The first, product quality (the car’s physical design, engineering and performance) and its build quality are exclusively the realm of manufacturers.

“In ‘general retail’, the latter two components are driven by retailers. However, franchises are not ‘general retail’. Product sales franchises, such as car dealerships, are even less so. The franchisor has a legitimate right to extend its control through to aspects well beyond the product.

“When it comes to delivering great service, the challenge is how far to extend and what is the benefit to the customer.   

“Ignoring all but the truly exotic, in the automotive business product quality leads to volume sales. Massive investment in product and new, clean-sheet factories with optimised assembly staff ergonomics and air quality in the paint shop result in quality, but come at a price.

“This is the reason why, for example, Volkswagen Group has accelerated away from Peugeot Citroën across product and pricing measures.”

Ainsley said the winners in franchised motor retailing consistently hit or exceed the volume target.

“Given the fixed investment level, even a near-miss is hard to recover from. When they take the franchise, whether they realise it or not, dealers are collectively signing up to underwrite investment programmes decades out,” he added.

 

Can you push volume without negative effects?

The challenge for NSCs is driving volume in a way that doesn’t undermine the buying experience or distort retailer behaviour.

Ainsley said the system goes wrong in a number of ways. These include the “flaky application” of manufacturing processes to retailing without any basis or logic.

“The number of events in retailing (very low in comparison to manufacturing) and their variability (very high) means that Six Sigma (Japanese improvement techniques seeking to minimise variability in business processes) and the like are pointless.

“Processes that profess to deliver customer experience through manufacturing quality techniques are hokum.”

Striving to achieve local market share percentage is a “lazy” way of targeting. It’s a moving target and not relevant to dealers, customers or to the original product investment plan.

A mismatch on timing can lead manufacturers to manage their balance sheets down by stuffing dealers with stock as capital management is as important to manufacturers as it is to dealers.