1. KC M Y
6A TUESDAY, JUNE 19, 2007 DETROIT FREE PRESS | WWW.FREEP.COMDEALERSHIP OVERLOAD
With few options to close
dealerships, Detroit’s auto-
makers are using a similar
strategy to the one employed by
Dunkin’ Donuts, Baskin Rob-
bins, Blimpie, Subway and oth-
er stores.
When they can’t generate
enough traffic in a market to
support one of the brands
alone, they put two or even
three of the franchises under
one roof in hopes of getting
enough business to make all
three thrive.
For more than a decade, this
has resulted in a retail land of
Buick-Pontiac-GMC, Chrysler-
Dodge-Jeep, Lincoln-Mercury
and even Hummer-Cadillac-
Saab stores.
On their own, some of those
brands — such as Buick, Lin-
coln and Mercury — average
fewer than 100 sales per store.
That is so low that it likely
would mean suffering or failure
for dealerships left selling that
brand alone.
Fortunately, many of those
stores are now linked up for
what might be a better future.
Marketing experts, such as
Jim Sanfilippo of Team Detroit,
the advertising conglomerate
that serves Ford Motor Co.,
said the best way to sell an auto
brand is still at an exclusive,
stand-alone store. However, he
said this strategy of putting to-
gether stores works well in the
marketplace. In essence, he
said, the automakers have tak-
en a lemon of a situation and
mixed up some lemonade.
“It’s an ideal solution to their
challenge,” Sanfilippo said.
Dealers who own these
mixed-brand stores say they
are thriving. But they’ve be-
come so desirable to own that
dealers in many markets
squabble over which dealer will
get one. For example, a Ponti-
ac-GMC store might want to
buy the nearby Buick franchise,
but that owner would prefer it
the other way around.
This can result in years of
battles that slow down De-
troit’s consolidation efforts,
and dealers report that these
battles are fairly common.
Last November, Steve
Schwan bought the nearby
Buick and Cadillac store to add
to his Pontiac-GMC store. It
took only a year and a half in his
case.
“I never thought mine would
ever get done,” he said. “If I was
a betting man, I would’ve said
it’s never going to happen.”
Schwan spent a few million
dollars to buy out the nearby
store, which is more than he
wanted to pay. But he said the
payoff has also been more than
he expected. Compared with
last year, new car sales are up
39%, used car sales are up 21%,
service is up 34%, and the over-
all bottom line is up 65%.
That’s impressive when you
consider that combined nation-
wide sales of Buick, Pontiac,
GMC and Cadillac vehicles are
down 7% this year.
“When I looked at this deal, I
was looking at seven-year pay-
back,” Schwan said. “I think I’m
going to be ahead of that
curve.”
When automakers can man-
age to get a multi-brand store
together, everyone does seem
to benefit: automakers, dealers,
customers and even the em-
ployees who work in the stores.
In Washington, Mich., Joe
Serra’s Buick-Pontiac-GMC
store is a thriving example of
what Detroit’s automakers
could be if they could consoli-
date stores faster.
His new brick building is
modern, spotless and sunny,
with skylights even in the ser-
vice station. Every morning, his
workers blow up bright bal-
loons to tie to the windshield
wipers of cars in the showroom.
A lounge area with warm
woods, soft carpets and plush
chairs features Wi-Fi access
and a flat-screen television.
Nearby, a playroom has toys
and a television playing car-
toons. High-quality coffee and
baked goods are free.
His store is fully staffed and
climbing up the sales charts.
It’s one of GM’s top 300 stores,
though it has been open for only
about a year. Overall, Serra
Buick-Pontiac-GMC feels like a
proud place, and it inspires con-
fidence in doing business there.
Joe Serra owns 33 franchis-
es in six states and he acknowl-
edges that it’s hard to measure
the return on a new, multimil-
lion-dollar store. But if he didn’t
think it was worth it, he
wouldn’t be wasting his money.
“I can tell you facility condi-
tions are not just important to
consumers,” he said, “but to
employees.”
Contact SARAH A. WEBSTER at
313-222-5394 or swebster@freepress
.com.
AUTO MARKETING
Car dealers combine brands to sellVariety proving a
boost to business
By SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER
PATRICIA BECK/Detroit Free Press
Service technicians work on vehicles in the service area at Serra Buick-Pontiac-GMC in Washington. The build-
ing is modern, spotless and sunny, with skylights even in the service bays.
PATRICIA BECK/Detroit Free Press
The Truitt triplets, from left, Deacon, Dayton and Mary, 41
⁄2 of Auburn
Hills, use the children’s area at Serra Buick-Pontiac-GMC.
complish if they found a way to
quickly shrink their glut of deal-
erships or consolidate brands
under one roof.
