Who Will Benefit the Most?

Since selling off several dealerships, my thoughts have become more charitable about the factory gang I had dealt with.

We dealers are a forgiving lot. All it takes are a few gracious gestures, some concerned calls and an extended hand of friendship. Most past sins are forgiven and factory guys extend themselves in ways that seem to have otherwise been prohibited.

I've received more welcoming contacts in the weeks since selling than in the months before. One factory friend even came from two states away to buy me dinner.

I find it curious that factory efforts to plump up dealer's profits have been making headlines. Factory attention to their dealers' profit needs should not be newsworthy, it should be a given.

So, are we witnessing real change or another short-term strategy aimed at patching a stretch of bad road? Current “help-the-dealer” efforts suggest franchisors have developed a new appreciation for dealers and want to help them become strong.

Or are they trying to snare new dealers?

I'm withholding judgment. I'm focused on whether the manufacturers can get to strategies that make a difference in dealer bottom lines.

A point or two of “margin” enhancement sounds generous, but will it really show up as dealer profit or just market speak running down the drain as a bigger discount to the consumer?

General Motors' first olive branch was to give dealers more say over how their marketing contributions would be spent.

I'm not clear which is more significant, GM's belief that having dealers manage local advertising is a dealer rather than factory benefit, or the thought that the only remaining flaw in forced advertising contributions is who picks the ad?

Margin increases and greater ad control for dealers are fine, but not real manufacturer investments in dealerships. They are non-cash strategies.

Increased dealer margins will spur non-captive banks to finance sluggish inventories on dealers' lots, even though the margin most likely will be consumed by the discount required by the structure demanded by non-captive lenders.

Here again, it appears manufacturers have packaged the solutions to their problems as dealer benefits.

Which again brings us to the questions of at whom these new “dealer” programs are truly aimed, and will any of this do more than encourage new players to the field?

The answers will be revealed in the bottom lines of dealerships over the next few months.

I suspect auto makers are asking their favorite dealers what's important. The bias of those sources is so predictable that we can anticipate more new-dealer prospecting long before profits flow into existing dealerships.

As far back as I can remember, “dealer development” has been the industry euphemism for nudging unwanted dealers out.

In good years, dealer development tools are a business card, a pressed suit and some words of factory encouragement. In tough years, a few bucks are added to grease the skids (the clandestine budgets are fiercely guarded), since it's always the next dealer who receives assistance in a way that is withheld from the existing dealer.

Certainly no one is talking as openly as GM did when they paid existing dealers to dump Oldsmobile's assets into GM's other divisions. And no manufacturer has taken the bold step of putting its commitment to the profitability of dealers into its franchise agreement.

I just got off a phone call with a former employee now working at a volume franchise dealership. He says his greatest success is converting new-car customers to more profitable used-car deals.

He wants me to understand that new-car sales are “a dangerous charity” for dealers with more ego and money, than brains and need. He wanted me to hear that a commitment to new cars hurts sales people.

I haven't become that cynical, yet. But at the end of the call, my new fondness for my factory friends was fading. Hanging up, I concluded manufacturers and their dealers are going to have a hard time finding common ground in 2008.

Peter Brandow is a veteran auto dealer.