NADA seeks data on renovation payback
In the three months since a National Automobile Dealers Association study concluded that manufacturer facility renovation programs cost too much and produce uncertain results, NADA leaders have hopscotched the country meeting with factory executives, seeking more data and appealing for slowdowns in the programs.
But little has changed since NADA released its study findings on Feb. 4. So the association will tackle two of the major issues on its own: the payback for dealers who invest in facility renovations, and the question of what kind of facilities will be needed in 2020 and beyond as consumers increasingly turn to the Internet for car shopping.
Dealers are still clamoring for that kind of help, making facility concerns the association's top issue for the second year in a row, NADA leaders say.
"Only one manufacturer really had any concrete numbers on, if you put a million dollars into your store, what is your return on investment," NADA Chairman Bill Underriner told Automotive News last week. "Return on investment is the most important thing here, because we have to go to banks to borrow this money."
NADA hopes to generate some hard numbers on the issue by September.
But for many dealers, such help may arrive too late. Several automakers largely have completed their facility programs, and dealers already have spent the money. About 88 percent of Mercedes dealerships have been updated to Autohaus standards, for instance. General Motors dealers already have had to make facility renovation commitments even though many continue to protest the changes necessary under the automaker's Essential Brand Elements program.
That's why NADA also has its eye on the future. As a follow-up to the first study, the association will launch a project that aims to answer the question: "Are we investing in the kind of dealership that will be most competitive in 2020 and beyond?" The findings will help dealers as they undertake their next round of facility changes, whether that's soon or several years down the road.
Dealership of the future
Project details have yet to be determined, Underriner said, but the intent is to go further than a recent Auto Dealerships in 2025 report from Auto Team America, an association of dealership accounting firms.
That report concluded that dealerships will shrink in physical size and have smaller vehicle inventories.
The NADA project will examine all areas of the dealership. Because customers most often interact with a dealership's service department, that part of the dealership especially needs attention, said Underriner, a Honda-Hyundai-Volvo-Buick dealer in Billings, Mont. "That service department has to take a whole completely different feel from what the service department today has," he said.
Stephen Wade, NADA's 2011 chairman who initiated the facility study, said understanding the dealership of the future should help keep dealers from overbuilding, a mistake he made just four years ago at his Chevrolet-Cadillac store. "I'm sitting on a garage-Mahal here," said Wade, a multibrand dealer with stores in Utah and California. "I talked myself into it."
Manufacturers also are interested in the subject of the dealership of the future.
Toyota is constantly evaluating it, Ernest Bastien, vice president of retail marketing and development, wrote in an e-mail. But after scaling back implementation of its Image USA II program during the economic crisis, Toyota isn't considering any delays to its current completion plan.
Ford Motor Co. formed a committee more than a year ago to address the dealership experience of the future, spokeswoman Elizabeth Weigandt said.
Wade said Ford marketing chief Jim Farley approached him at the Los Angeles Auto Show last year and said Ford wanted to take NADA's findings and be the poster child for doing a facility program the right way.
NADA also plans to add specific questions about facility mandates to its twice-yearly dealer attitude surveys. And in a review to be completed by the 2013 convention, it will evaluate whether manufacturers have changed their programs in response to the study's concerns.
Though details have yet to be determined, a third party likely will conduct both the dealership-of-the-future project and the search for return-on-investment data, Underriner said. NADA leaders want to keep the association at arm's length. Former McKinsey & Co. partner Glenn Mercer, who conducted the initial study, is likely to be involved.
To figure out the payback for dealers who invest in renovations, NADA will turn to big dealer accounting firms for financial data representing a large cross-section of dealerships -- probably numbering several hundred, Underriner said.
The third-party experts will help crunch the numbers, comparing dealerships that have renovated to manufacturer image standards with those that did not take on a renovation.
Manufacturers participating in Mercer's original study largely were unwilling to share or unable to quantify return on investment. The lack of numbers left the study primarily anecdotal in its findings. In meetings with a dozen manufacturers from January through April to share the study results, Mercer and NADA leaders again pressed factory executives for data. But the data did not materialize.
NADA also asked manufacturers to slow or pause implementation of their facility programs -- or to make changes, such as scaling back the requirements for smaller, more rural dealers. Though NADA leaders reported encouraging initial response to the latter suggestion, no such scaled-back programs have emerged.
No EBE lite
NADA asked GM for an Essential Brand Elements "lite" program for smaller, rural dealerships, but GM told Automotive News it's not considering it. "We developed the current program to be applicable to the vast majority of our dealer network, and we would rather address unique situations with individual dealers rather than manage dual programs," GM spokesman Tom Henderson wrote in an e-mail. "We intend to see the current program through to its conclusion."
Underriner said he was disappointed. "NADA is about all the dealers: small, medium and large," he said. "We want to make sure every dealer has a fair chance to make these programs as flexible as possible."
The majority of the manufacturers seemed sincere in these follow-up meetings, but "some of them weren't," Underriner said. He declined to talk about specific companies.
Wade said he thinks good results are still possible, citing Ford as one candidate to launch a model program.
Said Wade: "I am hopeful this study won't just be another report that's put on the shelf and forgotten."
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