Fixed Ops Journal - October 2017 - 11

FIXED OPS JOURNAL ILLUSTRATION

FIXED OPS JOURNAL

TOUGH TURF

 NADA chairman says OEMs throw weight around in service matters

JIM HENRY

foj@autonews.com

utomakers are improperly muscling
into service departments in such areas as tire sales and the sources
where dealerships buy oil and
parts, National Automobile Dealers Association Chairman Mark Scarpelli says.
Scarpelli, president of Raymond Chevrolet
and Raymond Kia in Antioch, Ill., and
co-owner of Ray Chevrolet and Ray ChryslerJeep-Dodge-Ram in Fox Lake, Ill., cites two
main objections from dealers he talks to
around the country:
 Some manufacturers increasingly tie dealer
incentives not just to new-vehicle sales, but
also to performance in
other business lines, including tire sales and related service programs.
 Several automakers are
overdoing
"indiscriminate" direct-to-consumer
coupons for service work.
"The impression is given
Scarpelli:
that these are voluntary ob"Lack of
jectives," Scarpelli told Fixed
communication"
Ops Journal. But he says it's
not voluntary when dealers are told to buy tires,
oil or specific parts from OEM-approved sources
to qualify for the largest dealer incentives.
"The manufacturer wants us to hit a home
run in all these areas," Scarpelli says. "We do,
too, but some of these goals are not realistic, or
sometimes they're slanted in a certain way."
GM spokesman Jim Cain says the automaker agrees with Scarpelli's assertion that "every
good relationship is a two-way street."
"We value the input of our dealer councils
and they shape our strategies in important
ways," Cain says. "Our success working together helps explain why our customer satisfaction with dealer sales and service scores
are so high, why loyalty is strong, and why our
businesses are profitable and growing.

Running interference
In a blog post on NADA's website in August,
Scarpelli criticized what he called OEM interference in the service department. He did not
single out specific automakers.
Scarpelli noted in a later interview that

Cuts both ways
Automakers are increasingly involving
themselves in ancillary dealership
business lines such as tires, oil and
parts. Arguments about the advantages
and drawbacks of this activity

PROS

 Coupons create traffic: Auto and

tire manufacturers regularly
advertise deals such as "buy three
tires, get one free," or free alignment
with a set of tires.
 Success wins greater incentives:
For some OEMs, success in the
service department can help
dealerships qualify for the highest
possible dealer incentives.
 Automakers help source tires,
parts: Manufacturers make it
convenient for their dealers to buy
OEM-approved inventory.

CONS

 Coupons distort the market:

Service coupons teach customers to
sit on their wallets until a deal
comes along. Meanwhile, customers
who feel they didn't get a discount
are dissatisfied.
 Incentives aren't really voluntary:
Since a dealership's profitability can
hinge on incentives, OEM standards
tied to incentives might as well be
mandatory, dealers say.
 Some dealers feel micromanaged:
Dealers say they prefer to choose for
themselves where to buy parts, oil
and tires.

"many OEMs are getting into the area of factory-supported tire programs, or oil programs
where [dealerships] are buying all their oil
from the manufacturer, or buying parts that
are generic in nature but there is some direction from the manufacturer."
In the post, Scarpelli suggested that some
factory programs put smaller dealers at a disadvantage.
"Dealerships of different sizes - or those in
more rural and less populated locations - are

on vastly different footing compared to those
that are able to utilize these programs," he wrote.
In the interview, Scarpelli said OEM demands for facility standards don't "scale well"
for smaller dealers. But he concedes that expectations for programs such as tire sales do
take a dealership's size into account.

Profit battle
Larry Edwards, an industry consultant in
Charlotte, N.C., says service-related businesses that used to be considered sidelines, such as
tire sales, are worth fighting over. Dealerships
need other profit centers to make up for thinner margins on new-vehicle sales, he adds.
"Dealers' share of the tire business was practically nonexistent 15 years ago," Edwards said
in an email. "Most dealers did not understand
enough about the tire business to be proficient
at buying and selling tires, so they simply referred [customers] to the local tire store."
New-vehicle dealerships accounted for
about 8.5 percent of U.S. replacement tire
sales in 2016, up from 1 percent in 2000, according to Modern Tire Dealer.
Edwards says automakers deserve credit for
encouraging dealers to get into the tire business, and smoothing the way for dealers to
buy tires conveniently from wholesalers such
as Cleveland-based Dealer Tire LLC and
American Tire Distributors in Huntersville,
N.C.
But in recent years, Edwards says, dealer
margins on tire sales have fallen, in part because automakers made it more expensive for
dealers to honor "buy three, get one free" coupons.
"Up until the last couple of years, the manufacturers picked up the price of the free tire,"
Edwards says. "Once these programs started
gaining traction, manufacturers started limiting their participation by only reimbursing
dealers a portion of the cost for the free tire."
NADA's Scarpelli says dealers and manufacturers seek many of the same results.
"We love this business," he says. "The OEM
and the dealer are going in the same direction.
Of course we want to sell the most number of
new cars possible, the most service, the most
sets of tires possible." But he adds: "Sometimes there's a lack of communication and
you get on different sides of things." 

OCTOBER 2017

PAGE 11

Table of Contents for the Digital Edition of Fixed Ops Journal - October 2017