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NADA Phase 2 Factory Image Program Study: Happy Returns from Service Investments

by Roger Lanctot | 2月 11, 2013

Car maker emphasis on mandated modernization, standardization or expansion across dealership bodies has almost no proven investment return justification, according to the National Automotive Dealer Association’s update of its Factory Image Programs report.  The lone exception to this ROI deficit is service expansion, where investment returns appear to be more predictable. 

The second phase of the NADA study also attempts to identify the nature of the future car buying experience and how dealers will or should adapt their facilities and sales and service strategies.  The study is available here: http://www.nadafrontpage.com/facilitystudy.xml. 

Consultant and ex-McKinsey analyst Glenn Mercer conducted the study and captured the essence of its findings thus: “Renovating a dilapidated store pays off, and while one should not expect much of a return from maintenance spending, service expansion can pay off well, whereas modernization investments tend to depend on how much assistance the OEM offers, and standardization spending is almost always a pure deadweight loss.”

The first phase of the study, released at last year’s NADA gathering, drew a standing-room-only crowd to hear the results.  With a more forgiving economy easing the pressure on dealers, this year’s release captured wide attention, but not the same level of intensity.  But the message was no less important.

Car makers have not given up on their image campaigns, and NADA has not given up its campaign to reverse or redirect these efforts.  “We’re requesting that auto manufacturers redouble their efforts to provide dealers with better business cases before investing in facility upgrades, and especially, to ease off on standardization demands that seem very hard to justify,” Mercer said.

Mercer’s report, which encompassed inputs from car makers and dealers along with retailers from other industries and architects, among others, attempts to paint a picture of the car dealer of the future.  In this context, he was able to identify the widespread interest in and adoption of Apple retail tactics, though he was also quick to note the customized external look and feel of most Apple stores and the crowded interiors – unlike the typical “garage Mahals” characteristic of many car dealers.

At the same time, selling and servicing a car is a different experience from selling a mobile device.  Study respondents identified the streamlining of paperwork and more efficient customer throughput at the dealership further complemented with concierge-like off-site service or vehicle pickup and dropoff as strategic directions in the market, few of which have been targeted by OEMs.

“Our conclusion is that the dealership system will fundamentally remain intact in 2025, but there is the possibility for much more efficient design of facilities, for example by moving support functions offsite, and by using new format approaches to grow service volumes,” Mercer added.
Mercer expressed great concern that the current trend to build more expensive and more brand-customized stores will lead to excessive and wasteful spending, as dealers repeatedly raze and rebuild their facilities, and as automakers constantly update their brand image campaigns.
“Meanwhile, as customer needs and behaviors continue to shift, we urge automakers and dealers to get more creative in addressing those changes, especially in service work, and that automakers become more flexible in approving low-cost ways to implement these ideas,” he said.

The disconnect between OEM and dealer priorities was manifest on the NADA show floor where dozens of companies offered customer relationship management (CRM) solutions, but few were offering the means to connect with consumers directly in their cars.  More service related apps were offered by companies such as Kaarma and DME Automotive, but the pieces of car connectivity tied directly to dealers were missing in most booths with the exception of Xtime, which was announcing additional dealer management system (DMS) integration and compatibility along with enhancements to the company’s service scheduling application.  But to achieve those returns, dealers need the tools to reliably and predictably capture more service revenue from new and existing customers. 

Competing solutions from AutoLoop, TimeHighway or DealerSocket.com focused on service scheduling via mobile apps or online, but were not showing the kind of deep integration offered by Xtime and reflected in the service scheduling function built into Hyundai’s Bluelink.  BMW, GM, Ford and Mercedes-Benz have all made some efforts to integrate in-vehicle connectivity platforms to dealers, but more work needs to be done and better integration with dealers needs to be achieved.

The need for enhanced customer connectivity strategies is made clear from the statement in the attached exhibit: “assuming you can fill the bays quickly.”  The best opportunity for most dealers to grow and capture a return on their investment is from an expansion of the service department.

The systems that are emerging to enable a stronger customer connection include on-board digital service manuals from companies such as Tweddle linked to telematics systems capable of integrating with dealers.  According to data released by Experian at the NADA event last week, cars are lasting longer.  And the longer cars last the greater the challenge facing dealers in holding onto that business.

Dealers need help with online resources and apps as well as access to vehicle data.  Car makers should be doing more to help dealers build the systems, solutions and programs to keep customers returning to the dealership and filling those service bays.  In the end, what good is an OEM image campaign focused on dealers if the customers are not bringing their vehicles back for service.

Ramping up service volume is important for a variety of reasons not touched on in the NADA report.  Enhanced and expanded service feeds on itself as added volume contributes to improved efficiency.  It also contributes to higher customer satisfaction and repeat vehicle sales.

One ominous note from Mercer’s findings is that only about 20% of dealers perform body work.  For most dealers, the volume of body work is insufficient to justify the investment.  What dealers may not realize is that a car that has experienced a collision reflects a customer at the lowest point of their ownership experience.  Body work is a strategic service offering for any dealer, one that is capable of contributing directly to higher customer satisfaction and repeat sales.

What’s good for the dealer is good for the car maker.  Car makers and dealers have a common interest in vehicle service and repairs being handled with authorized parts by a certified technician.  Proper service delivered in an appropriate manner contributes to positive CSI and repeat business.  Facilities programs contribute little or nothing to this process and poison dealer-OEM relations.  The sooner OEMs can shift their focus to helping dealers expand and improve their service offerings, the healthier the dealer-OEM relationship and resulting profits will be for both. 

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