The Emperor Has No Clothes!

 
Emperor

Emperor Constantine © by Photohunny

The way the OEM’s operate their franchises leaves a lot to debate about. Having worked for both OEM’s and retail outlets, I have formed some strong opinions about how the OEM’s are conducting themselves of late.

The relationship between the two used to be relatively simple: the manufacture designed and built cars and the retailer sold and serviced them.

The control that the OEM had over an individual retail outlet was not as smothering as is today.
Retail outlets used to be able to distinguish themselves from one and other even though the manufacturer instilled a level of required minimum standards to ensure brand consistency. I’m not sure when it all went wrong!

Maybe an executive tried to model the McDonalds franchise concept, but we are in a situation today where retailers have no individual ability to differentiate themselves from each other – so strong is the stranglehold the manufacturers have on controlling our identities, business models, advertising, stock and even the income we earn.

The Emperor Has No Clothes!

Almost everyone has heard the children’s story by Hans Christian Andersen, “The Emperor’s New Clothes”. Besides being an interesting story, it also describes the absurd situation that has crept into our business culture especially when it comes to our relationships with our respective manufacturers.

When the Emperor paraded around in clothes that were invisible, everyone was too scared to point out the fact that Emperor was naked. Even the people who saw it clearly did not dare point it out for fear of the consequences. This farce continued until a child exclaimed: “The Emperor has no clothes!”

The reason why I use this analogy, is because we all know full well that the one sided nature of manufacturers’ dealings are inherently wrong and unfair.
Yet, no-one is prepared to state the obvious, or fight the good fight.

We stand today in a precarious position that poses a serious threat to our long term business success.
In another article, I discuss the concept of getting rid of the uncontrollables and concentrating the controllables. This is a fundamental business concept that determines the consistency and risk of any concern.

The question is: what balance do we have as retailers between the controllables and the uncontrollables?

Imperialism, defined by The Dictionary of Human Geography, is “the creation and maintenance of an unequal economic, cultural and territorial relationship, usually between states and often in the form of an empire, based on domination and subordination”…..I hate to state the obvious, but this just needs one adjustment to the wording and we have the current definition of an automotive franchise operation.

The Colonisation of Retail Dealerships

It’s prudent to identify what has made the Emperor’s clothes seemingly invisible. To start with (and I’m on record for saying this before), the introduction of variable margins has got to be recognised as a disaster.
It is nothing more than a concealed method for the OEM’s to put the retail operations under more duress.
Many retailers have suffered as a result of the predicable price erosion that has occurred and depend heavily (if not entirely) on achieving their variable margins. This is as daft as promising you a life boat if your ship does NOT sink.

Secondly, the requirement by the manufacturers to have certain standards of facilities in prime real estate has also spiralled out of control. I’m not saying for a second that there shouldn’t be certain requirements, but come on, the dealership facilities we see today require ridiculous investments and are not justifiable given our dwindling PBT’s and ROI’s. Previously, retailers could build facilities to suit their business needs and retain their own identity.
Many franchise operations are squeezed into building facilities that are more than they can economically afford, but they do so out of duress for fear of the OEM making their lives hell if they don’t.
In the face of rapidly dwindling profitability, this has become ludicrous and one wonders where it will stop.

Thirdly, the colonisation of the retail network stretches beyond regulating margins, facilities, product mix, stock holding, financial reporting and even internal dealer processes including recruitment, to that of advertising.
Most manufactures force dealerships to adhere to strict advertising standards and templates. Open a newspaper today and you will see the exact adverts placed by different dealerships.

I proved my point by stopping all advertising in regional publications and yet still got many calls from customers who had “seen” our offer!

The Last Outpost – Our Last Chance

It may be too late, but the last outpost where retailers can differentiate themselves is with the internet. It’s probably a lost cause with websites, but the internet is so much more than a website and there are a plethora of other networking opportunities that retailers need to use and importantly take control of.

The colonising of dealer websites is almost complete I’m afraid. It’s a huge point of concern for me because these days it’s the first impression a customer gets of the dealership and recent research suggests that customers visit around six individual sites before visiting an outlet.

As with print ads, how does a dealership portray being any different from the next when every dealer site is exactly the same? In our region, we have 45 dealers of the same franchise. How are we going to lure that hot customer surfing the net to our dealership when all our sites look the same?

To be real, there is not a major manufacturer in the world that allows for total independence in operations. That would go against the principles and advantages of being part of a franchise. But why are we in such a stifled and one-sided relationship?

The reason I’m afraid is because the OEM’s do not have enough staff members who have retail experience. The sad fact is while they claim to understand our businesses they simply don’t. You can see it in their decisions and you can see it in their business models.

They have an inferiority complex towards retailers which results in a culture of needing to be controlling.
Think I’m exaggerating? Remember I worked for a few and can recall many occasions when the dealerships were spoken about with utter contempt. Heck, I was even part of it and on one occasion allocated 35 Merlin Purple cars to a dealer who had pissed me off.

Many more questions need to be asked and resolved but the underlying question I have is: “Are you bankrupt yet, or are you waiting for your Emperor to do it for you?” If we don’t stand up and be counted, if we don’t take control of our businesses our Emperor will carry on abusing you and it just be a question of time before you close your doors.

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One Comment

  1. Ricardo Oliveira says:

    Great article! Seen through Customer perspective this lack of differentiation between Dealers of the same brand leads to an obvious price war. We have pointed this situation, as well as a solution, in our latest World Shopper Conference, last May. But most of the Dealers and OEMs were more focused in the threat caused by new business operators (that we have presented at the same event)…

     

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