‘Checklist Mentality,’ Tax Inequity Crippling U.S. Dealers

Government-imposed practices and the “checklist mentality” exhibited by some OEMs are suffocating dealers, Hesterberg says at the Automotive News World Congress here.

Margins at Group 1, a Houston-based Fortune 500 company that owns and operates some 100 dealerships and 130 franchises in the U.S. and U.K., are below historic levels – 6.2% last year, compared with 7.1% in 2005.

Taxes are a chief complaint. Dealers are subject to rates ranging from 27.4% to 39.1%, compared with the 8.6% and 3.1% levied against Ford and General Motors, respectively, Hesterberg says.

Government compliance also trickles down to the showroom floor. Married couples in Texas are required to sign or initial transaction documents in 65 places. “It’s ridiculous what we’re putting our clients through to purchase vehicles,” he says.

At the supply end, auto makers set out seemingly random edicts that consume dealer resources instead of enable them to better serve prospective buyers. Hesterberg cites what he regards as one OEM’s needless requirement to expand dealership stockrooms.

“Dealers and OEMs need to work together to find efficiencies,” he says.

Hesterberg is wary of signs that auto makers may be overestimating 2012 demand, which could see overstocked dealer lots.

North American production schedules call for a 10.3% output boost in first-quarter vehicle assembly, compared with year-ago, according to WardsAuto data. And Ford has yet to specify its plans. “We have to be vigilant,” he says.

Against this backdrop, dealers are struggling with a shortage of talented professionals, from the general manager’s office to the service bay.

“Consistently, good technicians can be hard to find,” Hesterberg says, adding highly motivated technicians can pull down 6-figure annual incomes.

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