Automotive, August 2011: STOP spitting out such nonsense!

6133601114 d3038bc983 Automotive, August 2011: STOP spitting out such nonsense!

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Italian Market, August 2011: of the 70.307 total vehicles registered, more than 42% (29.929) have been matriculated during the last… 3 days of the month. From January 1st more than the 35% of the italian total registrations were developed in the last 72 hours of each month!

Let us understand this strange phenomenon. Some manufacturers contacted to give an explanation for this strange phenomenon, they bring it back to the dynamics of Lean Production, to the  just-in-time production, or to the dilated time into the logistics pipeline that could prevent the optimal flow of cars from the factory to the dealerships.

Others argue that the monthly promotional campaigns and ‘open doors’, that are developed in the last Sunday of each month, produce sales peak just at the end of the month. Still others are certain that the bureaucracy of banks or the financial management of the certificates of conformity are the real cause of this anomaly. Who is on-the-field, the Area Managers of the EOM for example, argue that the dealers ‘hold back’ in the drawers contracts and orders with the intent to negotiate domesticated objectives from the Manufacturer and super-bonus of the last minute.

Perhaps this is partly true, but the opinion of analysts and dealers is another: the run-up to a more favorable market share generates, through actions of self-registration, this considerable surplus of registrations and plaques in the final 3 days every month!

Aggressive and effective sales campaign or pressure on the dealers? The Fiat dealers, for example, made more than 61% registrations in the last three days (8,919 of the total 14.648); the Alfa Romeo dealers in the last 72 hours of the month they developed 61% of the matriculations (1.235 Vs. 2.031). But even Ford, BMW, Citroen, Renault and Opel have a significant share of registrations (41%, 45%, 46%, 45% and 42%) only at the last minute. Merit of aggressive and effective campaign or pressure on the dealers? Both, probably.

In crisis time, statements ‘bipartisan’ of all the OEM and the NSC had hinted that it was ended the era of unjustified pressure on dealers: stop with unnecessary pressure on balance sheets, stop with fixed assets, that’s enough with new cars over-stocks! A ‘new deal’ would have launched new policies more transparent for the benefit of the whole distribution chain. As late in August 2011, however, is obviously someone was still entangled in ‘old habits’.

 6133600570 5b9718b281 Automotive, August 2011: STOP spitting out such nonsense!

Is this policy to run-up to an higher market share is good or bad? Wherever in the world there is this ’3rd sales channel’ feeded with ‘pre-owned’, ‘Km zero’ and ‘one-day-cars’ (even in Agriculture the dealers have the ‘hours zero’… tractors registrations), but please, I expect transparency from Automotive Multinational Companies quoted at the Stock Exchange! How many are the real sales (the orders)?

How many sales to private owners that bring profit to dealers?

How many the registrations ‘masked’ with Km Zero? All of these huge investment of physical and economic resources are added to all those difficulties who – day-by-day – characterize the work of dealers. All this for a few thousand more registrations. It really worth while?

6133055693 bc7cd6a641 Automotive, August 2011: STOP spitting out such nonsense!

Someone points out that these “new-used” cars can be an opportunity for dealers. Maybe it is true, but this is not the norm: on the national newspaper “Corriere della Sera”, 20 July, an entire page-ads of a well-known Dealer Group that advertises bids on dozens of lots consisting of company cars and ‘Kilometer Zero’. Some of which registered 2 years ago!

Given that these cars (before they were registered) stopped outside the factory, then remained into the carrier deposit, then holded on in the stock locator of the NSC, then were stocked in a dusty ground of this dealership (where and still are stationed there, however well presented ), I have a question: how much they costed to the brand / dealer in terms of: interest expense, inventory costs, logistics, spoilage of tires and gaskets, petrol, transport from one location to another of the dealer, and not the last a spoil of image? What is the real value of these cars aged… but ‘new’? This is widespread. I personally visited some dealers that have lots of ‘Kilometri Zero’ that lie for at least 4 years.

