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Standards and audits causing bitter divide

Ask any automotive executive or company owner about the notion of an industry-wide set of retailing standards, and they would doubtless back the idea. The objective is logical, but manufacturers and dealers have always held contrasting opinions about the business of selling cars, and the division is growing wider, deeper and increasingly bitter.

At the heart of the matter is the way carmakers conduct audits of dealerships, and how the findings impact on retailers’ bonuses (increasingly, and often unfairly, according to dealers who prefer not to be named). A survey on provoked almost 750 dealers to respond: 71.4% believed carmakers were being unfair when auditing their business.

Those with experience in audits and motor retailing have different views, and the RMIF and SMMT – while expressing a determination to work together – have to protect the interests of their members.

The effects of Block Exemption

Lurking above the industry is the threat of a super complaint by the DTi-funded National Consumer Council. If lodged with the Department next month, pressure from consumer organizations could lead to licensing (opposition to that idea is agreed by virtually all in the industry).

Senior industry figures hope to convince the NCC that sufficient action is being taken to persuade it to stave off. It probably will, but a cohesive action plan will be hard to put together.

The NCC’s concern relates to the repair industry, but in the franchised sector this is entwined with sales of cars and parts.

The imposition and regulation of manufacturer standards is complex, in part because it is bound up with current Block Exemption. The RMIF is already lobbying the EC in preparation for making a case for change ahead of the 2010 review.

That’s because the current regulations were designed to increase motor retailing competition but seem to be having the opposite effect. Carmakers stepped up their required standards, apparently to raise the cost of entry and so dissuade opportunistic entrepreneurs.

It has, though, raised costs and is helping to stoke up consolidation, say dealers. A decline in new car sales last year, followed by an SMMT forecast of another in 2006, add to the anxieties of dealers, which is why the RMIF has set up a working party of senior members to assess how Block Exemption is working.

‘Highly unstable retail sector’

Matthew Carrington, RMIF chief executive, and franchised dealers director Sue Robinson have discussed members’ concerns with senior EC officials in Brussels. “We told them there is a considerable worry across many dealer groups that the required investment in bricks and mortar and appliances has been excessive,” says Carrington.

“In addition, the discretionary element within bonuses paid by manufacturers to dealers has increased. Our working party is assessing this ready for 2010 and we don’t have much time: the EC will begin thinking about the review in 2007, so we must be ready to take this up with them by the end of this year.”

Carrington and Robinson told Commission officials that manufacturers have a disproportionate amount of power over even the largest dealer groups.

“We said Block Exemption is right at the heart of this,” says Carrington. “A senior official told me there are laws in France, Italy and Germany to protect smaller companies from large ones. He believes the UK is the only country in Europe where this does not happen.

“The manufacturers have their difficulties – look at Ford and GM – but, if they want healthy distribution, their dealers must be able to get a return on investment.”

Carrington believes the retail sector is highly unstable at the moment and that consolidation will continue apace over the next 12 months, with the sector radically changed by early 2007.

Though that may mean fewer RMIF members, he looks at it from the aspect of the industry as a whole: “Very strong groups will be able to tell manufacturers what the market needs – dealers understand the market better than anyone.”

That may be so, but the DTi wants the SMMT to take the lead role in resolving the industry’s problems. That makes sense, as it represents the manufacturers that appoint dealers to sell their cars.

#AM_ART_SPLIT# Customer audits ‘effective’

Nigel Wonnacott, SMMT’s head of communications, says: “The DTi believes it is best for us to coordinate the industry response to the threat of a super-complaint. A number of codes have been tried without success – the industry has to raise its game.”

Two men who combine management experience in motor retailing with conducting dealership audits for manufacturers agree, but have different viewpoints.

One says: “Too many of the so-called independent auditors allow their own personalities to get in the way – they’re the sort who march in, waving a briefcase.

“They have a clipboard with a list of questions and just tick the boxes ‘yes’ or ‘no’, without a thought about whether or not something enables employees to make the customer’s experience complete.”

He believes effective audits are conducted through the eyes of the customer, whereas many agencies seem to search for failures on behalf of the manufacturer.

Standard rules not the right option?

Surveys should be carried out by people with background in the department being audited. He has seen dealers marked down because they did not have the latest (and often expensive) tool when the previous one would do the job just as well: “that’s stupid”.

