Thinking long-term (as always), Toyota wants its dealers to spend millions expanding showrooms, adding service bays and upgrading their architecture. Thinking short term (as always), Toyota dealers are contemplating the "Image USA II" plan and saying "not on my dime, Bub-san" [paraphrasing]. Automotive News [sub] reports that slumping sales are leading to some serious foot-dragging. "There's never a good time to do a facility modification," TMNA prez Jim Lenz insists. "It doesn't matter if it's two, five or 10 years from now; it will be more expensive than it is today." Toyota's stick: they're threatening not to renew franchises on older stores and offering just two-month franchise extensions to dealers slow to spend the cash. Toyota's carrot: better allocation of popular models. Some dealers say "more cars are the last thing I need." What's more, many just finished investing in Toyota's "Image USA I" plan; they don't relish spending another $1.5m to go to a totally different look. Dealers are telling Toyota: "show me the money." "GM and other brands offer… interest-free financing for their facility program to help you out," a suitably anonymous dealer reports. "But Toyota doesn't."
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and upgrading their architecture.
What a great idea!
Every time the dealer gets a good run with a decent product, the factory guys appear with some futuristic plans:
External remodel : Minor remodel : Major remodel : or Premier / Flagship .
This is very similar to what your wife and children ask for when you get a raise!
This is part of the ongoing “adversarial relationship” between a manufacturer and its franchised dealers.
The manufacturer wants “branded facilities” and makes offers to motivate the dealer to execute the branded facilities.
The dealer “renovated” a few years prior to keep the manufacturer off his back at the time, and now has to renovate again to achieve a new level of “branded facilities”.
Many of the public dealer groups are locked into long term leases for the facilities which leaves little room for “branding facilities”.
Smart dealers are keenly aware that manufacturers are in the “vehicle” and the “branded facilities” business.
Smart manufacturers don’t want dealers to make too much money…in the case of Toyota they are well aware that their franchise has kept more than one dealer group above water, and floated weaker franchises that are part of the dealer group.
One would have to think this is part of an ongoing Toyota strategy to cull the weak dealers from the herd, and to avoid growing a bloated network a la the domestics.
The fact is that expensive site renovations will probably have a very poor payback in terms of incremental revenue versus the capital expense. Thus it is easier to manage for dealers that already have great cash flow and a profitable venture. The dealers at the fringe aren’t going to see a revenue boost sufficient to pay for the expenditure, so either they tell Toyota to screw off, or they spend the money and then go bankrupt.
I have seen manufacturers come up with silly ideas that kill lots of their resellers before.
If you work at Toyota, my advice is to be very strategic about how you point out the flaws in this idea. Just trust me.
But that last past, about how Toyota doesn’t finance dealer updates like, say, GM is the out they need. Very credibly, US dealers can point to the current credit crises and say that without Toyota open up the piggy bank then they can’t get credit on anything like acceptable terms from local banks. QED.
How can Toyota creditably threaten to yank the concession if X improvements are not done?
Don’t state franchise laws come into effect here?