Economic Tensions Fuel Disagreement Between Car Makers And Dealers
As competition in the auto industry heats up, car makers are tightening their image and branding campaigns. But car dealers — who feel financially vulnerable despite soaring profits — say manufacturers are expecting them to pay too much of the price.
In New Hampshire, dealer organizations are behind a bill that would protect them from what they see as exploitation by manufacturers, which won near-unanimous support in the Senate and is now being considered by the House. Manufacturers argue that government shouldn’t interfere with their private business contracts.
But behind all the he-said she-said, there are changing forces in the automobile industry.
Scott Holloway has been selling cars for as long as he can remember. His father Paul Holloway bought a dealership in the 1960s, they’ve been expanding across the state ever since. While there have long been tensions between dealers and manufacturers, the Holloways say they have never seen anything like what’s happening now.
“This is the thing that really made my skin crawl almost,” says Scott Holloway, pointing to some light fixtures at his Buick and GMC dealership in Portsmouth. “We went to PSNH and did their green energy program, less than three years ago.” Holloway says he pulled out all the lights, and got energy saving lights put in. Then, a couple years later, Holloway says, General Motors told him he had to replace the energy efficient lights with GM’s standard issue lights. If Holloway didn’t comply, GM would increase the cost he pays on every car.
Maryann Keller, an auto industry consultant and former Wall St. analyst, says that most manufacturers have “image programs.” But, she says, in the last few years, these programs have gotten increasingly specific, “down to the brand and color of tile used on the floor, or the paint color on the walls.”
Now, lawmakers in NH are considering a bill that would update existing franchise laws on a number of fronts. One of the hotly contested sections would limit dealer facility upgrades to every 15 years, unless manufacturers pay for the upgrades in full.
New Hampshire Auto Dealers Association president Peter McNamara says as it goes now, dealers end up paying 96 percent of the costs for upgrades. While manufacturers say they subsidize the costs by offering vehicle discounts, dealers see the arrangement as “two-tier pricing,” which would be against the law.
Dealers and manufacturers also disagree about whether or not the “image programs” actually increase sales. “The key to a successful franchise model is conformity, uniformity, and brand identification,” says Dan Gage, a spokesman for the Alliance of Automobile Manufacturers.
But industry consultant Maryann Keller says while shabby showrooms are bad for business, there’s no evidence that car makers’ fastidious image programs improve sales. She says car makers obsess over cookie-cutter showrooms out of a kind of competitive desperation:
It’s harder and harder to gain competitive advantage in this business. Cars today are almost uniformly high quality. There’s pretty good design across all manufacturers.
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