Dealers Appear Ready to Fight Auto Makers

For years, I’ve fought heavy-handed programs auto makers inflict on their dealers.

Now, a champion dealer, Norman Braman, is putting on the gloves. He is the type of guy who can go a full 15 rounds with an auto maker.

Self-made billionaire Braman is suing General Motors. Not that dealers haven’t sued auto makers since the beginning of the automotive franchise system. But this time it’s different.

Braman is a super-successful megadealer with resolve, wherewithal and determination. His retail dealerships in Miami and Denver sold more than 18,000 new units in 2011.

My kind of guy. He is somebody who puts his money where his mouth is.

In the past, auto makers could wear down dealers with sheer financial strength and intimidation muscle. And there’s this: “Do you really want to tee off manufacturers if you want to continue doing business with them?”

So, most dealer disputes died pretty quick deaths.

Braman, however, is suing GM over its Essential Brand Elements Program that, among other things, requires dealers to build new facilities or redo existing ones so they have a common look.

The program financially rewards dealers who go along with it. But Braman alleges, and I believe rightly so, that the rewards translate into 2-tier wholesale pricing.

Of course, it’s not just GM; almost every auto maker has some sort of program tied to facility-upgrade requirements or sales incentives that create situations in which qualifying dealers can sell cars substantially cheaper than those that don’t.

In the 1990s, Ford’s certified Blue Oval compliance plan financially rewarded some dealers while punishing others.

Almost all of these programs, or plots, as I call them, are thrust on dealers by auto makers who sanctimoniously claim they are customer-satisfaction incentives.

Excuse me: None of these programs are about customer satisfaction. They’re strictly a way to control, punish and reward.

The stair-step programs are a race to the bottom that forces dealers to sell products at a loss in hopes of hitting sales goals and getting money back. But miss a monthly goal by just a few units, and all the dealer discounting is for naught.

I am seeing dealers and managers taking ridiculous deals trying to hit the stair-step goals, sometimes selling cars for thousands of dollars below invoice.

Right now, I’m talking mainly about Chrysler and Nissan, although Hyundai first created stair-step incentives back in the 1990s when it indeed was in trouble with falling sales and backed-up inventory.

We’re seeing more dealers like Braman stepping up, taking action and making the commitment to fight back.

In Maryland, megadealer Jack Fitzgerald, another champion of dealer rights with a proven track record, also is suing GM about the perceived 2-tier pricing created by the Essential Brand Elements program.

We’re all of the opinion that dealers should have the best facilities possible. Nobody is saying that an auto maker doesn’t have the right to demand a standard of acceptable facility appearance.

But it crosses the line when they specify exacting designs, materials and local contractors. It puts unfair limits on dealers and drives up construction costs.

Many dealers I speak with view it as favoritism for some and retribution for others. It’s controlling. Yet, the official position is that these programs are to maintain  brand image and state-of-the-art facilities.

It was encouraging to hear John Krafcik, head of Hyundai’s U.S. unit, explain that Hyundai wants its dealers to upgrade facilities, but not to the extremes of other auto makers.

This subject is at the center of every discussion in every dealer group I have interacted with in recent months. I believe 2012 will be the year this issue becomes a full-scale battle between dealers and certain auto makers. I predict auto makers will back down as dealers become more resistant and united.

Jim Ziegler, president of Ziegler Supersystems, is a trainer, commentator and public speaker on dealership issues. He can be reached at [email protected].