, according to Patrick Wergin, chairman of the Subaru National Retailer Advisory Board and executive vice president of Gateway Subaru in Delmar and Annapolis Subaru, both in Maryland.

Wergin, 51, discussed topics including pricing, inventory and electrification with Staff Reporter John Huetter. Here are edited excerpts.

Q: Is Subaru offering assistance or direction on online retail?

A: Subaru's always been very leading-edge when it comes to the websites and website tools and the [online] interactions with our visitors.

We do have a certified digital tool program. We have vendors on there that are preferred by Subaru that we know will mesh onto the website and give our guests the experience that we want. It's not mandatory. The [assumption] is the engaged retailers, the leading retailers that want to be out there, are using this program to their advantage.

Are you referring to a specific platform or providers?

It's providers that are certified, which helps a lot of retailers because it's limited to a specific amount that have passed the testing that we want. And it allows retailers to kind of just look at those versus go out and look at 30 others and just get confused by everything.

Is there a specific Subaru-branded retail tool?

There is not. The tools are optional for the retailers that want to engage with them.

Do you have a sense of the digital retail adoption rate?

I'm not sure on the numbers, but I know that, talking to my counterparts in 20 Groups that we're in, the majority of them do have the digital retailing tool.

It's just this customer's information at their leisure and how they want to get the information with the different payment ranges. But, when you look at your closing ratios, it is your best lead provider.

Is Subaru providing training?

We do have analytics that we get shared from the vendors because part of the program is that we've got to get the analytics so that we can [examine] what's worked and so we can manage the tool correctly.

Are there data protection and cybersecurity requirements?

I think it's been five years ago, we partnered with a vendor for the retailers that we had firewall monitoring within the operation. We're still partnered with this vendor. And this was mandated years ago.

Are dealers demanding a Subaru used-vehicle online sales platform?

We're not. We're very pleased with the Subaru certified program that we have right now. We do have some great tools that Subaru has for us, the trade-up advantage that allows us to work our database and source trades and also sell new vehicles at the same time. Last year was a record certified year, I believe, for the brand.

Would dealers like to see more Subaru certified pre-owned vehicles approved?

We would love to see more cars go through the certified pre-owned channel.

Is Subaru working on improving CPO inventory?

Our program that's out there [stands] very competitive to what our competitors have on the market. It's just a matter of right now just getting more cars through the program.

Does Subaru require an order bank or a manufacturer website?

When it comes to ordering vehicles, Subaru of America and the retailers have done a phenomenal job with this for years due to we've always had a lower day supply.

And we've always — through Subaru's partnership and working with us, with our portal, our pipeline — had a high volume of sold vehicles coming in. And, naturally, the last year and a half, it's higher than normal. But we've really mastered selling vehicles into the pipeline right now.

Are customers submitting orders through a corporate portal?

It's all through the retailers.

What are dealers hearing on production and inventory?

Subaru of America has done a phenomenal job with communicating to the retailers monthly on where we stand with the vehicle positions. Obviously, this is a fluid situation, but the communication is clear from upper management on where we are.

What about your dealership?

At my two operations, ground supply is [probably] three, four days. Normally, it would be probably 20, 25, 30 days.

How do dealers manage that?

The retailers are selling it through the order banks. The sales efficiency that is being driven by Subaru retailers is phenomenal.

Are you finding customers would rather just order and wait?

A lot of clients are ordering and waiting. I know, talking to a lot of my cohorts in 20 Groups also, that used-car volume is down a little bit, but the gross profits are up substantially.

Do retailers have a sense of when inventory will improve?

I think the overall consensus is that we're hoping that everything gets alleviated by the end of 2022.

What supply level would be ideal?

Obviously, we would ideally love to get back to a 30-day supply. We've always been very familiar with running at 30-day supply for the Subaru retailers, compared to other brands, where they're 60 to 90 days, or even 120 days. We've always used the pipeline, ordering vehicles as our secret weapon.

Are vehicle prices offsetting the lack of inventory?

The sales numbers are down, but the gross profit generation off of each unit is significantly higher. It's classic supply and demand right now.

How sustainable are profit margins?

We know that when the market starts to correct with all manufacturers and we start getting some ground supply, that we are going to see an erosion of the grosses. Honestly, we just hope that they could stay this way right now.

Are you and your peers pricing above sticker?

I think generally with the Subaru retailers, we are at MSRP. We do have the pledge through the brand, which is called the Love Promise. And the retailers are living up to the Love Promise with "do what's right for the customer."

How do you see incentives evolving?

I think right now, being with all manufacturers with such a low day supply, all incentives are pretty much very low right now. But obviously, as the markets recover, and [inventory] on the ground [begins to grow], there's going to be a need for incentives going forward.

What is the state of leasing?

The leasing penetration has dropped. Last year, we did have a low interest rate APR market where that does cannibalize some of your leasing penetration. And of course, subvention is part of it.

But obviously, we would love to get leasing back on the table when inventory positions come back because it's important for our future pre-owned sales and also knowing that retention of clients.

Is Subaru seeking to address this leasing issue?

I think it's all going to be [predicated] on getting units and the day supply up. We know that leasing has to be a portion of the sales for certain markets that are in the United States where there's high percentage of leasing. So Subaru is cognizant that, in order to keep the sales and the market share, leasing penetration has to be attained.

Is Subaru at the right pace on electrification?

We're excited. We get our first electric vehicle, full-electric EV, here in May. We've had great interest from clients on the Solterra.

Has EV facility capital investment been an issue?

The Subaru requirements have been pretty modest. They've done a good job with what the requirements are compared to other brands with the electric vehicle launch.

What must be added?

It was charging requirements. What chargers are needed, where the locations need to be. And naturally, the special tools that are going to be needed for this vehicle.

Are dealers worried about legislatures allowing direct sales by startup EV manufacturers?

I think naturally, all retailers are concerned about that because [dealerships] want to have the protection of the franchise system. And that goes across the line of all retailers right now.

How is fixed ops performance, and how does it compare with pre-pandemic performance?

Subaru retailers had a great year last year with fixed ops. We have a high number of units in operation due to our past sales years. A lot of clients are back out.

Some of them are driving the cars versus buying new ones so they're extending the length of ownership, and that's helping increase the repair order sales for us in the operations.

What is Subaru doing about the lack of technicians?

I think all retailers are struggling with staffing of technicians. It's getting more and more difficult, but our partner Subaru has helped work with us to give us some tools to recruit technicians.