Impacts on the Stock Exchange. It ‘also true that one minute after the automotive august data were presented – with nothing had changed in the economic policies of FGA or in the company’s ambitious development plans – the stock market reacted losing in few minutes the 2.51%. Only for the slight decline in market share…

I repeat that it would be better to insist with the ‘soft skills’ of salesmen with advanced training, sales processes and timely CRM projects; with a look to the unstoppable realities of the Social Media that still seems to be – in Italy, but also in other countries with few exceptions – virtually unknown in the automotive.

Maurizio Sala

6133600986 a22107cccb Automotive, August 2011: STOP spitting out such nonsense!

 

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18 Comments

  1. Our Friend & Follower Mike wrote:
    “Hi Maurizio. This market is probably worse. How depressing!”

  2. We received a contribution from our Friend and Follower Peter from South Africa:

    “Hi Maurizio, this is a common practice in South Africa. We call it pre-reporting and the pressure from the OEM’s on dealers to capture sales cards for vehicles not retailed is huge. This causes major strain on the dealer’s cash flows and floor-plan facilities because the OEM pushes through more stock to the dealers! This in turn forces the dealer to prostitute the product and price erosion becomes the name of the game. Some of the OEM’s like Volkswagen even negotiate with their large fleet owners (such as the rental companies) to capture sales cards of vehicles still on water! Very short sighted from the OEM’s who do not realise the damage they are doing to their brands and their dealers.”

    Any other comment?

  3. Another interesting point of view from David, UK:

    “Quarterly targets, pre-registrations, bonus payments etc. etc. are common place all over — some years ago an Economist Intelligence Unit report identified that there was ‘installed capacity’ to manufacture a couple of million units per annum (forget precise number) more than worldwide demand, so something has to give, hence every volume sales channel (rental, fleet + + ) and ‘tactic’ will be used.”

  4. Mike L says:

    Peter in the above post pretty much nailed it. This practice has gone on since, at least, the 1950s in the U.S. The manufacturer puts out sales forecasts and pressure is put on the sales organization to hit those numbers- most often financial bonuses are tied to hitting those numbers. So the sales regions report “ghost” sales to please upper management and for the sake of their bonuses and, often, their jobs. Dealers are often complicit if the end of the month marks the end of a sales contest for them or the end of a lucrative dealer cash incentive.

  5. Our follower Alfons from Benelux gave his point of view:

    “In Benelux NSC’s is the same. It is NOT only GM or Opel but ALL car companies pushing their dealers to these forcings. Every Benelux (Belgium, Netherlants, Luxemburg) citizen is aware of these practices.

    This is resulting in: “wait with signing contract until last day of the month”.

    The manufacturing plants really suffer from these practices; especially in case of “lean manufacturing” GME ESO (European Sales Organisation) still does NOT want to know/see/discuss these practices…

    ESO does NOT take any action or accept even one suggestion to change toward a “lean concept” as is practice in ALL GME manufacturing plants; because ???? ALL car companies push their dealers to these forcings (Renault, Citroen, Ford, Fiat, …) in Benelux ???? ”

    Thanks Alfons for your contribution!

  6. Michael from the US wrote:

    “There usually is not aside for a few franchises that recognize how critical customer retention within our fixed operations. Unfortunately, most Dealers and GMs maynot be looking at each department a profit ‘silo’… “

  7. Arick posted his contribution from India:

    “certainly these are the critical issues which are redressed at very snail paced”.

    Thanks Arick!

  8. Michael – San Diego US wrote:

    “Maurizio, Your leading inquiry was: “Where are the profits”. 90% of franchised dealers, it exists predominately in Fixed operations via retention and competitive service/P&A pricing. Yes closing what makes sense, especially for localized residents for service retetention (fleet and retail) is a judgement decision of taking lower gross margins for New and Pre-owned, so long as the Dealer as a refined process for ‘retention’ beyond just Warranty work.”

  9. Yes Michael.
    This is an interesting overview of what ‘should’ happen in a dealership.
    But too many factors created from OEM and NSC distract the entrepreneurs/managers from their mission: make money!
    If OEM and NSC spoil economic resources of the dealers with pressure on stocks, lots of new – used – preowned – oneday cars and also… P&A (yes, the same pressure happens with parts), it is very hard they will do a good job with the final customers!
    Just to know: in the meanwhile dealers, managers and salesmen are engaged with the ‘last 3 days run’ are you sure they will develop a serious and timely CRM program for the service retention?

