In the dealer game, the money is real.
A few months back I wrote about the possible outcomes arising from the Canadian dealer network rightsizing initiatives that had just been announced. As that downsizing now begins to unfold, activity is at heightened levels. Stores are closing, stores are opening and stores are moving. It’s like the game of Monopoly on a real scale.Most dealers own their facilities. Over the past five-plus years, many have invested heavily in order to meet or exceed OEM image program requirements – and for some, the value of that investment has disappeared with their brand.For many dealers, however, their property holdings are their retirement fund. The property, in many cases, makes up the majority of a dealer principal’s personal net worth.
What’s a location worth, to whom?
The closing of a dealership often creates an opportunity in the marketplace. Historically, that closing would have created an open-point. In today’s rightsizing and dealership rationalization environment, however, when a point closes an open-point is not automatically created. It is widely known that retail is all about location. In many cases, brand locations currently scheduled to close still represent strong locations and facilities. In today’s world, that creates an opportunity for dealers of other brands to upgrade their operations. For example, if a great dealership location becomes available, the local dealer of another brand might be interested in ‘trading up’. Facilities, not brands. That, in turn leaves his/her old facility for yet a second brand to trade-up, and so on. In certain markets, the closed dealership location might be filled by an open-point of another brand. In those cases, however, depending on the brand and anticipated market share, the closed facility might be too large to make good economic sense.
Rules of the game
If you are in this kind of Monopoly-game situation, the items listed below should be considered at a minimum, assuming OEM approval:• Does the location work for your brand or proposed open-point?• What does your dealership gain by relocating? What does it give up?• Are there any zoning or grandfathering issues?• Are there any legal issues to consider?• What are the estimated expenditures required for brand image?• What will be the likely impact on each of your business?° New° Used° Parts° Service° Finance° Body Shop° Accessories• How will the move affect cash flow and profitability?• Do you have the borrowing capacity to purchase the property and carry the mortgage? Should you lease the property?• How quickly can a move take place?• How will your customers react?In planning your moves you must take into consideration its impact on customers, brand image and competing dealers.
Customers up for grabs
Much is now appearing in the press around orphaned customers, sometimes referred to as ‘free agents’ or ‘wandering wallets’. The estimates of the number of orphaned customers are very large on a national level. Local estimates will vary with local market circumstances.It makes sense at this point to review the attributes of consumer behaviour. Product quality, in-dealership experience and convenience are at the top of consumers’ minds when spreading the word about your brand. Not just your OEM brand but your store’s brand. The price/value equation combined with convenience are factors consumers look at when deciding to select a new retailer.
So, for most of us looking to capitalize on current market opportunities, we must stress quality, convenience and the price/value equation. This gets the prospects in the door and it is then up to us to give them great customer service and convert them from a prospect to a recurring customer.Orphaned customers, as you know, can be identified for each business operated. Much attention is paid to new vehicle sales potential, however, equally or more important are fixed operations customers. In the short term, fixed operations can show the fastest gains as most orphaned customers will need vehicle servicing within 120 days.
Orphaned new and used customers, on the other hand, have the luxury of time, assuming their vehicles are in good roadworthy condition.
‘Fixed ops’ is where the brand and dealers build customer loyalty and, as I said, make quick and sustainable gains. In markets where a brand closes down completely, their former customers are up for grabs. The competition for those orphaned fixed operations customers consist of other dealerships in the same brand family, dealerships of competing brands, used-vehicle super stores, national aftermarket chains and local independent repairers.
The winners will determine the future in many respects. Should a competing dealer of the same brand be fortunate enough to acquire some of the customers, the brand and dealer both win, as customers stay within the brand family. Where customers choose to take their work outside the brand, the current brand potentially suffers long-term customer losses, since its ability to influence the loyalty of the customer disappears. On the flip side, the newly selected service provider wins. If that happens to be a dealer of a competing brand, this has the potential of being a long-term conquest for them. If that newly selected service provider is from the aftermarket, and assuming the brand still exists, the brand could still be a long-term winner, but will need to conquest its former customers back to the brand as new or used customers in the future.
Now is the time to make your move
Dealers today have real short-term opportunities to increase their fixed-operations customer base. I suspect most orphaned customers will have landed by mid next year. This means you need to be reacting to customer opportunities in your market now.Never before has there been a time that I can remember where so much activity is taking place in the Canadian dealer network. Thus far in 2009, the Canadian dealer network is down approximately 88 locations to the end of October. That number will rise dramatically between now and the end of 2010.It is important to note that during the period we will see both closures and openings. The unfortunate circumstances of some dealers quickly turn into opportunities for others. As we put 2009 into the history books and look forward to entering a new decade, the saying, “pass go and collect your $200” has never been more applicable than right now. Except that there is way more than just $200 at stake.
