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Glenn Mercer
<p> <strong>Glenn Mercer.</strong></p>

Study: Auto Makers Need to Justify Dealership Upgrade Requests

There is little hard evidence on the return of investment this spending might yield,&rdquo; says analyst Glenn Mercer.

LAS VEGAS – Auto makers need to better show the need for their required dealership facility-upgrade program, according to a study commissioned by the National Automobile Dealers Assn.

The upgrade programs can place financial burdens on dealers “yet there is little hard evidence on the return of investment this spending might yield,” says Glenn Mercer, an analyst who oversaw the report released at the NADA convention here.

“There is no holy-grail formula that says if you spend $1 million on showroom, you will get that back in sales,” he says.

Dealers mostly support the concept of facility upgrades but “are critical of the economics,” Mercer says.

“Off the record, auto makers will tell you that you probably won’t sell another car because of an upgrade,” says dealer David Wescott, 2012 NADA vice chairman.

Asked what amazed him the most in conducting his research, Mercer replies, “I was surprised that an industry so quantitatively driven” shows little evidence of why it makes sense for dealers to improve their stores to the extent asked by the auto makers.

“I can’t imagine product developers going into a meeting and simply saying, ‘We think this car is great and will really sell.’”

Dealers, auto maker representatives, dealership architects, lawyers and accountants are among the 80 people interviewed for the study.

“All the OEMs participated,” Mercer says. “They said there is value to the upgrade programs. We said, ‘Show us the numbers.’ We didn’t see many numbers.”

Some dealers are more receptive than others to upgrade programs. Publicly owned dealership chains and luxury-brand dealers seem more willing to participate than rural dealers with small stores, Mercer says.

Dealers are less resistant to expansion programs than they are to standardization projects that require a common-brand architectural appearance.

Incoming NADA Chairman William Underriner says auto makers insisting on such upgrades is a No.1 dealer concern.

“I’m not saying you should sell cars out of a garage,” he says. “But if it is a clean, modern facility, the color of the tile shouldn’t matter.”

A common architecture may work for a restaurant chain such as McDonald’s but it is not necessary for same-brand dealerships to look the same, Underrinner says.

“No one is on vacation driving down the road and saying, ‘Oh I forgot to buy a car,’ and starts looking for a dealership with a recognizable design,” he says.

The study recommends three things:

  • Auto makers need to provide dealers with a more persuasive business case for facility upgrades, especially those involving standardization requirements.
  • Auto makers and dealers should work together to keep costs down. Mercer says auto makers need to show more flexibility on materials and fixtures specifications. He also suggests eliminating “needless limits on the numbers of qualified vendors.”
  • All parties should address the issue of whether dealerships built today will meet the consumer-buying habits of the future, particularly as car shoppers spend more time on the Internet and less at dealerships.

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