Auto Makers React Differently to Dealership Upgrade Study

The National Automobile Dealers Assn. wants evidence that major construction projects will increase car sales.

Steve Finlay, Senior Editor

April 5, 2012

4 Min Read
GM three years into facilityupgrade program and dealers essentially like it Reuss says
GM three years into facility-upgrade program and dealers essentially like it, Reuss says.

NEW YORK – Auto makers are showing mixed reactions to a study that urges them to present better business cases before spurring dealers to upgrade their facilities.

The National Automobile Dealers Assn. commissioned the report, released in February at the trade group’s annual convention. Since then, NADA officers have met with auto makers to review the findings.

“We’ve had 12 meetings so far, and we’ve seen different reactions,” NADA Chairman William Underriner says at an NADA/IHS conference that is part of the auto show here.

“Some auto companies have embraced it,” he says. “Some said they were too far down the road with their upgrade programs to make changes, and others said they weren’t that far down the road.”

NADA most recently met on the matter with Mercedes-Benz and BMW executives. “They were very receptive,” Underriner says.

Industry analyst Glenn Mercer, who oversaw the study, says some auto makers “are a little more defensive than others, while some appreciate us sharing the results.”

Dealing with large car companies outside the U.S. “can be like trying to turn around a tanker,” he says.

OEMs’ insistence on facility upgrades is a primary dealer concern because of the financial burdens, says Underrinner. He plans to bring up the study at 30 auto maker meetings tied to NADA’s annual dealer-attitude survey.

The study recommends three things:

  • Auto makers need to give dealers more persuasive evidence for facility upgrades, especially those involving standardization requirements. Many dealers are not convinced major construction projects will lead to greater vehicle sales.

  • Auto makers and dealers should work together to keep costs down. Mercer says they 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 future consumer habits, especially as car shoppers spend more time on the Internet and less at dealerships.

Particularly nettlesome to dealers are upgrade programs requiring stores share a common look and architecture. That approach may work for a nationwide restaurant chain such as McDonald’s, but it is unnecessary for same-brand dealerships across the country to look alike, Underriner says.

General Motors is three years into its facility-upgrade program. Dealers essentially like it, says Mark Reuss, president-GM North America.

“We co-pay and co-invest with them, so I don’t know how much more flexible I can be with it,” he tells WardsAuto. “We’ve got a huge take rate. Our dealers are really excited about it.”

Reuss sees it two ways: “You can look at it as incremental sales based on a brand-new facility. Or you can look at it as though the surroundings of your competition have changed so much that you now are deficient.

“You don’t want that. You want to do the right thing and be successful. But if you don’t want to do it, don’t do it. We don’t make people do anything.”

The study has added perspective, focused the issues and “moved things in the right direction,” says Thomas “Mack” McLarty III, president of a family dealership group operating in the U.S., China and South America. He served as chief of staff for President Bill Clinton.

“We as dealers understand that customer relations and facilities are important,” he says, adding that small rural stores and big metropolitan dealerships are different.

“So there has to be reasonableness here,” McLarty says. “We are trying to say to manufacturers, ‘We’re on the same side; we want to help you achieve your goals.’”

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

Asked what struck him the most in conducting his research, Mercer replies, “I was surprised that an industry so quantitatively driven” shows little evidence of why it should make 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 were among the 80 people interviewed for the study.

“We were very much a part of that,” GM’s Reuss says. “It was done in close coordination with what we were doing. The data is the data.”

All auto makers participated in the study, Mercer noted when releasing the study findings at this year’s NADA convention. “They said there is value to the upgrade programs. We said, ‘Show us the numbers.’ We didn’t see many numbers.”

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