NEW STUDY ANALYZES RETURN ON INVESTMENT AND LOOKS AHEAD TO DEALERSHIPS OF THE FUTURE

ORLANDO, Fla. (Feb. 9, 2013) - Industry consultant Glenn Mercer highlighted the findings of the Phase 2 study commissioned by the National Automobile Dealers Association that takes a deeper look into two key areas of factory-mandated dealership renovation, also known as facility image programs.

The Phase 2 study analyzes the Return on Investment (ROI) of image investments in the short term, and examines whether these investments might be right in the longer term, for Dealerships of the Future. The first phase of the study was completed a year ago.

"The facility image program issue is not as painful for dealers as it was in 2010 and 2011, in part, because business conditions have improved," said Mercer, in remarks today at the NADA Convention and Expo in Orlando, Fla. "However, there is still significant room for improvement, because new-car dealers overall still give facility image programs only lukewarm support."

Return on Investment

The new study revisits the ROI issue from the Phase 1 study, but this time includes numerous individual dealership case studies, which provide more working data. The Phase 2 study essentially reconfirmed the findings from the first phase, which include

• Expansion of the dealership (especially service departments) can pay off well;
• Modernization of the store is somewhat harder to justify; and 
• Standardization, which is the replication of features from store to store far above and beyond logos and signage, seems to be of no benefit at all.  

The Phase 2 study indicates that some spending provides lucrative returns, typically through the refurbishment of a totally run-down store, and that, conversely, some maintenance spending should not be expected to yield a significant return at all, because it represents "table stakes:" the minimum spending required just to stay in business.   

The study, as before, added insights from other retailing industries, pointing out in particular some that have been better at developing solid, quantified business cases for facility upgrades that are lacking among some - but not all - auto manufacturers.

"We're requesting that auto manufacturers redouble their efforts to provide dealers with better business cases before investing in facility upgrades, and especially, to ease off on standardization demands that seem very hard to justify," Mercer said.

Dealerships of the Future

The second study breaks new ground by examining the Dealership of the Future: a forecast of what the facility of 2025 might look like.

With turmoil engulfing other retail sectors, as seen in the closing of Borders stores and the downsizing of Best Buy outlets, Mercer said dealers began asking "if today's investments in dealership facilities will become obsolete in the next decade or so: can this happen to us?"

"Our conclusion is that the dealership system  will fundamentally remain  intact in 2025, but there is the possibility for much more efficient design of facilities, for example  by moving support functions offsite, and by using new format approaches to grow service volumes," he added.

Mercer expressed great concern that the current trend to build more expensive and more brand-customized stores will lead to excessive and wasteful spending, as dealers repeatedly raze and rebuild their facilities, and as automakers constantly update their brand image campaigns. 

"Meanwhile, as customer needs and behaviors continue to shift, we urge automakers and dealers to get more creative in addressing those changes, especially in service work, and that automakers become more flexible in approving low-cost ways to implement these ideas. We cannot afford to tear down and rebuild the store every time the brand imaging shifts," he said.

"If we move toward lower-cost ways to reconfigure stores, the Dealership of the Future in North America will be less of an overbuilt and expensive 'Garage Mahal,' and more of a right-sized model of retailing efficiency," Mercer added.

Mercer said one of the goals of the Phase 2 study is not to prescribe a "one size fits all" solution, but to assist dealers and auto manufacturers alike to better understand each other's points of view better, and negotiate on a more informed basis for the most-efficient (low cost) and effective (high growth) way to invest in dealership facilities, not only for today, but for tomorrow as well.

The NADA convention was held Feb. 8-11, 2013, at the Orange County Convention Center.