How to Successfully Navigate Manufacturer Image Compliance
Smaller dealers feel the financial pinch of needing to adhere; in the long run, it’s actually more costly to ignore
Auto dealership owners look forward to manufacturer compliance visits about as much as they look forward to root canal work. The looming threat of penalties, removal of marketing-incentive dollars, and the prospect of unforeseen required adjustments to visual merchandising lead to many sleepless nights for general managers and owners.
In 2012, a successful GM dealership in Oklahoma opted to sell its “hunting lodge–style” store in Norman when it was out of compliance with GM’s facilities standards. The dealership layout and decor looked more like a sporting goods destination. It housed a 45-foot waterfall and a stocked giant aquarium, and had animal tracks imprinted on the floor. The outdoor area included picnic facilities for guests, dog runs, animal statues, and a windmill.
A typical GM dealership this was not; therein was the problem. Ultimately, the dealership was forced to either come into compliance or lose financial incentives. The dealer decided to sell the location and retire.
This situation is clearly a “worst case scenario.” The reality is that image compliance is not only extremely valuable to dealerships as it relates to current success, but can have a huge impact on the future value of the location.
In fact, manufacturer image compliance is actually too costly to ignore, and here are just a few of the reasons:
- Importance of branding and anchor signage. Why not take advantage of the millions of dollars manufacturers put into their brand image?
- Everyone is a seller someday. Your dealership will change hands at some point, and this cannot be ignored. By accommodating image compliance now, you avoid higher costs later and raise the value of your dealership.
- Pay now, or pay a lot more down the road. Every time you ignore a fix—from a required signage change to something in your visual merchandising—you are putting off something that will probably be more expensive to address later.
A common objection to the manufacturer image-compliance problem is: “But it’s too expensive! I can’t afford it!” Many smaller dealerships bemoan the compliance process and cite it as unnecessary, time-consuming, and costly. They even avoid full compliance in remarkably creative ways, trying to wriggle free of what they feel are unneeded and overreaching rules and controls.
There are methods that will effectively take the sting out of compliance costs and make the process run smoothly. Here are a few suggestions:
- Begin planning well ahead of time—do not be reactionary. A well-prepared dealer with plans in place will always come out ahead on the financial side. Everything costs more when things are past a deadline or done incorrectly due to unnecessary haste.
- Confirm what a dealership of your size is supposed to be doing. By working closely with your manufacturer rep, you will gain a better understanding of your compliance requirements. You may be surprised at what a dealership of your size is required to do.
- Determine your budget in advance and have logic and numbers to back it up. Once again, planning proves to be productive and profitable. Don’t try to absorb a financial hit in one fell swoop; make financial plans that allow you to budget accordingly.
- Investigate whether a manufacturer is able to contribute financially. There might be situations where a dealership can take advantage of financial opportunities provided by manufacturers.
- Check your zoning issues—is your plan compliant with local regulations? A final, yet critical, point is to confirm local zoning restrictions relating to signage and other considerations. A costly mistake to avoid, for example, is the placement of a sign in an area that is not zoned properly.
Many dealerships need to rethink their perception and response to manufacturer-mandated image compliance. Most at-risk dealerships—smaller ones, especially—need to remain vigilant about their compliance plans, budget, and timing.
J. Michael Issa is a Chapter 11 bankruptcy trustee in the Central District of California. He is also a CPA and a former commercial banker. He has been involved in more than 30 automotive cases and is one of the most well-known automotive M&A and bankruptcy financial advisers in the country. Mr. Issa is a principal at GlassRatner Advisory & Capital Group, LLC.