In a speech for the Automotive Press Association in Detroit, the chairman of the National Automobile Dealers Association (NADA), Bill Underriner, laid out the two most important issues it seeks to address with carmakers: two-tier pricing and compulsory dealership facility upgrades.
The former is more easily understood as bonuses for sales targets – sell X amount of cars, receive X amount of extra gravy from the carmaker. The bonuses also escalate, so that a certain sales target beyond X means a proportionally larger bonus than was had at the previous target. NADA's contention is that practice results in favortism that ignores the size and diversity of dealerships. Larger dealers can offer lower prices and sell more cars than smaller outlets, with the effect of potentially creating different pricing in the same markets, the bulk of the bonus money then going to the larger dealerships and improving their positions.

The second issue is about giving dealers a larger voice in the matter of "facility image programs," such as what dealers had to do to get the Fiat 500 and, more recently, the SRT guidelines about what dealers will be required to do in order to sell the new Viper. Building out a new showroom with mandated facilities can cost millions, and NADA wants earlier and more input into the programs to ensure they work on the local scale and that the changes endure. Said Underriner, "We want to know whether we are investing in the kind of dealership that will be most competitive in 2020 and beyond."

The dealer body has created task forces to investigate both issues. An NADA press release is below, Underriner's full speech can be found here.
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NADA to Automakers: Stop Unfair Business Practices

DETROIT, Oct. 23, 2012 /PRNewswire-USNewswire/ -- Bill Underriner, chairman of the National Automobile Dealers Association, outlined two contentious factory issues facing new-car dealers and urged automakers to support a level playing field for dealerships of all sizes.

"Two-tier pricing and mandatory facility upgrades are symptoms of a bigger overall problem-manufacturer intrusion into dealers' businesses," Underriner said today in remarks to the Automotive Press Association in Detroit. "NADA wants the automakers to stop unfair practices."

This summer, NADA created a special dealer task force to focus on the fairness of stair-step programs, also referred to as two-tier pricing, which is a manufacturer-to-dealer incentive tied to sales goals.

"The history of our industry is littered with automaker attempts to impose one-size-fits-all programs on dealers. These efforts at top-down control almost always fail," added Underriner, a Buick, Honda, Hyundai and Volvo dealer in Billings, Mont. "We favor lawful, equal and fair treatment by a manufacturer for all its dealers. Unfortunately, history shows that, at times, manufacturers create incentive programs that favor some dealers over others."

Underriner cited the "incredible diversity among dealer businesses" as a reason why these programs are often unsuccessful. Dealerships range from being publicly traded or privately-owned to mass-market or single-point dealers competing in distinct urban and rural regions of the country.

"There is equal diversity in local market conditions and customer preferences across the country," he added as another reason why these automaker programs fail. "Distant corporations simply cannot understand or respond effectively to these differences. We know our customers' preferences and local market conditions better than anyone – certainly far better than a corporation with headquarters thousands of miles away."

NADA has also commissioned its second study on factory-mandated dealership renovation programs to analyze the return on investment. These programs often require a dealer to invest millions of dollars.

"When it comes to facility image programs, the key word is 'flexibility.' Manufacturers that build flexibility into the programs tend to have more success," Underriner said. "When programs are not flexible and don't consider local conditions, there is a much higher likelihood of pushback and controversy."

NADA's first study recommended that automakers get more dealer input into these programs early in the process, before "the cake is already baked."

"This is when dealers can help automakers shape a program that's well received by dealers at large," Underriner added.

Since the first study, NADA has added pertinent questions about facility image mandates to its Dealer Attitude Survey, which is conducted twice a year. The results of the survey are reviewed by high-level executives from the automakers.

The second phase of the project will also focus on what the dealership of the future will look like.

"We want to know whether we are investing in the kind of dealership that will be most competitive in 2020 and beyond," he said.

The NADA Story
The NADA story began in 1917 when 30 auto dealers traveled to the nation's capital to convince Congress not to impose a luxury tax on the automobile. They successfully argued that the automobile is a necessity of American life, not a luxury. From that experience was born the National Automobile Dealers Association. Today, NADA represents nearly 16,000 new-car and -truck dealers, with 32,500 franchises, both domestic and international. For more information, visit Follow NADA on Facebook and Twitter.

