The more that consumers buy vehicles online and have them delivered directly to their driveway, the less it matters how extravagant the dealership showroom is.
Or so dealers argue.
Several automakers relaxed deadlines for brand image and facility upgrade programs in the early days of the coronavirus pandemic, but they generally say dealers’ investments in updated showrooms are necessary to boost sales and customer experience.
That leaves dealers, after feeling relief to get a break on some deadlines for a bit, now concerned that automakers’ facility mandates will clash with the accelerated shift to digital retailing. Retailers say changes to the way facility programs are designed are necessary to bring them in step with rapidly changing consumer habits.
“We’re looking at these facilities programs, at the requirement to build a palace, at precisely the moment in time when digital and remote sales are kind of coming of age and the culture is changing,” said Jim Appleton, president of the New Jersey Coalition of Automotive Retailers. “Younger buyers are far more comfortable with the digital or remote sales process, and we’re asking dealers to make investments that have a 20-year return on investment on a business model that probably won’t last 10 years.”
The speed of the pandemic-induced shift toward online transactions, given the comparative riskiness of negotiating and signing paperwork in person, has cast renewed attention on the future of brick-and-mortar stores. What becomes of the showroom if customers don’t want to visit it?
To be sure, experts agree that the physical store is not about to disappear. The share of vehicle buyers who want to shop end to end online is still a small, though growing, contingent. Some dealers say it’s more common for shoppers to start the sales process online and finish in store. Because a vehicle often is the second-largest purchase a consumer will make, many would-be buyers want to see and drive a vehicle before signing on the line.
More flexibility from the factory is key, dealers say, and they’re urging automakers to compromise.
“Flexibility and convenience are now the primary drivers of customer satisfaction in the post-COVID world, so it’s clear that facilities need to be reflective of those considerations first and foremost,” National Automobile Dealers Association spokesman Jared Allen told Automotive News via email. “We’ve had productive discussions with OEMs on this and related topics, and we’re looking forward to continuing those conversations.”
Michelle Primm, managing partner of Cascade Auto Group in Cuyahoga Falls, Ohio, said many dealers were speeding up the sales process and rethinking showroom expenses before the pandemic. Primm, whose group sells Audi, Mazda and Subaru vehicles, said she isn’t sure how digital demands and pandemic precautions will reshape designs, but automakers need to have deeper conversations with more of their dealers, as well as consumers.
“I think we’re all going to take a step back in spending these millions and millions of dollars for palaces,” she said. “It just doesn’t make sense to do that anymore. We want to be efficient and utilitarian.”
It’s too early to know how the brick-and-mortar design itself will evolve before auto e-commerce is commonplace, several consultants and dealership executives said.
A digital sales model could require fewer employees in the showroom, which in turn could necessitate fewer workstations, said George Karolis, president of dealership buy-sell advisory firm Presidio Group. A store might need less space devoted to customer lounges if buyers are spending less time at a dealership because they complete much of their purchase online or use a concierge to pick up their vehicles for service.
The key is to build flexible spaces that could allow a dealership to pivot as business needs change, said Greg Gates, vice president of business transformation for Swickard Auto Group, which has 15 stores on the West Coast and in Atlanta.
“We’re not like an office-type environment, where every sales associate has an office,” said Gates, who previously worked on image programs for Mercedes-Benz USA as its general manager of strategic retail development.
“We’re really about taking the transaction to the customer — on the showroom floor, on the lot if they want to do that,” he added. “So I think, for us, it’s about designing with that flexibility in mind.”
Dealers have demonstrated during the pandemic that they are good at responding to market changes, said Bernie Moreno.
He mostly exited the business in 2019 after selling all but two stores but this year bought back a 49 percent stake in Cleveland Motorsports, which sells Aston Martin, Bentley and Rolls-Royce vehicles in North Olmsted, Ohio. Moreno said he was motivated to return to auto retail in part because he senses some automakers have taken a softer view on showrooms than they did a year ago — namely, that they can be brand- compliant without being overbuilt.
Dealers want to keep their cost structures as variable as possible, Moreno said, and showrooms increase fixed costs.
“If there’s anything I hope the manufacturers learned, it’s that if they allow dealers to be entrepreneurs and solve these problems themselves, they’ll come up with creative solutions,” he said.
“When they try to be too prescriptive and say this is a cookie-cutter approach and we want you to do A, B, C and D and only A, B, C and D, it just doesn’t work,” Moreno added. “The box needs to be big enough that dealers can create some really interesting, creative things.”
In a report this year for NADA titled “The Dealership of Tomorrow 2.0,” consultant Glenn Mercer wrote that automakers should establish balance between online and offline strategies.
He said there isn’t much quantitative evidence showing that updated showrooms lead to more sales.
“We can hope they will be more flexible. But OEMs face two conflicting forces. On the one hand, as they tell their dealers that ‘the future is online,’ it is harder to insist that dealers pour millions into the physical facility,” Mercer said in an email.
“On the other hand, OEMs have egos (both at the company and the individual executive level), and we have seen them time and again over the years insist on lavish new facilities that they deem commensurate with the image of the brand,” he wrote.
Some automakers say appealing showrooms remain necessary to attract prospective buyers.
“[W]e believe that digital retail is not a substitute for in-person interaction and is an extension of how we do business in stores,” Randy Parker, vice president of national sales for Hyundai Motor America, said in a statement.
“It’s critically important that our facilities reflect the Hyundai brand image and the strongest lineup of vehicles we’ve ever had,” he said.
“We are asking our dealers to make reasonable investments that will improve our brand image and increase sales and market share. We believe strongly that these investments will pay off for our dealers.”
Dealers aren’t as sure. Appleton and his counterparts at seven other state franchised dealer associations asking Hyundai to modify its facilities programs, arguing that the requirements don’t factor in customers’ new shopping habits and are attempts to coerce compliance by tying upgrades to factory incentives.
Automakers contend these programs are voluntary, but dealers who choose not to comply are at a financial disadvantage compared with retailers who do, Appleton said. The New Jersey association is suing Mazda and Lincoln over their facilities programs in cases that began before the pandemic.
Mazda said it extended its Brand Experience Program for 12 months through mid-2023 because of the coronavirus crisis. The automaker says more than 300 U.S. dealerships have committed to its Retail Evolution facility guidelines that are part of that program, and 150 have finished building upgraded showrooms.
Automakers have a legitimate interest in having their brand displayed appropriately and consistently, Appleton said, but mandates for standalone showrooms or a specific tile or furniture style often don’t take into account dealers’ individual markets.
“If dealers are going to be asked to make investments in retooling their operations and preparing to compete in a marketplace that’s becoming more and more remote and digital,” Appleton said, “then I’d prefer to see manufacturer programs that encourage that kind of investment.”
What customers want is a sales experience with a dealer who will help them navigate the process, electronically or in person, and a service experience in which their vehicle is fixed quickly and correctly the first time, NADA Chairman Rhett Ricart said.
“I think the manufacturers are listening to the dealers, but they are realizing that they’re going to have to adjust more quickly than anticipated,” said Ricart, who also is CEO of Ricart Automotive Group in Columbus, Ohio.
“Customers really don’t care how big your showroom is,” he added. “Quite frankly, they never have.”
Laurence Iliff contributed to this report.