ORLANDO, Fla. (Feb. 13, 2013) — A National Automobile Dealers Association (NADA) study on factory-mandated auto dealership image programs showed that expansion of a facility, especially the service department, offers a positive return on investment while investing in modernizing a store is hard to justify and standardizing dealership formats seems to have no benefit at all.
The Phase 2 portion of the NADA-commissioned study, released during the association's recent annual convention and expo in Orlando, analyzed the return on investment (ROI) of image investments in the short term and whether these investments might be right in the longer term. It also predicted what auto dealerships in 2025 might look like.
"Our conclusion is that the dealership system will fundamentally remain intact in 2025, but there is the possibility for much more efficient design of facilities, for example by moving support functions offsite and by using new format approaches to grow service volumes," said industry consultant Glenn Mercer.
However, no amount of renovations can compete with consumer confidence. "One advantage small garages have traditionally had over large dealerships is the ability of the customer to develop a personal relationship with the garage owner or even the individual technician. For some customers this relationship acts to reduce their risk of being fleeced on a repair order, and no amount of innovation by a dealer (e.g. late service hours, pick up and drop off, etc.) will offset this sense of confidence," the NADA report said.
Mr. Mercer said the current trend to build more expensive and more brand-customized auto dealerships will lead to excessive and wasteful spending, as dealers repeatedly raze and rebuild their facilities, and as auto makers constantly update their brand image campaigns.
"Meanwhile, as customer needs and behaviors continue to shift, we urge auto makers and dealers to get more creative in addressing those changes, especially in service work, and that auto makers become more flexible in approving low-cost ways to implement these ideas. We cannot afford to tear down and rebuild the store every time the brand imaging shifts," he said.
NADA's study indicated that some spending on facility improvements provides lucrative returns, typically through the refurbishment of a totally run-down store, but some maintenance spending should not be expected to yield a significant return at all because it represents "table stakes"—the minimum spending required just to stay in business.
The report said service expansions usually pay off. With the relatively low cost of adding a bay and the very high margins on parts and labor, more often than not service expansion could generate good returns.
"Renovating a dilapidated store pays off, and while one should not expect much of a return from maintenance spending, service expansion can pay off well, whereas modernization investments tend to depend on how much assistance the OEM offers, and standardization spending is almost always a pure deadweight loss," the report concluded.
"As for the service area, we have no one specific forecast, but rather a range of options that dealers can tailor to their local clientele, in order to capture or recapture service volume that otherwise will be lost," the report said. "We see these options including satellite service (customer-facing or not), pick-up and drop-off services, increased hours up to 24/7, centralized shuttle runs, on-lot touchscreen displays for unattended service drop off, service facilities shared with other brands, driveway service (both own-brand and AMM)…. The point is we need much greater flexibility in meeting the needs of the service market, beyond building ever-larger onsite service facilities on very expensive land.
"If the average dealer cannot in this way claw back service volume, there is no way to financially support the investments in the brand that OEMs are seeking from dealers, as we cannot expect any help from (ever-shrinking) new-car sales margins."
NADA noted that the roughly 19,000 car dealerships in North America—serving a fleet of over one quarter of a billion vehicles—are outnumbered by the more than 250,000 independent auto service locations. NADA said customers claim the single biggest barrier to doing more service business with car dealerships is that the locations are not convenient.
"And it's only going to get worse, as by 2025 there may be 300 million vehicles on the road…and still just 19,000 of us. We think dealers and OEMs need to work together to solve this challenge. There are lots of great experiments out there, from satellite service (both customer-facing and not), shared service facilities, pick-up and drop-off shuttles, driveway retrieval, and more," the report said.
"But too often we find these creative solutions blocked by any number of fears, including those involving territory encroachment, management challenges, worries about liability in driving customer cars around, etc. We encourage both dealers and OEMs to be more creative in both coming up with solutions here, and in approving their implementation."