THE HARD LESSONS OF OVERDEALERING

It began years ago with a misguided factory philosophy that the more outlets one had, the more total sales and corporate profits would be generated.

AVERAGE SALES PER DEALER ARE AMONG THE MOST interesting statistics in automotive retailing. Generally, these numbers reflect the value of the store and the best factory-dealer relations.

The import versus domestic figures are startling. Toyota averaged 1,179 sales per dealership, Lexus 1,170, and Honda 1,020 against Ford at 873 and Chevy at 612.

How did such an imbalance come to pass between long-time popular domestic makes and latter-day foreign contemporaries?

It began years ago with a misguided factory philosophy that the more outlets one had, the more total sales and corporate profits would be generated. Years later, the Japanese auto companies, setting up shop in this country, took a much different approach, one that avoided overdealering.

That's why there are 1,195 Toyota dealerships and 997 Honda dealerships in the U.S. compared to nearly 4,000 Ford dealerships and 4,275 Chevrolet dealerships.

I remember attending classes at General Motors Institute where the instructors simply stated, “Volume is the key to success for dealers as well as factory people.”

The problem was their concept of profit through volume sales spurred factory executives to believe all it took to become a star in the retail automobile business was more dealers and more sales at any price.

After World War II, new-car starved Americans got into a feeding frenzy to get the latest models as auto factories stopped making war equipment and resumed making cars. Customers back then were willing temporarily to accept new cars with much of the standard equipment missing (dashboard instruments, rear seat upholstery, spare tires, front and rear bumpers).

Dealers played loose with prices until Detroit wised up and raised prices from the 1942 level simply because the consumer was already paying bonuses to dealers, and manufacturers decided they wanted a larger piece of the pie.

There were several Detroit auto executive superstars who decided the golden path to their corporate future lay in signing as many dealers as possible, no matter the warnings of a shrinking domestic market caused by an increased consumer awareness of fuel economy.

Although the public's desire for fuel-efficient cars didn't begin to reach its current level until after the oil embargo of 1979, domestic automobile manufacturers were obsessed with high-profit gas guzzlers and minimal competition from imports.

Detroit's total domination of the retail automobile market lasted for years following WW II. Then Volkswagen became a major player in the world's retail automobile marketplace. VW maintained a high standard in stand-alone dealerships and a VW franchise was one of the most profitable in the U.S. retail market.

VW demanded top-notch facilities and most of it's retail and technical personnel were well trained and consumer oriented. Although the VW product was in great demand the appointment and number of quality dealers was closely controlled by the factory. Realistic, attainable per-new-car grosses were among the best in the industry.

It is appropriate to use VW as an industry standard for its success in the U.S. occurred during the same time Detroit was building masses of poor quality vehicles and setting up new dealers on seemingly every street corner.

But most Japanese manufacturers entering the U.S. market wisely followed VW's example. They attempted to build a quality retail organization without saturating markets with too many dealerships competing against each other. This was not true in all cases. Datsun (Nissan) went amok appointing dealers — with poor results.

At first, Japanese distribution was done through regional retail distributors. For example, Toyota, (today's sales-per-dealer leader) was represented by a Northeast volume Chevrolet dealer. But when Toyota and other Japanese manufacturers saw the direction of the market, they promptly changed their distribution policies and maintained high product quality and fuel efficiency instead of trying to use archaic marketing for a high energy, youth-oriented, environmentally conscious consumer population.

Changing demographics was also an important marketing phenomenon that favored the imports. The movement of the U.S. population to the suburbs created a major problem for domestic dealers and Detroit who found themselves with dealership real estate in downtown locations. Meanwhile Honda and Toyota dealers flourished in suburbia.

It should be no surprise that Honda, Toyota and Lexus are much sought after franchises in the current new vehicle market. These nameplates have consistently demonstrated the ability to go head to head with the muscle in the U.S. retail automobile market, and come out on top.

A personal note: years ago I was one of the marketing “geniuses” who had an opportunity to get a desirable Honda dealership (also VW). I turned them down because — now, get this — my patriotic zeal dictated I should sell American Chevrolets. Shortly afterwards, Chevy introduced the Vega, one of the worst cars ever made.

Nat Shulman was owner of Best Chevrolet in Hingham, MA for many years.