How Retailing Got Hard

There's always been an ebb and flow to the retail car business. We feast when our manufacturers come out with winner product in just enough supply to keep margins fat with just enough volume to make advertising worthwhile.

Famine follows as quickly as our manufacturers' notice our handicaps dropping, yachts lengthening and the bezels on our Rolexes sparkling more than a Las Vegas show girl's costume.

Today, unlike when manufacturers could rely on dealers stepping up their efforts to overcome thinning margins, savvy dealers are expressing their displeasure that their margins cover much of the manufacturers' marketing costs.

At the center of this dealer-manufacturer conflict is the age-old tug of war between local and national marketing fueled by desperate manufacturers yielding to the pressure for larger national marketing to “cut through the clutter.”

In the beginning, dealers marketed and sold cars, manufacturers built them and established their brands. Retail was simple.

Then dealers, pitchmen all, convinced their OEMs to contribute to local advertising, because “with a few more bucks, we could really drive traffic.” Retail was still pretty straightforward.

Then manufacturers asked, “Why not put our national themes into your local ads?” We did. Retail got a little tricky.

Then the marketing guys said, “As long as we're using the same ‘theme’ we should coordinate to avoid redundancy and waste.” They did. Retail became complicated.

Then the agency guys said, “Give us the money; we'll produce more and better commercials providing a consistent message nationwide.” Retail became downright difficult.

Then, the attorneys said, “If the money is co-mingled, manufacturers are responsible, nay liable. Manufacturers must control the message.” They did. Retail became thorny.

Then the accountants said, “With this much money at stake, we must account for it.” The attorneys, agency folks and factory guys agreed. Retail became nearly impossible.

Co-op ad groups' value again is in debate.

It seems that neither manufacturers nor their dealers are seeing good returns on investments.

Remember why dealers agreed to co-operative advertising in the first place? It was so we might say the things that our manufacturers wouldn't, couldn't or maybe shouldn't say. We developed the marketing edge, they responded with product. We sold the deal, they branded the image.

I wonder if anyone still talks about how, when dealers put their cash in a marketing fund, it's coming out of dealer margins.

Yes, I've heard the hushed arguments that our salesmen really pay for it by commission reductions. I say, “Bunk.” When my salesmen are poorly paid they quit and go elsewhere.

And yes, I've heard all the hushed arguments that the manufacturer is matching my marketing dollars with their percentage contribution. But for their partial match, they dictate how 100% of the funds are spent, theirs and mine.

When the factory limits my money by controlling my creative content (even though they allow me to pick from a few choices), it's no different than shifting my margin to their ad budget. All they've done is increase the cost of the car.

Worse, when a manufacturer is tight on cash it can halt the co-op process, grab the money and reduce its spending. During those cycles, money collected in Cleveland might be spent in LA. Dealers in Boston might lose market share so dealers in New York City can compete.

Before long money siphoned from the dealers disappears into the melting pot of corporate accounting. Imagine that money is collected from dealers in location A, some gets spent in location B and some, through the miracle of accounting, winds up on manufacturer's bottom line.

Most troubling is not whether dealer marketing is more effective than national. Nor is it a question of what use dealers are to begin with.

Far more insidious is the inherent dealer-manufacturer mistrust that ensues when dealer margins are manipulated.

Next time you wonder what happened to new-car retailing, look at dealer advertising and the ebb and flow of co-operative advertising efforts. When that works, it's time to feast.

Peter Brandow is a veteran dealer based in Pennsylvania.