The value of franchise

Look for the following:

• Product Offering – innovation, spec level, spread, cadence of new product.
• The Brand Image/Equity – appeal to local end users, market sensitive strategy.
• Retail Pricing and Margin – sufficient trading margin with limited need for excessive incentives. Retail pricing is a major factor that influences the end user, and if one looks at vehicle reviews in the motoring press, retail price is always a pivotal factor.
• Stocking assistance/support – reasonable stock holding requirements with a reliable pipeline and supply rate. Interest free or other stocking assistance is important.
• OE volume objectives and dealer strategy – clear and reasonable volume objectives given brand image, pricing and product line-up.
• Warranty and maintenance plan reimbursement rates and parts margins – reasonable labour rates given employment climate, available skills and complexity of product. Parts margins to consider dealer stocking, risk, storage and administration costs.
• Payment terms for warranty, maintenance and incentive programmes – payments should be at the very worst 30 days from statement provided dealer documentation is in order.
• Parts supply rates, parts pricing and margin – fill rates at OE level are important as this has a major impact on dealer profitability. Excessive back orders cause huge inefficiency at dealer level and severely damage the brand. Parts margins need to consider stocking, risk and acceptable customer supply.
• Marketing and advertising support – OE marketing needs to support the retail objectives. Retail objectives are positively influenced by a good mix of brand building and effective retail marketing/advertising. A targeted dealer advertising assistance programme is also important.
• Dealership Training – training of tech staff and product training for sales staff are paramount. Sales training is the responsibility of the dealer and the sales staff themselves.
• Facility Requirements – facility appearance is important for brand image, but I feel that in South Africa, we have taken it to the next level. As you have no doubt noticed on your trips overseas, SA dealerships are often among the best in the world in the most expensive areas in the cities. Rent should be no more than 10-15% of dealership GP.
• Dealer Agreement – probably one of the most contentious areas of value of franchise. As I understand, OEs are still able to terminate a dealership franchise with a very short notice period leaving the dealer liable for huge leases, staff costs and other overheads. Dealers are also at times guilty of causing the termination but in most cases, it is the OE who makes the call. Some OEs are more ethical than others and do their best to reduce the negative financial effects of sudden termination. Unfortunately, we all know dealers that have had their franchises terminated with little or no OE support.

OEs, who are sensitive to the points raised above, may just have a happier dealer network, and dealers will perform to retain their franchises.

Dealers also need to run professional businesses that respect the investments and commitments made by the OEs; the manufacturing of vehicles is hugely complex, and I have enormous respect for those who produce great vehicles and at the same time have a happy, effective and profitable dealer network.

Dealerfloor (dealerfloor.co.za) and I will be publishing regular articles on dealership efficiency. I am really looking forward to sharing ideas with you. Join the conversation by sending a WhatsApp to 082-776-1887 to be added to our group.