Sales and marketing officials from General Motors Co., Fiat-Chrysler and Hyundai Groups joined NADA’s 2011 chairman and presented their viewpoints of important issues and answered questions during a panel discussion at the 2012 J.D. Power International Automotive Roundtable earlier this month.
The following three posts include excerpts from a Q&A session about dealer allocation, fleet sales, leasing and more led by panel moderator Mike Jackson, chairman and CEO of AutoNation, the largest public automotive retailer in the United States.
Alan Batey —Vice President, Chevrolet Sales and Service, General Motors Company
Reid A. Bigland —President & CEO, Dodge Car Brand & Head of U.S. Sales/President and CEO, Chrysler Canada, Chrysler Group LLC
Stephen W. Wade —President, Stephen Wade Auto Center and 2011 Chairman, National Automobile Dealers Association (NADA)
Dave Zuchowski —Executive Vice President, National Sales, Hyundai Motor America
Product Allocation Needs to Be as Equitable as Possible
Q: Mike Jackson: Does the panel believe that the manufacturer should limit the number of cars a single franchise can receive—a cap on quantity in any given market?
Dave: We look at it a different way because of our shortages. We’ve had dealers ask: Shouldn’t there be a minimum stocking effort so we have critical mass to represent the line? That’s something we are looking at. In terms of capping dealer availability, it works against the turn system.
Reid: Well you know three years ago, we gave the dealers as many cars as they wanted and more. If they want to go back to that, we can go back to that. But I think there’s a lot more discipline (now). When you have a particular vehicle that is in short supply—where demand is exceeding production availability—then you need to allocate in some kind of an equitable fashion. That’s where the rub comes with the definition of equitable. It’s debatable coast to coast. I think most OEMs operate in a similar manner where they try to be as fair as possible to allocate the hot product and just try to do the best they can.
Alan: You need to give everyone enough inventory to do business, and then the ones that earn it are the ones that turn it. I think that process works well.
Q: Mike: Reid, I’m not sure if this is one of your hats, but has Fiat failed?
Reid: From a sales perspective, just last year between the U.S. and Canada, we sold 26,000 Fiats—that was from 0 to 26,000. Virtually every one of those vehicles was incremental to our sales, which was pretty much zero cannibalization. We didn’t have anything else in the A segment. I think unfortunately, this notion out here that Fiat is potentially failing or underperforming expectations is because we spoke a little too ambitiously—saying we were going to sell 50,000 Fiats. I think we could have just as easily come out and said we were going to sell 25,000 and come in at 26,000 and would be quickly hailed as a significant success. We will improve this year and we will have a full runway because sales last year were based on about 9 months of availability in 2011.
Q: Mike: If every dealer in the U.S. spent $1 million this year to upgrade their facilities, how many cars and trucks would be sold in the following years as a direct result of investment?
Steve: We are trying to get our arms around this. We certainly don’t believe that dealers should be selling autos out there in the back of a service station. There should be standards. We do believe that. But from there it goes in all directions. Again, it’s back to getting a return on investment so that we work together and get what works. I don’t think one size fits all. I don’t know if we have to have a cookie cutter franchise that works in Gnome, Alaska and downtown Miami and they have to look just alike and have the very same tile. There are differences.
Dave: I think one of the things that everybody forgets is what Earl (Hesterberg, Group 1 CEO) talked about—we’ve gone from 25,000 dealers to 17,000 dealers. The industry is going to get back to the 16 million-unit level. As an individual dealer I need to ask, do I have enough service capacity? Do I have enough sales capacity? Do I have space to service my customers? There are fewer dealers and the industry is coming back. Can we please the customer? Do we have a setting that is welcoming and comfortable—not a Taj Mahal—but comforting and welcoming and do we have enough capacity to service the customer?
Reid: It’s more important what goes on inside the facility as opposed to what happens outside the facility. Does the dealership have a culture of customer service—taking care of customers, strong processes—that’s really going to be the difference between winning and losing for a dealership in a market. . . I think we have an onus as OEMs to make sure that our requirements are market- and economically appropriate to provide an adequate ROI for the dealers as well as convey a professional standard that represents our brands in a manner that we want them to be represented. . . At the core, dealers and OEMs can agree: let’s get a facility that can generate sales, generate a return, and take care of customers, and I think that’s really where the focus needs to be.
Q: Mike: At the Detroit Motor Show this year, it was wonderful to see the excitement and the optimism back in all the new product launches, but even behind that when you look at the product plans for the manufacturers, starting this year, we’re moving from—on our showroom floors—typically having a replacement rate of about 15% of what we are going to sell in a typical year that is brand new.
This year it is moving to 25% and the following year to 28%. We’re going to average 25% over the next several years. It’s literally a revolution for our industry. I have two questions. I will start with you, Alan: What happened that made this possible? And, is this the new benchmark for our industry? Or, are we going to go back to the old, slow turnover of the fleet?
Alan: From our perspective, coming out of the bankruptcy meant that we had a period of time when we were not developing our products at the pace that we would have liked for financial reasons. So we’ve actually got a lot of product being launched over the next 24 to 36 months. Cadillac’s got two key products that will be launched this year. Chevrolet has had just a whole roll of products. We believe that product is what customers buy more than anything else.
It’s more competitive than ever before and therefore, we need to make sure that at any one time—we cannot allow our product to get old; we cannot allow it to become a commodity that’s been pushed on price because then all the great work you do gets absolutely thrown in the bin because your residual values go down and it’s a self-fulfilling prophecy.
I actually think that the absolutely golden opportunity for franchise dealers is customer retention. I look at the customer retention numbers both from an after-sales and sales perspective—and I can tell you that that is where the opportunity is and facilities are a piece of that. The product is another huge enabler of the opportunity. If people change their car every six years on average, does the customer want to go back in to the same car that they bought six years ago in a different color? I don’t think so.
Reid: I think the product cycles have shortened. As an industry, we went into batten- down-the-hatches mode in 2008 and came out of that after the car washes that Chrysler and GM went through in the fall of 2009. The industry forecasts were to continue to grow and in the case of Chrysler Group, we pledged $23 billion in capital expenditures and now you are starting to see that hit, and I think that was going on with our competitors and throughout the industry as well. So it’s good for the consumer, and you are seeing an onslaught of much more competitive product coming.
Dave: We had a frenetic pace and new products are a big piece of our success—we think new product is king. We have no plans to back down on that. I think one of the things that we have done that is really important is this whole concept of mid-cycle freshenings. You have a new product every four years, which means that every two years you’ve got to come out with a new grille or tail lamp or head lamp. You’re going to designate $100 million to something that no one is going to notice and maybe we can compress the cycle time for all new products. Maybe we can eliminate mid-cycle refreshenings because they don’t really add a lot of value. We only have finite resources—financial and people—and we think that’s a better way to go.