Progress has been slow for
Detroit automakers, which
generally have taken the ap-
proach of clustering comple-
mentary brands, such as Buick
and Pontiac with GMC, so few-
er stores can sell more vehicles.
Last year, they trimmed their
dealers by only 2%.
Mercedes, Mazda and other
once-struggling automakers
that aggressively
shed stores end-
ed up putting
stronger dealer-
ships in a better
position to com-
pete in the mar-
ketplace and ulti-
mately sell more
cars and trucks.
“It’s been a
good thing,” said Ralph Thayer,
who owns a variety of import-
brand dealerships, including
Mazda stores in Livonia and
Monroe.
These dealership network
turnarounds have added to the
evidence that less is often more
when it comes to the number of
dealerships.
“At the end of the day, it’s
the dealers who sell the cars,”
said Paul Melville, a partner
with Grant Thornton LLP, a
global accounting, tax and busi-
ness advisory firm. He helped
several major automakers
downsize their dealership net-
works in the last decade in Brit-
ain and recently moved to met-
ro Detroit to prepare for what
he views as an inevitable wave
of dealership consolidation.
Japanese sell more per store
Detroit’s automakers would
need to trim about 6,600, or
40%, of their nearly 16,000
dealerships nationwide to get
their average sales to 1,000 per
store, which would put them in
the ballpark with the top Japa-
nese automakers.
That’s because dealerships
selling Toyota, Honda and Nis-
san brands average 1,273 sales
per store, while Detroit auto-
makers average fewer than half
that, or 580 per outlet. That
translates into less money for
marketing, stores, employees
and customer amenities, such
as free loaner cars, all of which
can help buoy sales.
“They’ve got to fix it,” Mel-
ville said in a recent interview
in his Southfield office. “If you
want to be competitive, you
want dealers selling more
cars.”
A big downsizing of dealer-
ships could also save Detroit’s
automakers as much as $4 bil-
lion in unnecessary costs, or
$436 per vehicle they carry to
support their dealer networks,
according to CNW Marketing
Research in Bandon, Ore.
The CNW estimate includes
the cost of delivering vehicles
to stores as well as a variety of
administrative expenses that
automakers incur to support
their dealers. Those services
include marketing assistance,
parts and service support,
training, auditing and other be-
hind-the-scenes activities, such
as routine communications
about financing, new products
and recalls.
If they could focus that ser-
vice on fewer, more-profitable
dealerships, the rewards could
be great.
In Britain, where laws gov-
erning dealer franchises are
less stringent, major automak-
ers reduced their collective
number of new-car outlets by
24% between 1995 and 2005, da-
ta from Grant Thornton show.
Sales per dealer went up 54%.
Profits at the stores increased
20%, allowing the dealerships
to reinvest in the business to at-
tract even more customers.
Success stories
Consider also the Mercedes
comeback story.
While reducing dealerships
was just one component of the
Mercedes turnaround plan
during the 1990s, its impor-
tance should not be overlooked,
said Mike Jackson, who was
chief executive of Mercedes-
Benz’s U.S. sales arm from 1997
to 1999 and served in other
executive roles there during
that decade.
In 1991, during the Gulf War,
Mercedes sales crashed 25% af-
ter the U.S. government im-
posed a 10% tax on luxury vehi-
cles. (It was phased out later in
the decade.) The German auto-
maker’s 408 dealerships in the
United States had to divvy up
fewer than 59,000 sales that
year, leaving stores with an
average of 144 sales apiece and
a lot of financial distress.
So until it could increase
sales, Mercedes cut stores to
restore dealer profits and make
its outlets strong enough to
compete again. Every year for
the next nine years, Mercedes
shed dealerships, often buying
back franchises from its deal-
ers.
Cutting dealerships, Jack-
son said, encouraged the stores
that remained open to invest
more money into their market-
ing, employees and facilities —
just like Ghesquiere did — be-
cause they were guaranteed a
bigger piece of the sales pie.
“We unleashed a massive
amount of investment,” said
Jackson, who is now CEO of
AutoNation, the country’s larg-
est chain of dealerships, with
327 franchises.
And every year, the number
of sales per Mercedes dealer-
ship grew, along with the com-
pany’s overall sales.
By 2000, Mercedes had cut a
quarter of the stores it had
when the troubles started, to
310 in all. The number of sales
per store more than quadru-
pled, to 670, a healthy number
for a luxury brand and enough
to make dealers profitable.
Overall, U.S. sales more than
tripled to more than 207,000.
Mazda had a similar experi-
ence when it closed stores in
the 1990s.
Mazda spokesman Jeremy
Barnes said Mazda’s success
today is primarily because of its
strong product lineup. But he
said Mazda vehicles have never
been sold through a stronger
network of stores before — and
that’s giving Mazda’s new vehi-
cles a huge edge.
