Dealership branding: ‘If you want to play, you have to pay’

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Keith Day, a sales consultant with Al Serra Chevrolet, places an automoble price tag in the Chapel Hills dealership’s showroom.

Since the dawn of the automobile industry, the relationship between those who make the cars and those who sell them has often been an uneasy one.

That holds true for Colorado dealerships, as witnessed by a bit of wrangling this spring over just how much control the manufacturers should have over infrastructure spending by their dealers.

With the industry recovering from the ravages of recession, some members of the Colorado Automobile Dealers Association were upset by remodeling demands being placed upon them by the major auto makers.

The automakers like to see their branding features reflected in the dealerships that sell their products. Dealers that fail to follow such guidelines can face allocation repercussions from the manufacturers, leaving them short of hot-selling cars and overstocked with cars or trucks no longer in demand.

The establishment of dealership appearance standards by the manufacturers is nothing new.

In good times, many dealers grumble about having to invest hundreds of thousands of dollars in their facilities in order to maintain good relations with the source of their autos. But in hard times, many dealers view such investments as a hardship.

In addition, dealers frequently contend that price, trust and follow-through sell cars, not fancy showrooms or color-coordinated building facades.

And, they point out, while the manufacturers will generally help underwrite the cost of such investments, payments generally come after the fact, placing the financing burden on the dealers.

The upshot of the Colorado dealer complaints was Colorado House Bill 1188, enacted into law May 13. Co-sponsored by Rep. Larry Liston (R-Colorado Springs), the bill prohibits car makers from requiring dealers to make corporate-mandated upgrades more than once every seven years.

“The way the auto manufacturers were treating our dealers was putting them at a disadvantage,” said Liston, who noted that car dealers employ 30,000 people throughout the state. “Especially in a down economy with sales weak, it’s difficult to make these kinds of investments in facilities.”

CADA President and CEO Tim Jackson said many dealers loathe publicly criticizing their source of product for mandating remodeling/branding investments. That’s why CADA exists, to represent their interests.

Jackson isn’t sure how well those interests are served by the “huge investments” in remodeling projects the car makers want. He argues that most car buyers shop online prior to purchase.

“They’ve pretty much made up their minds about what car to buy when they walk through the dealership door,” he said. “Now, a certain investment in your facility is good and reasonable. But does it need to be $2 million better than it was before? Since the world operates in bytes and bits today, why do we continue to argue about bricks and mortar?”

HB 1188 made it through the Senate and into law.

Senate demands did water it down a bit. The House version restricted auto makers to one mandated dealership renovation per decade.

However, there’s a loophole in the law that you could drive a GM truck through. Contractual agreements define many of the finer points of running a dealership affiliated with a specific manufacturer — including renovations desired by the auto company. Those agreements are covered by the new law. It doesn’t cover voluntary corporate branding renovations. And a very fine line exists between voluntary and involuntary renovation programs.

Take the Essential Brand Elements that GM rolled out in October 2009. While EBE is technically voluntary, most dealers scoff at the notion that GM dealership owners who want to get the cars that sell can afford to blow off EBE. In fact, 56 of the 58 GM dealers in Colorado are enrolled in the program.

EBE was unveiled two months after GM had emerged from Chapter 11 bankruptcy. GM created EBE to underscore the momentous rebranding taking place within the company, said Ryndee Carney, manager of brand communications at GM.

“Our dealers are important partners. They are the face of the company to the customer,” she said. “EBE was designed to help them do a better job of selling our four remaining brands.” While there are four “elements” to the initiative, she acknowledged that facilities upgrade is the most costly.

EBE’s basic goal is to make the retail outlets around the nation conform to branding and appearance standards set in Detroit. “We want our dealerships to be recognizable wherever you go,” Carney said. “Each brand (Chevy, GMC, Buick, Cadillac) has different elements that need to be the same. It’s just like you would recognize a McDonald’s from its design no matter where you are.”

The investments can range from “a half a million dollars to $5 million to $10 million dollars on the high end,” said CADA’s Jackson — a lot of money to commit to an image, especially for dealers just coming through a devastating recession, he said. GM reimburses dealers who participate in the program on a quarterly basis.

However, they must meet the branding and other standards set out in EBE’s guidelines to qualify for the money.

“Sure, they reimburse you later on,” said one Colorado GM dealer who didn’t want to be quoted. “But it doesn’t cover 100 percent of the cost. However,” he added, “if you want to play, you have to pay.”

That is the bottom line, said Doug Gibb, broker with H.M. Brown & Associates, Centennial-based automobile brokerage. “As a dealer, you want the cars that are selling. If you make the manufacturer angry, you won’t get the cars. They can call it a voluntary program, but unless you go along with the program, you won’t get the cars people want to buy.”

Voluntary or not, Jerry Colton, owner/operator of the Al Serra dealerships in Colorado Springs, is a fan of EBE. Both of his dealerships are participating in the program. He expects the renovation of his South store on Academy Boulevard to cost between $800,000 and $1 million. But he thinks it will be a sound investment — especially if GM covers much of the cost when he’s done.

“There are times when the factory makes what seem like unreasonable requests, but not this time,” Colton said. “It makes sense for people to be able to recognize a Chevy store when they drive by. You want your dealership to look good. GM is being flexible about it, we’re getting good product from them.”

What about the dealers who complain about the cost of EBE?

“Well, if you don’t hit your goals, and you’re not selling a lot of cars, and the reimbursements aren’t there for you, that’s a different story,” he said. “But, that’s not the story here.”