Automakers are not easing up on mandated dealership image programs even as dealers grow increasingly opposed to costly renovations that they say are out of step with the rapidly changing technology that threatens to disrupt traditional business models.
“With all of the question marks around where the industry is going longer term, we think that [automaker] requirements would be more reasonable,” said John White, president of the Canadian Automobile Dealers Association, which represents about 3,200 new-vehicle retailers.
Store renovations, which can run into the millions of dollars, have long been a source of friction between dealers and automakers in both the United States and Canada.
As car shopping moves online,land prices rise and sales soften retailers are becoming more vocal, arguing that technology, not bricks and mortar, should be the focus of investment dollars.
“I have to question whether renovation programs are going to be that relevant 10 or 15 years from now,” said Ross Ulmer, co-owner of Ulmer Auto Group, which operates dealerships in Saskatchewan and Alberta. “There’s no question we have to look good, we have to look consistent, and we have to provide great service.
“But I’ve never seen a new building sell another car,” said Ulmer, adding that “onerous” image programs influenced his decision to sell his Nissan and Hyundai dealerships in recent years.
IMAGE ISN’T OBSOLETE
Automakers counter that the digital age has made it crucial for stores to be modern, comfortable and convenient for customers.
Nissan’s NREDI 2.0 image program, for example, features stations with tablets for customers to configure vehicles, and dealers use the company’s NCAR tablet application to guide customers through their shopping.
“As we see it, [NREDI 2.0] is really a complement to the online buying process,” said Ken Hearn, director of dealer network development at Nissan Canada.
“Yes, more customers are doing more processes online, but they’re still coming into the dealerships. They’re still visiting the dealerships. It’s still the biggest or second-biggest purchase that people are going to make in their life, and they still want to experience the vehicle for themselves, to touch it, to sit in it, to feel it.”
While dealer profitability has been buoyed by a decade-long bull market in new-vehicle sales and a consumer shift toward high-margin utility vehicles and pickups, pricey makeovers don’t necessarily boost sales, White said.
“I know some dealers that have beautiful facilities, but because the [automaker] doesn’t like the color of the banner outside, the dealer’s got to make the investment. That’s not going to sell them one more car.
“We understand that [automakers] need to have brand guidelines and image programs, but they’ve got to be reasonable. I believe it’s sometimes overdone, and the pressure to do it is very often unreasonable.”
More emphasis should be placed on re-evaluating how much land dealers need to own in the wake of increasing real estate values, White said.
“I don’t think, especially with the price of real estate, that dealers need to be sitting on four acres of land. So, I think you’re going to see a future that will lead to better utilization of off-site storage, off-site [pre-inspection delivery] and even off-site service. And dealers need to look at that differently because the price of real estate isn’t going to go down anytime soon.”
Jean-Marc Leclerc, Honda Canada vice-president of sales and marketing, said uniformity among all dealerships is crucial to brand recognition.
“You’re not in the market all the time, but when you are, it’s easily identifiable — ‘Oh, I know where the Honda store is.’ To me, that plays into the importance of being very consistent with the image that you project out there.”
Ulmer said he understands the need for keeping stores up to date and has maintained good relationships with automakers despite his concerns.
“Most of the manufacturers, we understood the reason why they were doing it. At the same time, I think the manufacturers fall in love with some ideas. We’re not an Apple store and they shouldn’t get their ideas of how to better sell cars by going to Apple.”
Farid Ahmad, CEO of Dealer Solutions North America, which brokers sales of dealerships, said whether an image program has been completed affects the value of the dealership when it becomes time to sell.
“When somebody says to me, I’m selling my Mitsubishi store, for instance, the first question I ask is, ‘Have you gone through the image program?’” Ahmad said. “Because that will impact the value of your business. They need that number so they can do their pros and cons.
“‘If I stay in, it’s going to cost me $2.5 million. How long is it going to take me to recoup that $2.5 million? I’m 65 years of age. What if I want to get out when I’m 70?’”
Renovation programs vary in frequency from brand to brand. Mitsubishi Canada, for instance, changed its branding program in July 2018 as part of a Japan-led strategy, supplanting a Canadian program that began in 2017. Nissan’s Hearn, meanwhile, said the NREDI 2.0 design replaces an image program that is about 15 years old.
NO LEGAL PROTECTION
In the U.S., 22 states have legislated limits on how often automakers can impose dealership renovations.
No such laws exist in Canada, which means dealers have no legal recourse against manufacturers’ mandates, White said.
While some automakers were more flexible than others, it would be “naive” to expect relief from image programs, he said.
“At the end of the day, very often, this comes from somebody sitting in a head office in some country that’s not Canada, because these decisions are usually made outside of the country. Some designer or architect is thinking of some neat and unique way of making their shops look differently. It’s just a fact of life.”
Ulmer singled out General Motors and Toyota as companies that were “really good to work with” on renovations.
“They were willing to accept substitutes where substitutes really made sense,” he said. “And a substitute of materials can save you upward of C$150,000 ($112,000 U.S.) on a project. You do that two or three times in a project that’s a fairly big project, and that’s big.”
Canadian executives at Nissan, Honda and Hyundai said the companies were willing to work with stores that needed to deviate slightly from an image program.
Some elements can be seen at every store worldwide, said Jonathan LeClair, Hyundai Canada’s national manager of dealer development.
“Where we have flexibility is the minor details and things like that. We always recommend we should have the same furniture and the same lighting, but we do make concessions with dealers on that.”