LAS VEGAS – An impending “train wreck” seems possible as auto makers pressure their dealers to build costly facilities at a time when the financially stressed retailers can hardly afford to do so.
So says Dale Pollak, a high-profile figure in the dealership world, author of two books and considered by many as an industry thought leader.
“What is the logic of manufacturers asking dealers to build multi-million-dollar facilities when dealer margins are being squeezed as much as they are?” he says here at the Driving Sales Executive Summit presented with WardsAuto.
Because of their compressed profit margins of late, dealers need to look for ways to reduce structural costs, not increase them by building elaborate and expensive facilities at the behest of the auto makers.
Pollak is a former dealer and founder of. Its inventory-management software, crunching real-time supply-and-demand data for specific markets, has revolutionized the way dealers stock, price and sell cars, particularly used vehicles.
Not only is it unfair to ask cash-strapped dealers to invest in Taj Mahal-like facilities, buying trends indicate consumers prefer to do most of their car-shopping online, rather than at the dealerships themselves, Pollak says.
More and more consumers go to the dealership only to finalize the deal and take delivery of the purchased vehicle.
“Why are we pushing dealers to build bigger and better ‘experiences’ when technology is making it more efficient to buy a vehicle without going to the dealership?” he says. “The market is not now supporting the selling of cars in these behemoth dealerships, today and the market won’t support it in the future.”
But even after eliminating thousands of dealerships as part of their post-bankruptcy reorganization plan,Co. and Group LLC are pressuring surviving dealers to upgrade facilities in return for not getting axed.
And, with the impending demise of the Mercury brand,Motor Co. this month told its Lincoln-Mercury dealers they can either close or invest in their stores to create a true “luxury experience” for the Lincoln brand.
The reduced profit margins and additional structural costs threaten to put a lot of dealers out of business, especially family-owned operations that are cash-short, Pollak says. “It’s like the family farm.”
Much was made last year of the number of dealerships forced to close. “That won’t be the real story, he says. “Long term, I see a major consolidation of the ownership base.”
This includes big dealership groups scooping up family-run stores. “I don’t think it will be tough for a consolidator to walk in with a pile of money” he says.
His offer may not be as much as it would have been before the recession, when car sales were rolling along at 16 million-17 million units a year. But “it won’t take a lot” for some dealers to sell their stores, Pollak says.
Pollak made his mark on the industry by advocating what he calls “velocity” pricing, which uses inventory-management software to price cars right the first time.
Essentially, that means pricing cars to sell and turn used-vehicle inventory quicker. The converse is holding out for high gross and risk cars lingering on the lot too long, their values depreciating daily.
Dealers who fail to price competitively face tough times, Pollak says, noting the Internet gives consumers easy access to used-car values and what dealers pay wholesale for new cars. They are ill-advised to cling to the high-gross model, he says. “Get over it.”
AutoTrader.com last month acquired, making it a wholly owned subsidiary, and Pollak vows to remain engaged.
“I will make a commitment to you that I will not let you down,” he tells dealers at the conference. “I’ll take inventory-management to the next level.”
On Pollack’s to-do list is the creation of new software “that will allow dealers to negotiate less or not at all.”
In the Internet age, “documentation must replace negotiation,” he says, indicating dealers must justify their pricing to Internet-savvy customers who have done their homework.