Dealers are pushing back against factory-mandated brick-and-mortar renovations that may not be worth the cost in an increasingly digital industry.  
 -  Photo courtesy Warner Bros.

Dealers are pushing back against factory-mandated brick-and-mortar renovations that may not be worth the cost in an increasingly digital industry.

Photo courtesy Warner Bros.

There is something for just about everyone in Cox Automotive’s recently released “Retail Brand Scorecards,” compiled in partnership with Automotive News. Cox’s scorecards are based not on dealer surveys but an academic exercise in which 34 North American brands were graded in six “subjects”: Best Customers, Range and Age of Offerings, Traffic, Loyalty, and “Attitudinal,” referring to consumer perceptions of each company and their products.

Factories also had the chance to earn extra credit with a “Geography Bonus” for consistency among major U.S. markets and an “OEM Bonus” for those whose dealers are “least likely to cite challenges in working with” a given manufacturer.

On the nonluxury side, the top five overall grades went to (in declining order from No. 1) Ford, Toyota, Honda, Chevrolet, and Subaru. The overall luxury rankings were led by Mercedes-Benz, Lexus, BMW, Acura, and Audi.

You may recall that Lexus, Toyota, Subaru, Honda, and Porsche led all marques in the National Automobile Dealers Association’s most recent rankings of the factories dealers say they like best. Released in mid-December, NADA’s list was based on a survey sent to dealers in a 30-day period in July and August of 2018.

Turning back to Cox’s scorecards, three mass-market brands and one luxury marque were recognized for earning an “OEM Bonus” that raised their overall grade: Honda, Volkswagen, Subaru, and Acura. (It’s not clear how Acura’s OEM Bonus compares with those of its nonluxury counterparts.)

So what are those challenges Cox’s analysts say affected the OEM Bonus category? As if you had to guess, it’s factory mandates and restrictions, including image programs and required facility upgrades.

This is and will remain a critical point of contention between dealers and factories. For proof, look no further than “Dealers Push Back Harder Against Mandates to Upgrade Stores,” a late-January report filed by Automotive News editor Hannah Lutz.

As Lutz’s sources explain, the nature of dealer resistance has changed. Post-Great Recession, they didn’t have or didn’t want to spend the money needed to get up to code. Today, with more of the traffic and transaction moving online — and margins on new-vehicle sales showing no sign of decompressing — they just don’t see the point. And nearly half of all states have agreed: Twenty-two state legislatures have passed upgrade limits, protecting dealers against renovations spaced less than seven to 10 years apart; in New Hampshire, 15-year intervals are the law of the land.

In the AN report and in “Is It Time to Sell My Dealership?,” the cover story of the Q1 issue of this magazine’s sister publication, Auto Dealer Today, we are reminded of the myriad ways factory-mandated improvements affect mergers and acquisitions. Lutz reports that, in many cases, dealers and groups have told their M&A advisors they want to sell stores rather than make required renovations, citing the disruption a major overhaul creates and the questionable return on investment it promises. In others, looming mandates have disrupted negotiations.

Former dealer Marc Spizzirri, now working as an advisor and senior executive with GlassRatner, wrote the ADT article.

“Within reason, bring compliance with your manufacturer’s image program current,” Spizzirri advises. “Leaving the buyer with a foreboding list of required image changes can devalue your dealership and prove to dissuade a buyer from proceeding with the acquisition.”

Dealers have scored a few highly publicized victories on this front, winning concessions from Ford/Lincoln, Mercedes-Benz, and Porsche, among others, in recent years. But are you winning? That’s the question I put to industry firebrand and ADT’s “On the Point” columnist, Jim Ziegler, a perpetual thorn in the manufacturers’ side. (Don’t miss “How Can Geeks Be This Bad at Math?” in the Q1 issue.) He believes dealers are winning, and he is encouraged by the state legislatures that have rallied to your side.

“Dealers are getting more relief from states than the national associations. They are afraid to lose their commitments to the vendors, and the interest of the vendors are not the interests of the dealers,” Ziegler says. “What I’m hearing is the corrupt manufacturer executives are taking big money under the table and promoting vendors through co-ops and mandates, right down to the chairs in the showroom.”

If that’s true, it’s one more reason to fight for the right to spend your profits the way you want — and determine for yourself what’s best for your own business.

About the author
Tariq Kamal

Tariq Kamal

Associate Publisher

Tariq Kamal is the associate publisher of Bobit Business Media's Dealer Group.

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