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Old 10-28-2015, 04:04 PM   #1
XDCX
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Default Automotive News story - The slow, steady demise of the small-town dealership

I finally had a chance to get caught up and read the following story that appeared in Automotive News: The slow, steady demise of the small-town dealership

Anyone who has followed the forum for a length of time knows that I've always had a "soft-spot" for the small-town rural dealers. As I've mentioned in the past some of the best people I've ever met in the car business were either running or owned small sized dealerships.

As memory serves, I think Lee Iacocca even mentioned in one of his books that it was the small-town dealerships that kept Chrysler alive in the dark times of the late 70s and early 80s. While the metro stores were dropping like flies due to their higher rent factors and maxed-out floor lines the rural dealers were still supporting Chrysler by selling and ordering more cars.

Here's a recap of the list detailed in the Automotive News story explaining the reasons for the decline:
- Manufacturers' pricy facility improvements force small stores to close or sell.

- Population shifts mean fewer customers for small-town dealerships.

- Complex operations require economies of scale gained as part of dealership groups.

- There are fewer successors or buyers for small stores.

- Few lenders want to finance small deals.
If you get a chance I'd encourage you to read the article and share your thoughts.
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Old 10-28-2015, 04:14 PM   #2
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Default Two major factors were never reported....

While I enjoyed the Automotive News article and appreciated that they devoted resources to covering the story about the demise of the small-town dealership I think their coverage missed two MAJOR factors that are responsible for the trend and will likely cause it to continue or accelerate.
  • Two tier pricing that favors larger/metro stores
  • Allocation formulas that favor larger/metro stores
I have a lot of faith in the resourcefulness of the small-town dealers and believe that many of them can still thrive despite the challenges listed by Automotive News.

That said, I don't care how smart or resourceful a Dealer is, I believe that the two factors I listed above are 100% in the OEM's control and they alone will dictate whether small-town dealerships live or die.
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Old 10-29-2015, 10:30 AM   #3
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you covered most of it.
two tier pricing based on arbitrary sales targets are the worst. struggle to get in the money, and all gross potential goes out the window to hit a goal.
one gm dealer in the Midwest has blown up a two state mkt. using maximum gm money spiffs every month from unit one to keep the cash flowing. the area consumers are now discussing how stupid this is for gm to allow their programs to manipulated,, as they go there to buy their vehicles!!
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Old 10-29-2015, 02:42 PM   #4
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Quote:
Originally Posted by XDCX View Post
As memory serves, I think Lee Iacocca even mentioned in one of his books that it was the small-town dealerships that kept Chrysler alive in the dark times of the late 70s and early 80s. While the metro stores were dropping like flies due to their higher rent factors and maxed-out floor lines the rural dealers were still supporting Chrysler by selling and ordering more cars.
Not just in one of his books, but in person. In 1984 I added Dodge/Chrysler/Pymouth to an existing Chevy store, and we did great with them (first year we won an award for having the highest Dodge Truck market share in the Dallas Zone). In 1986 I attended a Southwest Regional Chevy meeting and in an open forum Q & A after the factory presentation, the GM CEO was asked the question " what do you foresee in the future for the small single point GM dealerships?" He thought a minute and answered honestly, "I would hate to try and survive in the next 10 years as a small volume dealer, and by that I mean a dealer selling less than 500 units a year. Not because we don't want the small dealers, but because I'm afraid that the rapid technology changes we have coming are going to make it so expensive to be a GM dealer that the lower volume stores will not be able to remain competitive due to the difference in their cost per unit. If we tell the dealers they have to buy a new $75K piece of equipment to work on our cars, a dealer selling 150 cars a year has just had $500 a unit added to his overhead that year compared to a dealer selling 1200 a year adding $65 a unit. And we ARE going to require major investments in technology and equipment for a number of years to come." WOW...silence and throat clearing in the room! Out of about 500 dealers in the room, probably less than 25% of them were selling 1000 units a year, and that other 75% had to believe that if the president of the company was willing to say that, he probably knew what he was talking about. At that time I was trying to decide to go out on my own with the DCP store at a different location, and about 2 months after that GM meeting I attended a Chrysler regional meeting with Iacocca and all the top level management and that same question was posed ...with the background of what the GM chief had said. Iacocca's response was that "we will never knowingly do anything that would threaten the existence of the small dealers, because they are the ones that saved us from bankruptcy. We know they are the ones that kept on selling some pretty crappy products to keep us going. The customers weren't buying it because they loved the product, but because they knew and trusted that THEIR dealer would take care of them, and we will NEVER forget that." I made my mind up at that time to go with Chrysler, and they backed it up until after the Daimler merger when 80% of all the old "Chrysler Guys" left within a 90 day period after the merger, and those memories left with them.

Last edited by XDCX; 11-02-2015 at 09:57 AM. Reason: Fix quote tag to make the post easier to read
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Old 10-29-2015, 02:47 PM   #5
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Originally Posted by XDCX View Post
While I enjoyed the Automotive News article and appreciated that they devoted resources to covering the story about the demise of the small-town dealership I think their coverage missed two MAJOR factors that are responsible for the trend and will likely cause it to continue or accelerate.
  • Two tier pricing that favors larger/metro stores
  • Allocation formulas that favor larger/metro stores
I have a lot of faith in the resourcefulness of the small-town dealers and believe that many of them can still thrive despite the challenges listed by Automotive News.