  10. Our Friend and follower IAN from Canada:

    “Great post as always…

    Check out mine:

    Ian”

  11. Iñigo from Madrid gave this contribution:

    “In Spain the last three days meant 10.166 out of 43.587. Last day of august 5.245 were registered… looks similar to me…”

  12. We received from Nuno of Porto:

    “The same in Portugal, the article is clear, I think… we know how this started, and we know that now, everyone is trying to take the ‘best’ out of a bad policy; not only OEMs now, but also dealers and… customers.”

  13. We received a contribution from João, located in Portugal:

    “Maurizio, there is a small detail in all range of bad news we listen everyday on. The supply chain along business is out of the line. They are doing the same as they did during 30 years…besides their own financial interests, according with brands bank rating – they need money for all customer credit operations, and also, to identify funding in order to portfolio of reinsurance claims. This is the OEM’s hard work. So, they are going forward at high speed, feeding an unsustainable bubble, where the banking business will not be ready to continue, not only for the costs levied on operations but also because customers are not willing to pay for all this, nothing related with the product itself. They are Greed to pay shareholders and can be more expensive than anticipated. Let’s look at the men in black alternatives… A few years ago, American oil companies have gone through a very similar situation and then, they put their hands on the head.”

  14. Vladimir says:

    For me, there are very interesting points in comments #9 & #13, since I work in the aftersales part of the business, and I see the bubble Joao was talking about in everyday’s work – NSC’s are pressing dealers to their monthly/quarterly parts plans by connecting them to various volume bonus schemes, short-term POM actions on top of already stretched plans, etc…
    This means dealers are over-stocking, just in order to get to those volume bonuses. Finally, it turns out that those bonuses are not enough to pay for the interest rates, stock space needed for the increased inventory, etc, etc, which then leads to increased dead-stock and decreased profitability.
    In these times of turmoil, aftersales are getting to be very important to survival of dealers, but with such strain imposed on the business and rising competitivness in the aftersales, with constant decrease of margins, I am affraid that aftersales departments will not be in a position to contribute as expected.

  15. Vladimir!

    Great contribution! Thanks for sharing with us your experience. I assume that all over the world – more or less – the disruptions you pointed out are quite the same.

    I disagree only for a thing: I am convinced that aftersales departments – and spare parts – will give their contribution to the survival of the distribution chain. The importance is to be well organised with a customer retention program, with good quality of the workshop/bodyshop, and to know your competitor environment (after-matket, indipendent service partners, non-captive networks).

    Another great contribution to the success of the after sales could come out from the Dealers Parts Consortia. In Italy we have a great – still unique – experience in that sense – http://www.asconauto.com .

    The problem is that I see too many Dealers/Managers not focused on after sales, but mainly in sales and… objectives! But this is only my personal opinion.

  16. Vladimir says:

    Maurizio,

    While I agree on your points about organizing the aftersales business around good loyalty /customer retention programs, that also means giving the customers additional benefits, but not only through a better service appointed delaers are supposed to give by definition, but also through tangible price incentives to customers.
    On an under-developed market like our’s is (Serbia), it’s all about the price – people are even missing their regular maintenance because of their financial position. This leaves us no choice but to work with minimal margins, which affects the profitability of a dealer as a whole entity. That’s why I have my doubts regarding the aftersales contribution.
    Also, thank you for the comment about dealer managers not focusing on the aftersales side of the business. Couldn’t agree more.

  17. Vladimir.
    Whether you are in Serbia or… in Italy, this time – due to crisis – Dealers and Customers have empty pockets!
    Believe in innovations; start with small new operational ideas for your service dept!
    For example: ask to your current clients what they expect from you in terms of new services/products and what they would agree to pay for this.
    And… do it!
    But you must not give up!

  18. Vladimir says:

    Thanks Maurizio,

    Of course, giving up is not an option in any case and I’m not advocating that option at all, since it leads nowhere.

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