Not to put too fine a point on it, I pissed off a bunch of factory guys by questioning if it were possible for dealers to show a fair profit after giving back 20% of their profit margin to the factory's regional and local advertising efforts.
The math goes something like this:
The margin on a new vehicle is approximately 10% (many deals are below 5% unless you actually convince a customer to pay the full manufacturer's suggested retail price). Anyway, the demanded, er, recommended co-operative advertising contributions run somewhere around 2% of MSRP. On top of that, a dealer still must advertise used cars and unique offerings.
In my particular case, the total of these costs comes to more than the gross profit I earn from my customers. Hence my questions.
My manufacturer's response is that I should charge the customer more and that I should do more volume and that if I can't, I owe it to “the team” anyway. That same “team” of neighboring dealers who help you when you're down, who share profits, inventory and staff when you're in need. That “team.”
Never mind that my store sells almost three times its MSR (minimum selling responsibility), has above-average customer satisfaction scores and has to buy a good deal of its new vehicle inventory at a premium from other dealers to overcome its lack of allocation.
Never mind that I've worked through more than a few loss years, but never missed a payment to the factory even when I had to borrow from family. No-o-o-o. Nothing else matters when the factory needs my money for a program. Pay or else.
Or else what? I'll let you know. So why not say “yes” and take “the leap of faith”?
I employ a team of people who, along with their families, depend on my decisions to preserve their economic well being. I can't imagine they'd last long if I forced them to work harder for less in exchange for adding the well-being of our neighboring dealers to their burdens.
I can't imagine they'd continue to trust my leadership if I dumped the extra weight of “leaps of faith” and “team joining” onto their shoulders.
Somewhere up the corporate ladder, a decision has been made regarding whose money is in the dealer's pocket. The word “voluntary,” as in “voluntary contribution,” has been redefined. Local marketing has become a forced march.
In the case against ad groups, margins are already so thin that for many dealerships the added cost of group advertising is not workable. But profits are so difficult for most manufacturers that the cost of launching new product without reaching into the dealer's pocket is impossible.
The result is that we are creating an industry where the new car department is not for profit, rather it's a prop to boost the image of other opportunities within the dealership. By the time the dealer pays for the cars, the ads, the staff, the rent and insurance, well, there's little or nothing left.
But it is not for the greed of the manufacturer or the dealer that this is so. It is simply the reality of a maturing market trying desperately to sustain all of its historical and new players.
As a result of our tripping over one another, customers are paying less and less for more and more. We've improved their satisfaction with costly hand-holding well beyond the purchase. We've improved our facilities. We've improved the way we train, treat and pay our salespeople.
Now we're faced with the burden of too much choice, too much manufacturing capacity and too many dealers. Our cost of funds is too high, our manufacturing cost is too high, our cost of real estate is too high and, Lord knows, the cost of health care and compliance is too high.
So when my manufacturer wants to tax dealers to bankroll blasting the airwaves with this year's greatest offer, no matter how great it is, I question the bottom line in the deal.
I'm waiting for a new consumer value, a more caring manufacturer, a truly cost efficient dealership, a lender with soul, and a new spirit on Wall Street.
Until then, my trust is in watching the pennies, embracing my staff and staying close to my customers. Anything else isn't worth it.
Peter Brandow is a veteran dealer with stores in Pennsylvania and New Jersey.
