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View from the business school: Should car retailers fight together and not each other?

By Professor Jim Saker, director of the Centre for Automotive Management at Loughborough University Business School

It’s strange when a theme starts to emerge and you don’t know where it’s coming from. I am sure there is some psychological phenomenon that explains why when your consciousness has been raised about a subject you tend to hear it every time you turn on the news or read a paper. The problem is that this tends to invade your thinking in the same way as background music in a bar does when they play a piece of music that you like.

Maybe it’s just in my world that people seem to be fixating on the issue of whether it is better to view the world as a zero sum game or whether by collaborating or cooperating you can produce more than one winner.  

I was showing a video of Prof Michael Porter from Harvard talking about how to compete in business to a group of dealer general managers when the conversation turned to whether it was more beneficial for companies to collaborate than to compete head on. Does it always have to be a zero sum game of winners and losers?  

The discussion moved to how this applied in the motor industry and the delegates were able to give many examples where motor manufacturers had cooperated to share powertrain options through to producing the same vehicle on the same production line and simply rebadging it with their own brands. It was easy to see the benefits of reduced cost and development efficiencies that would support active cooperation.

The interesting issue was that the delegates missed the point that both Porter and a number of business writers have been advocating that cooperation not only generates cost savings, it can actually increase the size of the market providing the opportunity for there to be, in his terms, ‘more winners’.  The challenge was how could this possibly apply in the retail automotive sector?

There was general scepticism among the delegates. They argued that for decades dealerships have gone head to head, often not only competing against retailers from other manufacturers, but more often than not competing against the next dealer from the same franchise.  

Although understandable if these were from competing dealer groups, in many cases they were within the same company and offering the same franchise deliberately competed against each other, often doing their best to scupper the sale of the internal competitor. Stories abounded of where one dealership in the group would deliberately sell off a car cheaply to stop another dealer who had a customer for the car getting the sale.

Although some CEOs argue that internal competition is good, one is left wondering whether the profitability of the organisation might just be that bit better if there was a greater spirit of cooperation.

Perhaps the strangest situation is where one part of a dealership tries to ‘rip off’ the other department, pricing jobs deliberately high for internal work. The delegates quoted an example from their own organisation where new car sales preparation was being outsourced to stop the other department from profiting from this activity.

As an outsider it appears that the general manager is refereeing an ongoing war of attrition between departments. The question is whether this is really the most efficient way of doing things.

 

Benefiting from cooperation

We then got to the question of whether dealerships from different franchises owned by different companies could  benefit from cooperation. The class was quiet for a while and we started to discuss how other retailers cooperated. The conversation moved on to destination locations and retailers paying for Christmas lights and decorations to attract shoppers to an area.

Then a voice with a slight Liverpool accent said: “It’s obvious really, because of planning regulations in most towns all the dealerships are located together, but we don’t actually cooperate to do anything.”

None of the general managers in the group could  remember an occasion when dealers had actually worked together to promote their ‘car alley’ or business area. Maybe, by working together and actually promoting a group of competing franchises in a particular location, the impact of increased footfall might produce a win-win situation and develop increased customer awareness. The success of locations such as the retail park at Bicester show that brands working together can produce more than individuals operating alone. Shopping centres throughout the country promote themselves as destination locations with great success.  Perhaps it is time for the sector to explore this more seriously and see whether we can generate more ‘winners’ and fewer ‘losers.’

As the delegates walked out one said, ‘Good discussion Jim, but in reality it’s back to the battlefield.’

 

 



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Comments

  • Jack - 07/08/2013 13:11

    As usual, Jim talks a lot of sense. Why shouldn't groups of similar retailers promote their businesses and products jointly? Why couldn't parts vans deliver products from multiple brands and dealerships and share the (reduced) costs? Until now, our attitude has been to battle each other, and you've all seen this happen between dealerships in the same ownership! Even between departments on the same site? Maybe it's time for a little trust and common sense to be tried? Then perhaps we could concentrate on customer service and make that the differentiator. OK, I'll go and smell the coffee now...

    • max - 07/08/2013 13:42

      @Jack - 'trust and common sense' eh! the indusrty doesn't trust itself - I wonder what customers think!!!

  • Fiona - 07/08/2013 14:44

    Of course customers don't trust dealers. That's why they shop around. The only thing they trust is that dealers from the same franchise or group will compete against each other. So the customer thinks they win by getting a cheap deal; the dealer group & franchise loses through lost profit; and actually the customer loses in the end because the dealer they bought the car from won't add any aftersales value because they don't trust the customer to come back to them for SMR! Very sad. Wouldn't it be great if dealers were brave & entered the real world of retail?

    • Jack - 08/08/2013 13:35

      @Fiona - The crux of the problem is the VM's emphasis on volume levels instead of satisfaction levels. It takes a brave retailer to invest in good, customer-orientated people, deliver consistently good service and wait patiently for volumes and share to increase over time through repeat business and word of mouth. It can be done - I have achieved this with a number of businesses - but you need a fully-engaged owner who can see a little further than the end of the current campaign. And you need to keep the VM off your back whilst you are building. Generally, as soon as the pressure is on for more 'sales', the price goes down, the profit goes down, and the investment in care follows suit - and back to the same old issue. Mmmm, that coffee smells good!

    • Fiona - 08/08/2013 13:42

      @Jack - if you've achieved this, I'm guessing you know how to full engage owners? So, how do you also keep the VM off your back when, at the beginning of the month, they want to focus on the long term yet by the end of the month, they're focussing on sales? Mine's a skinny Latte!

    • Jack - 08/08/2013 14:01

      @Fiona - Take on a struggling dealership, concentrate all your energies on customer service, tell the managers that this is their priority, replace those that don't understand, and keep explaining to the shareholders that this is the ONLY strategy that will make their business successful. It takes six months to see genuine progress, and, surprisingly, sales chassis profits increase, to offset the VM bonuses that may not be achieved. But even the volume VMs understand the future is customer retention, so they will allow you some wriggle room... Of course, there are compromises to make - if you've a local buyer who's been offered a discount elsewhere you'll want to match it to retain their long term custom. But it will come round - you can achieve the holy grail of decent vehicle margins, and busy service dept, earn some volume bonuses and retain your client base for future growth. The whole exercise takes about two years, then you've got something to build on.

    • max - 09/08/2013 12:51

      @Jack - fortune favours the brave - now if only the industry would listen to you. Do the right thing and be seen to be doing the right thing and customers will reward you with their trust and custom = profit. look to the mid term, not todays deal, and tomw's lost customer. VMs are shorttermers - target today and b'gr tomw.

    • Jack - 12/08/2013 13:30

      @max - Aha, I'm not a lone voice then! But it is completely true and demonstrable - there are some great businesses in our sector that do most things properly. They train their people, they motivate them to provide good service, they encourage problem solving, they place the genuine customer experience at the forefront of company policies and they stay consistent so that the business gains a 'reputation' for fairness and therefore grow through recommendation. VMs can cope with this change of direction, but have to be persuaded that their long term interests are being looked after. Stick to your principles, Max, and you will see sustainable progress in your department or dealership. Good luck