Wednesday, February 29, 2012

Searching for the Right Shade of Gray

So yesterday I had my appointment with the Gensler guy. That is the company that General Motors has contracted with for their facility image program. I had been dreading this day since I had committed the $10,000 to pay for him to come and "consult". I didn't sleep the night before his visit.

He was professional and a very nice gentleman who was just doing the job he is paid to do. He turned out to be a great resource for me as we visited. In fact, he agreed with many of the points I make below. He made what was a painful meeting, tolerable.

I put a very significant part of my net worth into a state-of-the-art dealership facility in 1996. I built it to General Motors specifications. I built a facility that would serve my customers well, that my employees could be proud of and that would represent General Motors in a first class manner. I have made several changes over the past fifteen years to keep the store updated. In the past eight years, GM has taken away Oldsmobile and Pontiac and refused to give me GMC to help to compensate for the loss of the other two. And then there is the small matter of them going bankrupt and the effect that had on my business.

I am not interested in having General Motors tell me how to manage or "brand" my facility. They want to manage every aspect of my facility - from the color of the bathroom tile to what I have hanging in my personal office to what kind of light fixtures I have in my showroom. What works in Chicago, Miami and Los Angeles does not work in Chamberlain/Oacoma, South Dakota. I agree with AutoNation Inc. CEO Mike Jackson who says, "When they're telling me the color of the toilet paper in the restroom, I'm saying, 'You've gone too far.'"

There is nothing wrong with the gray tile in my store. It is a shade or two darker and a bit smaller than the tile that GM and Gensler's extensive research has proven will cause everyone entering my showroom to grovel for a new GM vehicle. But I'm willing to take my chances with the type and color that I have as it is easy to keep clean, offers reasonable traction and serves my customers' needs just fine. I guess I am unreasonable in that I don't want to rip out over 3,000 square feet of perfectly good tile!

GM's branding initiative would not allow customers to be able to see into my personal office unless I furnish it with GM-approved furniture, paint, floor covering and art on the walls. The family photo I have hanging in my office would have to come down as would my college diploma and the overhead photo of my dealership! My customers would not be allowed to see into our conference room which means my salespeople would not be able to see customers on my showroom floor if they are in a meeting.

General Motors wants me to replace the window frames that they required (and for which I paid extra money) when I built the facility. They are currently a "General Motors blue", but now they want a silver color. Needless to say, the cost for this change will run in the tens of thousands of dollars. And yet, I have never had a customer tell me that they wouldn't buy a car from me because my mullions were blue! (I have, however, had customers tell me that they wouldn't buy because GM went broke and took taxpayer money.)

This is just the kind of dealership re-branding exercise that HUMMER dealers were forced into shortly before that brand was consigned to the ash heap of history. In the past ten years, Pontiac, Oldsmobile, Hummer, Saturn, Mercury, Plymouth and Daewoo have all been lain to rest leaving a wake of empty dealership facilities and countless dealers who are still paying the construction debt!

I am pretty sure I know my customers and my retail market better than General Motors since only four different people employed by GM have ever stepped foot in my store over the past 15 years and no one has been here in the past two years. That number would have been two except for turnover of GM personnel.

I have an obligation to offer my customers have a clean, inviting, facility staffed by friendly, concientious employees. But I have concerns about the "bricks and mortar" business model, especially in the rural areas. Many customers are a long ways down the path to purchase before they ever step foot into my facility. I need to see a clear path to return on investment for every dollar I spent on my facility.

I like the looks of the big blue entry element that you see at many Chevrolet dealerships (see photo above). This is the iconic image that GM wants to promote for the Chevrolet brand. It is their "golden arches". I would consider doing that if I was allowed to use local suppliers and contractors (my customers!).

I think many of the other brand elements are just plain ugly. I don't like the blond, maple laminate tops on all my desks and counter tops. I don't want to buy them at any price but especially at the inflated price that GM has negotiated for their "partners", the dealers.

General Motors would have you believe that this is a volunteer program and that they are helping to pay for the upgrades. Let me call "bullshit" on that one. What they will do is sell a car to you for $500 more than the dealer who is in compliance with their Essential Brand Elements program. Dealers who are in compliance get $500 for each vehicle invoiced to them on a quarterly basis. If I'm not compliant, I am at a $500 disadvantage on each new vehicle in a business where people will drive 100 miles to save $50.

This program is not really about facility upgrades at all. If it were, the payouts would be tied to the cost of doing the upgrades themselves and not to the number of vehicles purchased from GM during the program.

This pricing scheme violates South Dakota franchise laws which prohibit multi-tier pricing. It also violates franchise laws in about 35 other states as well. Why are those laws not being enforced? Well if it is within my power, we will soon start enforcing them in South Dakota.

