Customer Satisfaction Analysis
Customer satisfaction has become a point of emphasis by many manufacturers. While an admirable goal, it has also been used as the basis for discriminating between dealerships, termination, denial of new points, and the awarding of bonuses. We have analyzed customer satisfaction and delved into the critical issues: Are the responses representative of the customers as a whole? Are the questions designed properly? What is the effect on a dealer when its competitors are cheating to get better scores? We can provide consultation on all of these issues and more, and a white paper we have written relating to customer satisfaction measurement is available for purchase.
Sales performance is often the most important factor for a manufacturer when it evaluates a dealer. It can affect bonuses/rebates from the manufacturer and, if considered inadequate, can lead to termination. We have examined sales performance on hundreds of occasions and looked at the relevant considerations: Is the benchmark appropriate for comparison to the local area? Are the income and demographics in the market affecting performance? Is the manufacturer allocating enough vehicles to meet its requirements? Is the level of competition in the dealer’s market comparable to others to which it is compared? Is the manufacturer’s geographic definition of the dealer’s market appropriate (see below)? We can provide consultation on all of these issues and more, and a white paper we have written relating to sales performance in theory in practice is available for purchase.
Market Area Definition
The geographic area a manufacturer assigns to a dealer is surprisingly important. It is usually the basis for the dealer’s sales expectation and facility requirements. We have extensive experience in examining all of the relevant considerations: Are there other factors in play that make air distance a poor choice for assigning territory? Has the road network been considered? Are there natural features in the market that form barriers between a dealer and some territory? What is the impact of a change on the dealer?
The sale of a dealership is sometimes subject to manufacturer approval. We have investigated the circumstances surrounding many buy/sell agreements that were rejected by a manufacturer, from evaluating the grounds for the rejection to measuring the economic impact on the buyer and/or the seller.
A great deal of work goes into the sale of a franchise, both by the buyer and the seller. On occasion the manufacturer rejects the buy/sell agreement, with obvious consequences for both parties. We have investigated the circumstances surrounding many such rejections: Are the manufacturer’s grounds for rejection reasonable? Has the manufacturer been consistent in the past? Are there any other alternatives? What is the economic impact on the parties?
Every car dealer has learned that you can’t sell product that you don’t have. The availability of hot product is critical to the bottom line. However, the allocation systems employed by manufacturers are also critical to the sales performance of dealers. The pressure of hitting sales targets when product isn’t available can be crippling. Most allocation systems have discretionary elements, and both these and the regular elements have been abused by manufacturers in the past. We have reviewed many of these systems and examined the critical questions: Are the discretionary allocations reasonable? How are the high demand models getting distributed? Are the manufacturers following their own protocols? Are certain dealers receiving disproportionate allocations? What is the effect on other dealers not receiving the same level of allocation?
Dealer agreements are generally one-sided with little or no allowance for operator input. Manufacturers often load agreements with terms that are either vague or knowingly impossible to satisfy. While the legality of the contract can only be assessed by a legal professional, we have evaluated the economic reasonableness of various provisions that manufacturers have attempted to assert in contracts. Some of these terms can have a profound impact upon the well-being or even survival of a dealership.
We have assisted in the valuation of many dealerships, for both buyers and sellers. We know the important issues on which to focus: Is the franchise incremental to other franchises or stand-alone? Is it reasonable to expect the current performance to stay constant or is there room for improvement? What would happen to sales if the franchise were run from a different location? What if it sold to a different operator? Do unprofitable dealerships still have value?
The incentives offered to dealers by manufacturers can be crucial for profitability. However, they often come with considerable strings attached. We can look at the relevant considerations to help make the right decisions: What’s the likely gain from undertaking the financial investment necessary to participate? To achieve the next level or tier, what would have to be done and is it worth it? What could happen to one dealer if the other market dealers participate and it does not?
Warranty reimbursement is currently a hot topic. Dealerships, manufacturers, and government entities are debating the merits of warranty reimbursement at retail rates and the question of cost recoupment? Are these policies consumer-friendly? Who wins and who loses when warranty reimbursement rates change? Fontana has been a leader in assessing these questions for years.