“It all comes down to fairness and commonsense,” he says. “The real reason car-makers conduct these surveys is not to raise standards, but to have control over dealers. There is a lot of nervousness among dealers about these audits which often take up a lot of time that should be spent selling cars.

“I have seen dealer staff break all the audit rules, and a customer leave totally happy about their experience. Customers are individuals, and there are regional differences in attitudes to many things, which means you cannot succeed just by enforcing some standard rules.

“All that said, I agree with manufacturers who have misgivings about the quality of some dealer staff.”

The other man agrees that carmakers have a strong point: “Enforcing standards is a vicious circle, and I can see it from both points of view. You do get the heavy-handed jackboot-types doing audits, which does little for dealers.

“But manufacturers are entitled to check on whether their standards are being met. Both sides would benefit from finding ways to raise the standard of retail employees.”

He says audits fail to provide a real-life assessment of a dealership anyway, because they are normally booked between one and two months in advance.

A motor industry consultant, with experience of audits, says: “They seem to have grown into a new sub-culture, and are now not conducted in the way senior manufacturing executives originally intended.”

#AM_ART_SPLIT# RMSG forges high-level links

There is a political dimension to the way the motor industry attempts to regulate itself. The Government was caught flat-footed when BMW Group announced the disposal of Rover, and it remains acutely aware of the power of consumerism (in other words – voter power).

Ministers vowed in 2000, after the BMW decision, to avoid any similar embarrassment and set up a committee to forge high-level links with the industry. Out of this came the Automotive Academy (to improve training) and the Retail Motor Strategy Group (RMSG).

Chaired by Roger Putnam, the former Ford of Britain chairman, the DTi-fronted RMSG directs three working groups.

Duncan Aldred, Vauxhall’s retail sales director, chairs the group looking at standards – his opposite number on the two others are Pendragon chief executive Trevor Finn (Block Exemption review 2010) and IMI chief executive Sarah Sillars (technical accreditation).

Behind closed doors, there are discussions between manufacturers and retailers. One RMSG member, representing retailers, says: “The failings are probably more apparent than real, but resolving the problems are complex.”

Last July, Mark Boleat, who sits on the National Consumer Council board, said proper regulation needed carmaker help. He thought the industry was unlikely to self-regulate effectively in its current form: “Consumer bodies are not going to let go of this one.”

#AM_ART_SPLIT# The retailers’ perspective

Retailers have flooded AM with stories about how they’ve been treated during audits. Here are some of their stories.

“I lost a valued dealer principal, working with us for more than 10 years, because she could not stand the carmaker’s auditing procedures any longer. An enormous amount of work by senior members of staff still caused a ‘fail to pass’, although the dealership got an ‘exemplary pass’ a few weeks later.”

“A customer came in with interference on radio, the problem was that she had accidentally switched on the traffic information. The technician switched it off, but we failed the audit because we didn’t offer to wash her car.”

“Last year we had in the region of 24 audits on various aspects of our business from Renault and Nissan. Our customer services manager spends probably 50% of her time preparing for and looking after various auditors.”

“Many auditors have no retail/dealership experience. However, agencies who employ these people do not want them upsetting the client manufacturer’s representative. They do not want their standards questioned.”

#AM_ART_SPLIT# Carmakers’ thoughts

Volkswagen, Renault and Nissan, whose audits have been criticized by some dealers, all stress they are designed to maintain high retail standards.

Volkswagen says its annual audit does not affect dealer bonuses, but an industry source claims it does (including 2% each for premises, processes and systems).

In a statement, VW insists that the margin structure element, based on quarterly checks for brand representation, customer experience and mix of demonstrators, plus an annual quality management appraisal, is separate to the formal audit, which ensures compliance with the Retailer Agreement.

Simon Thomas, Nissan UK sales director, says dealers will undergo two audits this year, compared with four in 2005, with a reduction in variables. “Franchise development standards now relate only to the CSi index, so the only auditors are customers,” he says. A dealer’s margin/bonus includes 4% based on the brand investment programme.

“For 2006, we have halved the number of audit visits, increased the total fixed dealer margin and reduced the total dealer variable standards margin,” says Thomas.

Renault UK says dealers’ pan-European minimum standards are audited yearly, and are not subject to bonus incentives. “We have different levels of standards so that our authorized representatives can choose where they want to position themselves in the distribution system,” says the company.

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