If you live in a small rural community that is fortunate enough to have a dealership contributing to your local economy, you too should wonder why those laws are not being enforced. This practice is the greatest threat there is to the franchised automobile network. If you don't like the idea of traveling 100 miles plus to have your car serviced, you might ask why laws are being ignored.

So I am left with the question of what kind of return I would get on a $350,000-400,000 investment into a highly specialized facility in a rural area in central South Dakota. I tried to complete that calculation. You can see what my calculator thought of it!

Chrysler Dealers' Case Moves Forward

It will be interesting to see if this gives this case some traction. The U.S. Court of Federal Claims denied the government's motion to dismiss dealers lawsuit against the U.S. Treasury Department alleging the government violated the Constitution in taking their store franchises. These dealers who were terminated during Chrysler's 2009 bankruptcy. The lawsuit contends that the Obama administration violated the Fifth Amendment, which says private property shall not "be taken" for public use "without just compensation". Details can be found here.

Monday, February 27, 2012

February 2012 SDADA Column

I am just back from the convention in Las Vegas. It was truly a great convention. You’ve heard of the idiom of someone wearing their heart on their sleeve – well, that’s the automotive industry. Dealers were there in huge numbers tipping off their view that the automobile industry is well on the way to recovery.
Workshops were well attended, the Expo floor was buzzing and there were great comments about the general sessions. I saw several South Dakota dealers at the convention and I know there were several others there that I did not see. I hope all of you had a great convention.

However, I believe one of the primary functions of the NADA convention is to stay close to those issues that threaten dealers and to fight for those of them who cannot stand up to fight for themselves. We, as dealers, have a great many serious challenges barreling toward us. So, despite the jovial the mood at the Convention, we must be vigilant.
On a personal note, I was really moved by Aron Ralston, who had to amputate his right arm with a knife to free himself from a boulder after a hiking accident. His autobiography “Between a Rock and a Hard Place” was the subject of the film “127 Hours.” I highly recommend both.
I really enjoyed former President George W. Bush’s speech as well. He told several humorous anecdotes about himself, even poking fun at his tendency to mangle certain phrases. But it was his compassion, sincerity and his love for our country that really struck me. It will be interesting to see how the historians treat “W” in 20-30 years.
Facility Image Programs Study Released
Glenn Mercer’s report on facility image programs was released shortly after the convention opened. You can find an executive summary and the full report on the first page at
I found Mercer’s methodology to be sound and the report is written in a manner that makes it interesting to read. (I took it to bed one night thinking it would put me right to sleep and ended up reading the entire report in about 45 minutes.) His conclusions can be boiled down to three primary issues.
He believes that it is incumbent upon OEMs to provide dealers with more persuasive business cases for investment in facilities. The cost of these programs is needlessly high and he recommends individual OEMs and their dealers to work together to tackle cost issues and he encourages OEMs to revisit again how they “tier” their programs to make them more affordable for the smallest rural stores. And finally, he recommend to both OEMs and dealers alike to jointly tackle the issue of whether the dealerships we are building today are going to be the successful dealerships of tomorrow.
Whether you have recently done a facility upgrade, are currently engaged in one, are considering one or have no plans for one, I encourage you to read at least the executive summary. It is a very in-depth analysis of a topic that very directly affects every new car dealer.
Arizona Repeals California Fuel Economy Rules
You’ve probably seen the photos of an angry looking Arizona governor Jan Brewer having a “discussion” with President Obama recently (would have loved to have been a fly on the Air Force One wing for that “discussion”). She recently has taken on the public workers union in her state with a package of legislation that is more extensive than similar efforts in Wisconsin last fall.
NADA praised the Arizona governor’s move last month to repeal its adoption of California’s fuel economy program, which duplicates existing federal mandates, calling it “a victory for consumers.” Arizona is the first state to repeal adoption of California’s fuel economy law. “These duplicative rules would have made it more expensive for working men and women to find affordable transportation,” NADA said in a statement to the press. “Duplicative state-based fuel economy programs like those in California hurt consumers by limiting vehicle choice without providing commensurate environmental benefits. With two distinct federal standards already imposed by the Environmental Protection Agency and the Department of Transportation, these rules were unnecessary. Auto dealers in Arizona and across the nation support fuel economy increases under a single, national fuel economy standard.”
Mark Your Calendar: NADA-Google Learning Hub Series at No Charge to Members!
NADA University and Google are presenting a series of four webinars, offered at no charge to NADA and ATD members only. The first webinar, “The Smartphone Revolution,” is activated on-demand for members in Learning Hub, in the Internet category. Next up is “The Google+ Project for Dealers,” to be presented live on February 29. Other dates and topics to be announced later.