Rewards & Punishments

No dealer ever put his or her name on a store, then set out to run a bad business. So says Ford Motor Co. Group Vice President James O'Connor, a former dealership general manager.

That said, some dealers unceasingly struggle, score poorly on satisfaction surveys and miss minimum sales targets.

How do manufacturers deal with such under achievers? That was a topic of a lively discussion at the California New Motor Vehicle Board's 3rd annual Roundtable.

Different auto makers take different approaches. All agree a dealer must be hopeless before an auto company revokes a franchise. Less extreme measures are the rule, ranging from counseling to nixing new franchise opportunities.

“There's a cost — legal and otherwise — in determining dealers who don't perform,” says Frank Dunne, General Motors Corp.'s newly retired executive director of sales, service and marketing-retail relations.

“GM is taking a very close look with a process that identifies them, helps them and tries to improve the situation,” he says.

For dealers chronically at the back of the pack, GM tries to convince them to sell and urges better dealers to buy them out.

Customer satisfaction surveys, gauges of how well a dealership does, are under fire. Many dealers say the surveys need revamping, as they often give flawed feedback.

“We've gone away from using customer satisfaction surveys as a performance target,” says Nancy Davies, vice president-retail market development for Toyota Motor Sales USA Inc.

Dealers care about customer satisfaction as much as manufacturers, says Alan J. Skobin, vice president of Galpin Ford in North Hills, CA, the No.1 volume Ford dealer in the U.S.

“That's why you're in the business, to take care of customers,” says Skobin, a member of the California board. “As far as weeding out offenders, they weed themselves out.”

But sometimes that takes too long, says Brady Schmidt, president of National Business Brokers, a firm that facilitates dealership buy-sells.

“We see numerous dealers who should have been out of the business years ago,” he says. “It's frustrating.”

He says the franchise system allows substandard dealers to hang on and “hurt everyone.” He adds: “It's not unusual to walk into some dealerships with 50-year-old wallpaper and duct tape holding the carpeting together.”

Compliance rewards and punishments vary among manufacturers, notes Peter Welch, president of the California Motor Car Dealers Assn.

Among them: Money.

Dunne says a voluntary standard-of-excellence program — that started with Cadillac dealers and since has expanded to other GM brands — offers retailers generous cash rewards for high sales volumes and survey scores.

“A dealer could end up with a bonus check for $450,000 at the end of the year, depending on the size of the store,” he says.

Dealers must do well to obtain additional franchises — or else. Ford last year prevented the Bob Baker dealership group in San Diego from selling a Ford store to Asbury Automotive because the auto maker contended some Asbury Ford stores elsewhere failed to meet standards.

“We always try to buy a store with room to improve and get credit for that,” says Mark Iuppenlatz, senior vice president-corporation development for another publicly owned dealership chain, Sonic Automotive. “If you buy peak performers and they go down, you can be in trouble.”

David Wilson, owner of the Wilson Group, a 12-franchise dealership network in Southern California, notes a fundamental difference between publicly owned dealership groups and independent groups such as his.

He explains, “I'm in business to make a profit based on sales and service, whereas the ‘publics’ are interested in share value and stock prices.

“In some cases, they could be dumping inventory and selling below costs in one city to qualify for getting a platform of dealerships in another. As a private dealer, I can't do that.”

Adds Welsh: “There's tremendous pressure with the ‘publics’ to move the metal.”

The opportunity to obtain more stores with manufacturer approval is a carrot to get dealers to meet quality and sales standards, says Davies.

Adds Deborah Goldman, managing counsel at Toyota Motor Sales USA: “What better person to give a second store to than a performing dealer?”

Conversely, auto makers agree, what worse person to give another store to than a poor performer.