That said, I don't care how smart or resourceful a Dealer is, I believe that the two factors I listed above are 100% in the OEM's control and they alone will dictate whether small-town dealerships live or die.
DING...DING...DING!! Two-tiered pricing via stair step incentives that are rigged from day one to reward the high volume stores was a major factor in my desire to sell out when I did.
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Old 11-02-2015, 09:56 AM   #6
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Originally Posted by jayhawk View Post
one gm dealer in the Midwest has blown up a two state mkt. using maximum gm money spiffs every month from unit one to keep the cash flowing. the area consumers are now discussing how stupid this is for gm to allow their programs to manipulated,, as they go there to buy their vehicles!!
Your last line really hit the nail on the head.

It reminds me of a time when a Dealer told me "Yeah, the customers love all of the benefits Five Star provides; they're just not willing to pay for it."

Back to your example, the customers can see that a Factory originated program is hurting their local dealers but when it comes time to open their wallets they'll drive past their local dealer and support the store that's benefiting from a two-tier incentive.
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Old 11-02-2015, 10:05 AM   #7
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Originally Posted by DealerEx View Post
Iacocca's response was that "we will never knowingly do anything that would threaten the existence of the small dealers, because they are the ones that saved us from bankruptcy. We know they are the ones that kept on selling some pretty crappy products to keep us going. The customers weren't buying it because they loved the product, but because they knew and trusted that THEIR dealer would take care of them, and we will NEVER forget that." I made my mind up at that time to go with Chrysler, and they backed it up until after the Daimler merger when 80% of all the old "Chrysler Guys" left within a 90 day period after the merger, and those memories left with them.
That's an awesome Lee Iacocca story - thanks for sharing.

I think Dealer/Factory relations changed a lot when Chrysler eliminated the Zone Offices and went to the Business Center concept. And to your point, almost 100% of the goodwill a Dealer has generated with the Factory can disappear when just a few of the Factory Guys either retire or leave the company.
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Old 11-02-2015, 10:12 AM   #8
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Originally Posted by DealerEx View Post
DING...DING...DING!! Two-tiered pricing via stair step incentives that are rigged from day one to reward the high volume stores was a major factor in my desire to sell out when I did.
We are in 100% agreement.

While I think a smart Dealer can overcome the majority of the challenges that face small/rural Dealerships the one challenge that I think is insurmountable is two-tier pricing.

I recall one thread on the forum (you may have been the author) that discussed the amount of trust that is lost when a local customer goes to their local dealership and asks for their best price. If the customer then takes that same deal to another store that's chasing their stair-step incentive the other dealer might beat the local dealer's "best price" by $1,000 or more.

Customers don't understand two-tier pricing and they really don't care. In the above example the only logical conclusion the customer would reach is that their local dealer was trying to screw them over.
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Old 11-02-2015, 02:35 PM   #9
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your best friends shop,
your current customers shop,
your family shops,
everybody's trained to shop,
two tier pricing potentially makes liars out of us all, and it most definitely confirms that all dealers cant be trusted.
what seemingly all the mfgrs. don't get is that the customers bad feelings generated from two tier pricing experiences rub off on the perceived quality of their product and the "brand".
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Old 11-02-2015, 04:31 PM   #10
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Yes, but remember, it "does not make LIARS of the FACTORY!"
Just who gets the blame when the customer calls the factory 800 # and complains??
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Old 11-03-2015, 09:26 AM   #11
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Originally Posted by jayhawk View Post
your best friends shop,
your current customers shop,
your family shops,
everybody's trained to shop,
two tier pricing potentially makes liars out of us all, and it most definitely confirms that all dealers cant be trusted.
what seemingly all the mfgrs. don't get is that the customers bad feelings generated from two tier pricing experiences rub off on the perceived quality of their product and the "brand".
Great post.

I love how you identify the reality that almost every shops - regardless of how loyal they might be to their dealer.

You also affirm that two tier pricing can make even the most honest dealer look like a thief and the bad feelings that follow impact the OEM and the brand too.
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Old 11-03-2015, 09:34 AM   #12
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Default An exmaple of how allocation can hurt small/rural dealers

I was thinking of allocation issues and how they can have a detrimental effect on small/rural dealer and I remembered this post from the Challenger Hellcat thread:

Quote:
Originally Posted by XDCX View Post
The only potential downside that I can see with Auburn Hill's Hellcat Allocation is there's going to be some point where a smaller volume Dodge Dealer will never get a Hellcat Allocation because one of the larger stores will be eligible for their next monthly allocation.

Here's the illustration FCA used to explain the Hellcat Allocation process:



.
.
From my vantage point it would appear if there were 2,000 Dodge Dealers as an example and FCA was allocating 2,000 Hellcats per month than the allocation system would ensure that all dealers would receive a Hellcat.
.
By contrast, if there were 2,000 Dodge Dealers and FCA was only allocating 500 Hellcats per month than there would be a large percentage of dealers that would never get a Hellcat because the larger Dodge Dealers would be eligible for their next monthly allocation?
.
I understand that FCA wants to reward their top selling Dodge Dealers and they want to penalize dealers who hold stock unit Hellcats - right or wrong, that's FCA's right.
.
What I don't know is whether the smaller Dodge Dealers could take a Hellcat order with the expectation that the order will ever be built?
It's been mentioned in other threads that when a small/rural dealer can't get hot product it not only impacts his/her ability to generate gross profits it also impacts how the community views the store.

Essentially, why would a customer choose to support their local store if the factory doesn't even think enough of the dealer to provide the store with hot products?
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