Focusing on building the Manufacturer-Dealer relationship in 2017

By Paul Smith, Director of network key management systems provider for car dealerships Traka Automotive

Like all steady, strong relationships manufacturer-dealer relations need to be continually nurtured, or pretty soon the cracks of neglect begin to open up. Never is this truer than in tougher times when people are under pressure to perform and have their backs against the wall.

There is no doubt that UK dealers start 2017 with a great deal on their plates. Some may need some additional support to thrive. Others will seek to innovate their way out of trouble. However, will they be getting enough support from their manufacturers this year or instead end up feeling like their chosen manufacturer(s) are batting for the opposition? The jury is out. Some of those dealer pressures are, in no particular order:

  1. Manufacturers are tending to bring in tougher and higher sales incentive schemes, in some cases setting dealers unrealistic sales levels to gain access to bonuses
  2. Product range expansion: too many different makes, models, trims, and option packages for sales staff to keep up with
  3. Confusing mix of technology and digital marketing offerings designed to help increase sales leads, speed up sales pipeline processing and close sales
  4. Increasing regulation of F&I product sales
  5. Increasing transparency around pricing in every aspect of the deal from purchase price to finance and added extras
  6. Increasing penetration of online intermediaries like CarWow which get in between consumers and your dealership - potentially pushing customers elsewhere
  7. Hugely expensive, technology-heavy, product ‘genius’-endowed dealerships, underwritten by larger or more well-financed groups, often supported by prestige manufacturers, is taking the gloss off the smaller, more ‘regular’ dealership customer experience.
  8. Sales margins remaining stubbornly low with net profit margins sticking generally well below 2%....

I could go on. Dealers are generally working harder for the same or, with inflation, slightly less money each year. So, the one thing dealers would expect and hope to depend on is their chosen manufacturers. Right?

However, what has become clear in the last couple of years is that manufacturer-led pressure to sell more stock and/or increase market share, has led to tensions re-emerging between manufacturers and dealers.

Take the growth of Nissan’s percentage of the US car market which has been marked in the last four years - up from 6% to nearly 10% last year. However, it appears to have come at the expense of pushing some of its franchisees a little too hard to get their numbers. Some have even been forced out of business by the manufacturer, according to US trade magazine reports.

Could this sales pressure lead to similar sharp-elbowed tactics by some manufacturers over here? It is a question that is well worth asking, especially as, after an unbroken run of new car sales growth year-on-year for five years in the UK, to reach an all-time high of 2.69m last year; it looks like we are finally heading for a slow-down as inflationary pressures and Brexit-inspired uncertainties finally hit UK consumers’ pockets.

So, if the sales outlook looks to be tightening a little in 2017, could dealers’ prospects be worsened still further by manufacturers’ online sales successes, especially as these will surely take them into more direct relationships with the customer, cutting the dealer out of the loop? In short, will manufacturers’ increasingly slick ‘clicks’ start to do damage to dealerships’ ‘bricks’? 

One example of a new online offering is Hyundai’s new Click to Buy online store offering. The worry for one Hyundai dealership I spoke to was that over time these sorts of online initiatives must take a percentage of their regular sales away.

Further disquiet stems from manufacturer-sponsored ‘new retail’ initiatives, most notably supporting the building of swanky new tech-drenched, digital showrooms like Audi City in Piccadilly.  Manufacturers will argue that they must do this sort of trialling and innovating now to ensure they can lead the next auto retail revolution, rather than follow it.

Transparency of these manufacturer-sponsored initiatives may be the key to preserve relations here. For example, there is a suspicion that the new look Hyundai stores that were built by Rockar at Bluewater in Kent and Westfield Stratford City in East London may have had manufacturer sponsorship – but no one quite knows! The result is that Rockar has been trailed as a super success story industry-wide but are they simply benefitting from massive upfront manufacturer investment which is not at the disposal of other franchise dealers? Manufacturer support or ‘sponsorship’ that is kept secret from other franchisees will inevitably sow the seeds of division. It could even eventually feed through to unnecessary, but nonetheless widespread, manufacturer-dealer tensions as trust between parties breaks down.

Yet Hyundai would not be forgiven for sponsoring these new retailing concepts, just as Audi has helped fund tech-heavy stores and in so doing they are actually recognising the power of ‘bricks and clicks’ working together for the good of both parties. However, when does the sponsorship of one dealership’s latest retail concept detrimentally impact another one that has not had the benefit of that support? When do these retail innovation initiatives become disruptive to another dealer’s success?

So, what do both parties need to do to avoid a messy divorce in 2017? Manufacturers may need to be more transparent about their plans over the short- and medium-term, especially when there are potentially negative implications for some dealers.

Similarly, dealers may choose to get a little closer to their manufacturers to find out what pressures they are feeling and online plans they are toying with. They may even be able to help each other find a route to the next stage of growth by leaning a little closer into each other as the winds of change blow in.