“It’s probably never been
more important than it is today,
because there is so much com-
petition,” he said.
The big payoff
A significant downsizing of
dealers would be undeniably
more challenging for General
Motors Corp., Ford Motor Co.
and Chrysler than it was for
Mercedes or Mazda. Neither of
those two companies had the
thousands of dealerships that
Detroit’s automakers have
built up over the decades.
It’s also more difficult for
Detroit’s automakers to exe-
cute big reductions in the Unit-
ed States than they did in Eu-
rope, because laws here are
more protective of independent
dealers.
But experts like Melville and
numerous dealers interviewed
for this series say that, if GM,
Ford and Chrysler continue re-
ducing at their current rates,
their sales, brand image and
bottom lines would continue
suffering for years, if not de-
cades. That’s because dealers
can survive for a long time on
used-car sales and service op-
erations even as their new-car
businesses stall.
Melville agrees with De-
troit’s automakers who said
they don’t believe a one-size-
fits-all approach would solve
this problem. But whatever the
strategies, dealers and experts
said Detroit must spend more
money to solve the problem
faster. A few dealers who are
willing to sell out complained to
the Free Press that they were
offered only a few hundred
thousand dollars for a store,
when they think it’s worth mil-
lions.
Big headaches for Detroit
Given all the demands on De-
troit’s automakers to invest in
better, more fuel-efficient
products and streamline their
factories and workforces, it’s
easy to see why this suggestion
might give GM, Ford and
Chrysler a raging migraine.
“It’s crippling expensive,”
said Jim Sanfilippo, a Detroit-
based auto industry expert.
Steve Schwan, who sells
Buick, Pontiac, GMC and Cadil-
lac cars and trucks outside Bis-
marck, N.D., says dealers have
to pitch in more, too, because
they stand to benefit when
nearby stores close.
Ghesquiere, who also owns a
Cadillac store in Rochester,
says Detroit automakers and
their dealers can solve this
problem together quickly, if
they make it a top priority and
get down to business.
“There’s a number that
works for both of them, if
they’re open to talking,” he
said.
Jackson is one of many deal-
ers who say Detroit’s automak-
ers haven’t spent more money
restructuring their retail net-
works because they struggle to
justify the cost against the ben-
efit, especially against all their
other demands.
“They may agree with the
concept,” he said, “but, relative
to other things they can do with
their capital, they don’t believe
in the payoff.”
Contact SARAH A. WEBSTER at
313-222-5394 or swebster@freepress
.com.
DEALERS R Shedding new-car franchises can strengthen survivors in marketplace
From Page 1A
Detroit's automakers pay a price for having too many dealers and it's not cheap. Every year, CNW Marketing Research measures the cost
automakers shoulder to support dealers, which includes delivering vehicles, auditing stores, training and a variety of other supportive and
educational interactions that are not free. Here's how much the following automakers spend per vehicle compared with the industry average to
support a dealer network.
Note: Dollar figures are
amounts above or below the
industry average
The cost of excess dealers
Research by SARAH A. WEBSTER/Detroit Free Press KOFI MYLER/Detroit Free Press
Distribution
Other
Marketing assistance
Parts/service support
Field support
Accounting/dealer services
Total cost per vehicle
2006 sales
Total cost for automaker
+$116
+$10
+$92
+$47
+$31
+$16
+$312
4,065,341
+$1.3 billion
+$236
+$54
+$81
+$59
+$44
+$29
+$503
2,900,911
+$1.5 billion
+$257
+$87
+$73
+$68
+$62
+$34
+$581
2,142,505
+$1.2 billion
-$101
-$8
-$22
-$15
-$71
-$9
-$226
2,542,524
-$575 million
-$33
-$25
-$16
-$26
-$83
-$11
-$194
1,509,358
-$293 million
+$86
+$51
+$38
+$34
+$53
+$7
+$269
1,019,249
+$274 million
Paul
Melville
SARAH WELLIVER/Detroit Free Press
Ralph Thayer, who owns import-brand dealerships, including Mazda
stores in Livonia and Monroe, found that automakers who aggressively
shed stores ended up with stronger dealerships. “It’s been a good thing.”
To bounce back from a sales decline
in 1992, Mercedes cut dealerships.
That made the remaining stores
stronger and helped to drive sales
again.
Strength in numbers
Sources: Power Information Network and Detroit
Free Press research
Note: Franchise count taken from Automotive News
Market Data Book
KOFI MYLER/Detroit Free Press
144
❚ FRANCHISE COUNT
❚ TOTAL SALES
❚ SALES PER FRANCHISE
414 310
337
1990
1992
1994
1996
1998
2000
2002
2004
2006
1990
1992
1994
1996
1998
2000
2002
2004
2006
1990
1992
1994
1996
1998
2000
2002
2004
2006
735690
247,793
78,375