Dealers to J.D.: Wrong!

LAS VEGAS — Franchised car dealers and research company J.D. Power and Associates are at odds after a curious commentary written by company founder Dave Power III appeared in The Wall Street Journal.

In the Oct. 28 column, Power blasts the current automotive retail franchise system, saying it's “overly restrictive” and adds as much as 30% to the base cost of a vehicle.

The current system “hardly serves or satisfies anyone,” Power writes.

He advocates a setup that follows the Wal-Mart model — one that allows dealers to sell several brands side-by-side. Power predicts the industry will start seeing such a model in the next 10-15 years as current franchise laws are modified.

The comments have dealers both bemused and irked.

“I'm shocked,” AutoNation Inc. Chairman and CEO Michael Jackson tells Ward's in an interview here. “It's fraudulent and misleading. He's saying the system is inefficient and is costing the consumer 30% distribution costs. Well, that's ridiculous and absurd.”

The true distribution cost to the consumer is 7%, argues Jackson. And after taking out all of the overhead and costs associated with selling a new vehicle, AutoNation is left with a 1% profit. “I publicly certify those numbers,” says Jackson. “If I'm wrong, I go to jail.”

National Automobile Dealers Assn. Chairman Alan Starling also takes issue with Power's numbers. Starling cites a 2001 study that estimates franchise laws cost the consumer 1.7%.

A spokesman for J.D. Power says the 30% markup figure used by Power takes into account sales, marketing and distribution, as well as fleet and field operation costs, an explanation he says was edited out of The Wall Street Journal.

Jackson disputes that figure as well. Even after adding in the manufacturer costs, which total only 4% or 5%, says Jackson, the cost to the consumer is about 12% — a far cry from the 30% Power cites.

“When you correct the numbers, you almost have to rewrite the story to say the franchise system today is the most efficient system out there. Show me what's better,” he says. “The automotive retail system is one of the most efficient, effective and satisfying systems in place today. And it will be in place for decades.”

Chris DeNove, a J.D. Power partner specializing in retail and distribution areas, says the commentary is not an attack on dealers, although he admits he can see how some could misinterpret Power's piece.

“Power is advocating that dealers get greater freedom,” says DeNove. “Greater freedom to grow their businesses; control their own profitability and merchandise their products the same way other retailers can.”

According to DeNove, Power is calling for modifications, not the end of the franchise system.

“He may not be attacking dealers,” says an NADA spokesman. “But that message gets lost in all of the factual errors.”

Convincing dealers J.D. Power is not anti-dealer will be difficult for the company.

Its relationship with dealers under the surface has been uneasy. Many dealers have long viewed J.D. Power & Associates with mistrust.

The company is involved with many of the OEM dealer-certification initiatives including Ford Motor Co.'s controversial Blue Oval program. The company handles many of the customer-satisfaction surveys that recently have caught the ire of the NADA which claims the surveys often are flawed and misused by manufacturers‥

Power's commentary has provided fuel to those dealers who resent the company.

Hundreds of emails are being exchanged between dealers urging each other to end whatever relationship they have with J.D. Power.

Jackson, who calls Power's statements “an absolute attack,” says he doesn't know how all this will play out.

AutoNation, the largest chain of dealerships in the U.S., often participates in the dealer panels held at the J.D. Power's Automotive Roundtable held right before the NADA convention. Jackson is unsure if that will continue.

“I have to think about that,” he says. “I don't want to make any decisions in the heat of the moment.”

For many dealers, the decision already has been made.