LAS VEGAS -

Auto Remarketing continues to follow the debate regarding whether factory-mandated image programs are worth the investment for dealers.

And as many stores still question the validity of these programs, the National Automobile Dealers Association released a new study that Stephan Wade, outgoing chairman of the NADA, hopes will help restore “reason and common sense” to these OEM image programs.

Though most dealers see the value in having clean and up-to-date facilities, many are not convinced that the large-scale revamping involved in many factory upgrades will result in a big enough return on investment, according to the study conducted by Glenn Mercer — former McKinsey and Company partner and industry consultant.
 
Commenting on the results, Mercer said, "These programs — intended to encourage dealers to invest in store expansion, modernization and standardization — can place significant financial burdens on dealers, yet there is little hard evidence on the return of investment this spending might yield.”

Mercer based the study results on interviews and discussions with automaker executives and selection of dealers. Also, recommendations were provided to both parties, such as the potential benefits of working together to navigate these high-tension issues.

“The NADA research project brought all the various perspectives on this issue out into the open by speaking with a wide range of industry participants,” Mercer added. “Our goal was to open up a dialog in which all parties could discuss facility requirements on a more rational, informed and fact-driven footing.”

Responding to dealer concerns, NADA first commissioned the study “Factory Image Programs” last August. NADA stressed that the study looks at various factors, both good and bad, regarding the return on investment in dealership facility upgrade programs.

 “The goal of the study is to move the facilities investment decision onto a more rational, informed and fact-driven footing,” Wade said on Saturday at the NADA Convention and Expo in Las Vegas.

Dealers Dispute Standardization

The study dealt with three types of store upgrades, as listed below:
 
—Expansion: "adding a showroom or service bays to support growth in UIO, for example."

—Modernization: "upgrading facilities to contemporary standards in tile, furniture and fixtures, etc."

—Standardization: "designing the interior and exterior look to ensure that every store selling a given brand looks as much like the other stores as possible."

And when looking at dealership expansion, study results reveal cause for concern.
 
“In terms of dealership expansion, the study found that unreasonably high and frequently changing OEM volume forecasts, as well as outdated capacity formulas can lead to overbuilding and waste,” Wade said.

“So better, more reasonable forecasting should make expansion investments easier for dealers to support,” he went on to stress.

Moving on to modernization, the study’s findings revealed many dealers are hesitant to invest in these mostly aesthetic upgrades, due in part to it being unclear what kind of investment  return they will get.

Taking dealers’ concern into account, the study calls for change from OEMs regarding this type of upgrade.

Further elaborating on the study’s request, Wade noted, “The study asks OEMs for more competition among vendors and more flexibility in OEM design standards, which would benefit auto makers and dealers alike."

But the hottest issue among dealers seems to be standardization, according to the study results.

These type of upgrades call for “virtually identical facades” among franchised rooftops, creating conformity among stores.

So, the results are out and dealers have voiced their concerns, but NADA is not stopping there.

Wade said that NADA has shared the study’s findings with many manufacturers and all have been receptive.

“In the long run we must all remember that it’s how we treat our customers,” he said. “Providing a world class purchase and service experience is what counts.”
 
Incoming NADA Chairman Voices Concern Over Factory Image Programs

In an interview with Auto Remarketing, the new NADA chairman Bill Underriner said  part of his agenda as chairman is NADA’s ongoing facility study.

As Underriner put it to Auto Remarketing, “Does it make sense to build these new showrooms with a certain kind of tile and a certain kind of color and scheme? As a business sense, does it put more dollars in our pocket? In today’s tight markets, a dealer could have to go out and borrow say a $1 million, and the banker is going to say, ‘what’s the return on the investment?’

For more information regarding topics on the new NADA chairman’s mind, see the Auto Remarketing story here.