Dealers Balk at Auto Makers’ Facility Demands

Special Coverage

NADA Convention & Exposition

SAN FRANCISCO – While auto makers selling in the U.S. often have grand plans for bright, modern-looking dealerships, dealers question the wisdom and costs of some of these projects.

Car companies, particularly ones in good shape, "are putting tremendous pressure on retailers to build new facilities," says Michael Maroone, president of AutoNation Inc., the nation’s largest dealership chain.

"Some of what they want is irrational. We need to hold our ground against bad investments," he tells attendees at a J. D. Power and Associates’automotive conference held in conjunction with the National Automobile Dealers Assn. Annual convention here.

Sometimes, it goes beyond irrationality, agrees fellow round-table-member Tamara Darvish, vice president of the 26-dealership DARCARS Automotive Group located in the metropolitan Washington area. "Some manufacturers are stupid," she says.

Darvish tells of an auto maker that had a "cookie-cutter design" for a new construction project it wanted DARCARS to undertake.

"To reconfigure to that design would have left us 3-ft. (0.9 m) short," she says of the planned facility. "It would have been an ordeal for us to alter the plans, but they kept insisting we had to do it that way. We’re still battling. I just received a (franchise) termination notice that I’m not taking seriously. But all over 3 ft."

Then there is the expense of such projects that typically cost millions of dollars. Although auto makers often kick in some money, dealers are expected to pay the lion’s share.

"The cost of a showroom is through the roof," Maroone says. "Even a vehicle-storage project can be expensive. In South Florida, I used to buy land for $4 per ft. Now it’s $40."

Maroone is unconvinced elaborate showrooms help sell cars all that much, noting two-thirds of AutoNation’s customers are online shoppers. He worries some auto makers’ facility requirements are tied to overly optimistic market-share goals.

"Each manufacturer has its own set of (building) standards, and some are ridiculous," says Sidney DeBoer, chairman and CEO of Lithia Motors Inc., a publicly owned dealership chain. Many OEMs are insensitive to the cost of some projects they expect dealers to bankroll.

Lithia recently spent $40 million on a new BMW AG dealership. "That’s great it’s BMW," DeBoer says, referring to the brand’s high-end image and healthy sales. But, "I’ve been through recessions where you couldn’t give a BMW away. What happens to your $100,000-a-month rent then?"

Customers want clean, attractive, conveniently located dealerships, says Thomas McLarty III, vice chairman of RLJ-McLarty-Landers Automotive Group. In providing such facilities, dealers must look at it as an investment, rather than just an expense.

Nevertheless, he thinks some of the money used to fund expensive new facilities could be better spent elsewhere.

"I’d like more of that capital to go into the customer experience and employee training," says McLarty, a third-generation dealer who once served as chief of staff for President Bill Clinton, a boyhood friend from Arkansas.

Dealers must watch their balance sheets, he says, and auto makers must be mindful of dealers’ costs as much as their own.

Of dealer-manufacturer relations, McLarty says, "I was brought up in this business as a little boy, and my father used to (say) it’s a 2-way street."

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