Franchisors had their own challenges in dealing with the pandemic. The most notable problems were production slowdowns and stoppages that led to product shortages that dealers have been and are facing.
Franchisors should have learned the most important lesson from the pandemic about dealers – left to their own ingenuity, dealers will adapt and even prosper in the face of something as serious as a worldwide pandemic. Instead, many franchisors simply view the pandemic as a bump in the road to their goals. These franchisors are back to business as usual.
Facility Improvement Programs
Several manufacturers have announced that they are resuming their facility improvement programs.
One of the biggest challenges faced by dealers at the beginning of the pandemic was increasing their abilities to sell digitally to address decreased customer showroom traffic. Practically overnight, many dealers enhanced their digital operations to maintain contact with consumers, to display vehicles, to help a customer land on a car, to negotiate, and to finalize the sale. State dealer associations have fought for years the ever-increasing facility demands of some franchisors.
The increased digital sales activities, that are likely to continue, undercut the factory arguments for increasingly large and luxurious dealership facilities. But many of those franchisors think they deserve an exclusive Taj Mahal built by each of their dealers, whether sales justify it or land availability or zoning permit it. Those manufacturers are now resuming pressure on facility improvements. It is more important than ever, when facing facility demands, that a dealer understand its state law protections and agree only if the upgrades make economic sense in a post-pandemic world.
We have written repeatedly about challenging factory performance threats, particularly when the threat results from the allegation that a dealer is not sales effective. The pandemic played havoc with the factors that affect franchisor performance measurements. New vehicle production was interrupted, drying up availability for dealers. Dealers who could not get vehicles could not sell them. COVID-19 further undercut other assumptions on which factories rest their calculations.
The pandemic changed the desire of customers to travel to a dealership, affected their work travel patterns, their leisure activities, and overall kept consumers home, all of which affect factory assumptions of where and how consumers shop. Factory sales performance measurements, affected by COVID-19 and for some time thereafter, will be especially unreliable.
While dealers struggled with getting new cars across the curb and service work completed, franchisor auditors stayed home not wishing to have personal contact with dealer personnel. That is now changing. Several manufacturers have announced the resumption of the audits, and they will be looking harder than ever.
When you face an audit, become involved. You or another senior manager should attend the opening meeting to understand what is at issue. Engage the auditor immediately with questions and comments about the auditor’s activities. Be available to answer questions. Prepare for the closing meeting and attend it to challenge improper conclusions.
Once the decision is issued by the auditor, challenge it through your manufacturer’s internal process. Consider challenging through your state complaint process. You can generally make headway at each stage in cutting back chargebacks contemplated by the audit.
The pandemic, unfortunately, taught us how fragile each of us is. Even before the pandemic, several manufacturers pressured dealers to have succession plans in place. In the event the dealer dies:
- They want to prevent control fights and paralysis of the dealership.
- They want to control as much as possible who will be operating their franchisees.
- They want to ensure that dealerships are run by those with adequate experience.
Now that we are hopefully emerging from the pandemic, dealers can expect pressure to have a succession plan will increase.
Having a succession plan is no longer just an estate and tax issue. It is a critical franchise issue. Franchisors want to know who will be in charge immediately following a tragic event that may befall the dealer. It will also want to know the long term plans for ownership of the dealership and particularly control of the dealership.