Dealers Push Back

Emboldened by recent healthy profits and the prospects of a recovering economy, many auto makers are pressuring their surviving dealers, at least the ones that survived arbitrary terminations and recession, to upgrade their facilities.

This comes at a time when dealers are desperately trying to repair their balance sheets and reconstruct relationships with their bankers after a bloody few years of just trying to hang on.

Dealers have enough problems dealing with recalcitrant banks just to maintain reasonable floor plan lines and capital loans without having to ask for facility-renovation financing.

Perhaps in a few years, dealers might be in a better position to do facility upgrades. And for the ones who can get financing or have cash, does it or will it make economic sense, given current trends?

In their demands and requests, auto makers often cite information from focus groups where consumers are asked what value they put on dealership facilities.

Everyone seems to like a nice, clean facility. Let's face it; shiny granite surfaces, marble floors and wood trim do make an impression. So do boutique espresso bars, nail salons, shoe-shine stations, and other foo-foo features.

As much as consumers like these things, a growing number aren't willing to cover them when it comes to what they pay for a vehicle.

Increasingly, consumers care less about fancy facilities. While a facility in a high-traffic area might attract walk-in customers, more people are going online to shop for vehicles. The virtual showroom is attracting a lot of consumers.

This is where high overhead becomes a disadvantage. As one consumer said to a dealer friend, “I can't drive your overhead, why would I want to pay for it?”

Yet, the dealer is being pushed by his auto maker to erect an elaborate sign to replace the one that existed when auto maker terminated his franchise. The dealer regained his franchise through arbitration. The auto maker just can't understand that the old sign was grandfathered in and the new one has to meet current city code.

The sign is a small part in a major push to encourage the dealer to invest more in an already impressive facility. This is just another day in the life of a dealer.

Dale Pollak, chairman of vAuto, a former dealer and a high-profile expert on auto retailing, is right when he says he sees no need for dealers to do warranty and repair work in an expensive new service facility. Is something like that worth the extra overhead?

In this age of squeezed profits, the retail auto business is trending in such a direction that dealers need to be more conscious of overhead costs than ever before.

If dealer can't compete because of unnecessarily high overhead mandated by the manufacturer, it becomes increasingly difficult.

Consumers my age tend to put a lot of value on relationships, proximity, and convenience. But younger consumers are different.

They have never known life without the Internet. They feel empowered by it. They are less concerned with the physical appearance of the dealership because they will spend less time there than will someone of my generation.

As such, we're in a new chapter of auto retailing.

The book is still being written. Manufacturers cling to commonly held dogmas, as do some dealers.

So when it comes to some auto maker's requests, dealers may need to learn how to just say, “No.”

Auto consultant and former dealership general manager Dave Ruggles is at [email protected].