AIA Forum:Know Your Enemy, Know Yourself

“From your perspective the dealers are the enemy,” says Chuck Seguin, and learning about them will help you understand how to compete.

“The OEs are typically very slow to respond to change,” says Seguin. “They are typically very slow off the mark. They don’t like change; they prefer the golf course. And the OEs have been even slower, not in terms of vehicle quality, but in terms of distribution quality.”

Seguin says that the current attitude of the OEMs is a return to the core business of designing and building vehicles that are desirable to the consumer.

Now they are all focusing on building their relationships with dealers in order to improve the quality and consistency of the consumer’s experience. “All OEs are focusing on quality dealer relations. Customers, by and large, go where they’re satisfied. If car dealers have great factory relationships, CSI is going through the roof.”

The cyclical nature of the car market has also forced dealers to look more completely at their businesses, paying attention to every aspect: new cars, used cars, finance and insurance, service, parts, and body.

Used car sales is a huge opportunity for dealers and they are focusing strongly on it, says Seguin, because it provides work for every sector of their business and continues to provide income after the sale.

“The average dealer makes $1,250 off a vehicle; the average gross profit with F&I is $2,000. So 40% of the profit is from F&I. That relationship holds true for used vehicles as well.”

“There’s something called absorption–profit earned on parts, service and body that is divided by the overhead. Dealers try to get that to as close as possible to 100%. When this happens, all of your profits from new, used, and F&I flow to the bottom line.”

Consequent with the rising importance of these operations, the OEs are working with dealers to build the fixed operations segment of their business in terms of quality and consistency.

“Dealers follow the money. Over the years OEs have been very generous in focusing on them as new car dealers. They have been provided incentives on how car sales were going, not on how the business was being managed.” The change is occurring now, but is going to take some time to come to fruition. One of the key issues facing dealers–an issue that jobbers share with them–is succession.

It represents an opportunity for OEs to change the rules. While the OEs have had tremendous difficulty in getting dealers to change or eliminate them from the network, many of the barriers fall when a business changes hands.

Car dealers are on average 57 years old, says Seguin. When succession occurs, OEs have a say in who gets to run the business and this presents them with an opportunity to introduce new agreements, new rules of how the dealers within a network must perform.

“The OEs will get what they want at the end of the day. The new model is really a consumer-centric model. All the OE programs are designed to get the dealer network capability up to the level of customer expectations. This is all about branding. It’s all about making a promise to the consumer and living up to that promise.

“It’s a concern for you folks in the aftermarket; you hope they don’t get it right. The reality is that dealer performance is very inconsistent. Some of the things the dealers did to qualify for the programs, they have stopped doing.

“Factory relationships are still an issue, but OEMs are extremely passionate and serious about this.”

Strategies to compete with the dealer:

Consolidate and form alliances.

Expand product offering.

Align with OEMs who need distribution.

Control costs and manage profitability.

Be the low-cost service provider.

Manage succession strategies.

Analyze ownership requirements: Are your agreements in keeping with today’s economic reality?

Are you focusing on your core business?