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    • 1 Second Ago
      • 2 Years Ago
      I understand why they're upset about the pricing/bonus thing, I really do. Their smaller guys can't compete as a result, even when they may be located near markets where they compete with much bigger guys. But if I'm the manufacturer, why should I give a ****? My interest is selling the most cars, period. Bigger guys are generally better at that than small guys, and get more favorable terms as a result. As for the dealership upgrades, no sympathy whatsoever-- when you buy a franchise (cars, fast food, whatever) you agree to maintain and upgrade your facilities however corporate requires. It's in their contracts, I guarantee you.
        • 2 Years Ago
        In reading my post again, it sounds more hostile than I intended. Let me walk it back and say this: I used to work for the corporate office of a franchise company. Franchisees whining to corporate about the terms they agreed to live by is OLDER THAN TIME ITSELF. That's exactly what this is.
      • 2 Years Ago
      Don Haines
      • 2 Years Ago
      I hate to say this but the big box Dealers have more power for discounting the cars below invoice just to move metal and destroy resale values. Are the car companies are to blame because they oblige and sell more cars? Supply and demand...Car's are a commodity and the consumer benefits from cheaper prices and the ones that are stupid get ripped off going to the smaller dealers because they are too lazy to make a few phone calls and drive maybe an hour away to save thousands of dollars. That's why I hate boutique german brands who don't discount the cars and line the dealers pockets...It's a fun game but not one I am playing anymore. I got 7,500 off my new Cadillac CTS 2 door Coupe! God bless capitalism!
      • 2 Years Ago
      If GM and others are giving out bonus's based on a flat baseline then ok I see their point but if its adjusted for the dealers area and size then well they have no legs to stand on. As for the forced upgrades if dealerships kept their appearance's up they wouldn't have to worry. I'm sure we have all seen dealerships that look like they haven been updated or maintained since the late 70's or early 80's and well the staff tends to reflect that. Updating and upgrading your stores is and should be a requirement. Your the ones wishing to sell a product you have a contract and sadly there are stipulations within sadly deal with it.
      • 2 Years Ago
      Yawn. My wife played three local Nissan dealers of similar size on her last car. One dealer (dealer x) insisted they couldn't budge on their price... That is, until, they heard that she went to another Nissan dealer (dealer y) and then the battle to the bottom started. Dealer z didn't care and left the price at msrp hoping that she wasn't smart enough to shop around. They've built a reputation for that. These kind of incentives are exactly what started this bidding and, ultimately, worked out best for my wife.
        • 2 Years Ago
        Good for her. However, she still could have beaten that price. I never bought a new car at MSRP or "actual" invoice. I paid cost. The truth is, all dealers pay the same price for a specific model, regardless of trim level or options. My sister bought a brand new Malibu three years ago and only paid cost, which was around $9000 less than the MSRP, because I found out what the dealers actually paid for the car, and the lot from where she purchased was the only one to agree to sell. There are a few dealers who are willing to do the right thing. You just have to search to find them.
          Jamie Elmhirst
          • 2 Years Ago
          There's not $9000 grand mark-up in a Malibu. You're including factory incentives obviously or trying to make your weiner look bigger.
          • 2 Years Ago
          Are you sure about 9000$? That's an insane amount of money, about what, 30% reduction?
          • 2 Years Ago
      • 2 Years Ago
      So on the one hand the NADA is complaining that the car manufacturers are putting too big of a burden on them to sell their goods. Then on the other hand the NADA is complaining that Tesla won't let them sell their cars via a franchise so they are suing them. You can't have it both ways. You want a franchise then you are at the mercy of the corporation you represent, whether it's GM or McDonald's. Tesla is smart to not do a franchise. Deal with it.
      • 2 Years Ago
      The dealers like 2-tier pricing. That way they can show you the invoice and say, "I can't give you a better deal, this is what I paid for it" while knowing they will get a big kickback down the road that is off-invoice.
        • 2 Years Ago
      • 2 Years Ago
      Sounds like Bob King runs NADA. He'd be upset about pay for performance too.
      • 2 Years Ago
      Sell more, get more. Invest in facilities, get more product. Good for the dealer, good for the consumer, good for the industry. It weeds out the weak and inefficient businesses and promotes the efficient businesses.
        • 2 Years Ago
        Automakers monopolize the industry, dealers monopolize the sales of the products of the industry. All it does is weed out legitimate competition and force prices as high as they can possibly go while maximizing profits for the companies with the best lobbyists. Consumer gets hosed, most dealers are put at a disadvantage and the corporations necessarily require more waste and inefficiency to stay viable. Good for the top 2% of stockholders and congress critters. Bad for everyone else.
          • 2 Years Ago
      • 2 Years Ago
      Okay,you got $80k in your pocket to buy a Viper and your choice of dealers is the guy with the '70's foil wallpaper and nasty carpeted showroom, a service dept so dark you can barely see or the dealer with a sparkling computerized showroom with access to any info you need, a sofaed coffee area where you can relax while you make your deal, with a service dept that has the latest technoiogy, factory trained techs to work on your Viper with the Viper special tools and the tech area is as nice & bright as the showroom.
        • 2 Years Ago
        There is a saying "never hire a poor lawyer or buy from a rich salesman." Of course I would go for the dealer with the nasty carpet. Would YOU want to pay extra to cover the dealer's fancy remodeling job?
      • 2 Years Ago
      • 2 Years Ago
      If you want to sell the best of the best, you have to be the best of the best. Simple as that. Why ship these vehicles to sub par dealerships especially when it could possibly reflect poorly on the automaker, if it's a sleazy dealership with bad business tactics and out of touch staff, they shouldn't be allowed to sell any cars, let alone specialty ones.
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