Facility Upgrades -- New Study Will Determine Their Impact on Sales and CSI

Last October, I gave the keynote presentation at the AICPA conference in Phoenix (going on today and tomorrow in Orlando). In it, I mentioned the OEMs' continued insistence on of "forcing" expensive facility upgrades on their dealers.

A luxury dealer mentioned after the presentation that his OEM was forcing another expensive and profit draining upgrade on him, yet he was still paying on the multi-million dollar expansion he had done eight years ago. A Hyundai dealer this year told me he's getting pressure to upgrade his signage, although, his dealership is a mere three years old and was considered state of the art when it was built. And that signage is expensive.

The ironic part is, there are studies (Pied Piper is one) that show facilities play little role in whether a customer buys from a specific dealership. And improving CSI? I've yet to see numbers that show facilities have much impact. Obviously, dealerships should be clean with having some level of a modern look and feel.

Unfortunately, much of what the OEMs want or require really are the latest flavor of the month. A new sales and marketing chief often means a refreshed look and new facility requirements for dealerships.

NADA is taking up the fight. Chariman Stephen Wade told the Automotive Press Association today in Detroit (Read NADA Chairman Stephen Wade's Speech) that "financial pressures from factory-mandated facility image programs" is "The one issue that comes up time and time again."

At the Automotive Leadership Roundtable Fall Series a few weeks ago, Vice Chairman Bill Underriner talked about a study NADA commissioned this year to help move the discussion of upgrades from one of personalities and opinions to one based on hard data and objective facts.

The study might show upgrades might indeed impact sales and CSI positively. But currently, that's pure speculation. And it may show otherwise.

Frankly, I believe it comes down to the operator at the store. The top selling Audi dealer for the last five years has been Brett David and Prestige Imports in Miami, FL. The facility is much smaller and not as nice as the Audi dealership a few miles north and the one south. Yet he continues to outsell both -- his facility isn't hurting his sales.

Paragon Honda and Acura in Queens, NY is in a similar situation. Paragon is landlocked and the layout presents many challenges. The delivery area is the cracked sidewalk in the front of the dealership. There is no covering to protect from the rain or snow or leather chairs with TVs for people in the delivery area. Furthermore, vehicles parked outside at the front of the store get towed daily.

Despite that, Paragon is one of the top dealerships in the country in both new and used sales.

I'd bet NADA's study, once it's done, will show that OEMs should support their dealers with programs that help them make more money rather than enforcing expensive facility upgrades that take money out of their pockets -- money that could be spent on initiatives that have real ROI.

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Comment by Michael Baker on October 22, 2011 at 4:37pm: Agree Cliff overall. Most of the OEMs criteria is standardized to be "equalivant" in 'criteria' of facilitation. The majority of stores as Paragon will not sell more vehicles via sidewalk cracks, but, the OEMs have a difficult task of individualizing store by store w/o 'standardization' nationally. I am not supportive, but, how do they conduct their McDonalds paradigm otherwise?

Comment by Henry J. Doig on October 22, 2011 at 4:36pm: Mobile technology is where we will at be at much sooner than later. More vehicles will be searched for and sold by handheld devices, including customer follow up than ever before. Acounting hardrware and software will be in the cloud and the only real fixed technology needed in the store.

Comment by Denis C. Flaherty on October 21, 2011 at 1:26pm: Clean and well-maintained with the personal warm greeting and handling, goes a helluva farther to wow 'em than a Taj Mahal. The consumer doesn't want to think he's helpin' to pay for "fancy"...

Comment by David Ruggles on October 21, 2011 at 1:31am: As the Internet continues to turn new and used vehicles into commodities, it seems obvious that the dealer with the lowest cost structure has a real advantage. Dale Pollak has also written at length on the subject. He advises dealers not to pay big money for expensive property with a lot of frontage. Pollak says new facilities should include parking garages for inventory. Stacking inventory not only saves space, minimizes the need for expensive frontage, and also provides for cheaper inventory insurance as most of the inventory is covered. This can be a big deal in regions where hail storms are commonplace.

The new Internet enabled consumer typically does a lot of research online before going to a dealership. Increasingly, these consumers ask questions of the sales person, may take a test drive, then go home to use the Internet to negotiate. This does not bode well for dealers who stick to the traditional sales model. And it does not bode well for high overhead dealers. The consumers computer monitor is their showroom of choice. Young tech savvy consumers are particularly ruthless when it comes to the deal.

Comment by Henry J. Doig on October 20, 2011 at 9:27pm: I'll tell you something.....when I was a little lad I would go over and visit my Grandma who lived in a apartment building that wasn't much to behold. Now granted this was my Grandma, but when I went over there as run down as the place was, the way she greeted me, huged me, the smile on her face, and everything else that went on when I went over there, to me, was one of the best things I remember in my life. Now I understand your facility should look clean and respectable, but if more dealers gave the "Grandma treatment at their stores' they would own their markets. Let the dealers keep what they earn and invest back into their customers on a more "one on one" level. The building and remodel will follow on their own without anyone telling you to do so! An empty Taj Mahal is a bit......h