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NADA Chairman urges reason in mandated dealer image programs

The fact that some manufacturers are requiring their new-car dealers to pour billions of dollars into their showrooms has outgoing NADA chairman Stephen W. Wade calling for reason and common sense, based on a new study released Saturday.
Posted: February 6, 2012 - 3:55PM
Author: Don Bain


"The goal of the study is to move the facilities investment decision onto a more rational, informed and fact-driven footing," Wade said in remarks at the NADA Convention and Expo in Las Vegas, which ends today.

Last August the dealer association commissioned the study in response to owner concerns that some factory mandated image programs would not provide a justifiable return on investment. The study endeavored to reach a balanced, objective conclusion through an independent investigation by Glenn Mercer, a former McKinsey and Company partner and industry consultant with no vested interest in either party. Mercer interviewed a number of industry participants from both sides of the question.

There are three different types of upgrades likely to be required of local dealer showrooms – all of which will eventually come back to the consumer in sales or services costs.

Expansions usually involve the addition of showroom space or service bays intended to spur growth in unfunded investment opportunities.

Modernization requirements normally include things such as upgrading furniture, fixtures and possibly signage to contemporary standards or styles.

Standardization, as the name would imply, is intended to give every showroom a recognizable similarity to create a uniform brand image in the consumer’s mind.

"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dealership expansion, the study found that unreasonably high and frequently changing OEM volume forecasts, as well as outdated capacity formulas can lead to overbuilding and waste," Wade said.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."

In terms of modernization, many dealers remain highly skeptical of the value of expensive upgrades with little evidence of a positive impact on overall sales, according to Wade.

"The study asks OEMs for more competition among vendors and more flexibility in OEM design standards, which would benefit auto makers and dealers alike," Wade said. Still the issue of greatest contention is standardization, requiring dealers to invest "beyond common signage and colors, to requirements for virtually identical facades, greeting areas and more."

The study has been made available to most manufacturers, meeting with general interest and receptivity due to the objective nature of the study.
"In the long run we must all remember that it's how we treat our customers," he concluded. "Providing a world class purchase and service experience is what counts."

Click on the following for he text of Wade’s remarks or the full study.