The Canadian Automobile Dealers Association (CADA) wants automakers to consider putting image programs on hold as retailers claw their way back from the financial fallout of COVID-19.
CADA Chief Executive Tim Reuss said dealers’ investment priorities are currently focused on online purchasing and digital communication platforms to accommodate changing customer behaviour, all while trying to navigate difficult and uncertain financial times.
“We’re in such a state of flux as we wait to see what consumer attitudes will be coming out the other side of this pandemic that perhaps all image programs or other dictated appearance should be on hold for the time being,” Reuss said.
“In this pandemic, it is becoming very clear what really matters, [and] it’s not the colour of the tile being two tones darker or lighter on the Pantone scale. It’s investing in sales processes and service processes and the online ability to transact.”
Mike Stollery, founder of the AutoIQ dealer group and CADA chairman, said automakers should reassess the requirements of their image programs to ensure they are in line with post-pandemic realities.
“You don’t need to build massive showrooms if half the customers in the future want to buy from home and have [a car] delivered at home. It just needs to be rethought.”
He hopes automakers will factor recovery time into their image-program plans for the coming months and years. “Like every industry, we got a lot of deferrals. Some dealers got deferrals on the rent, and some dealers with mortgages got vacation on their mortgage. All of the interest and all that money is still owed back.”
Image programs, which often run into the millions of dollars, have long been a sore point between automakers and dealers. But the pandemic appears to have made these requirements even more untenable for retailers.
CADA is advising dealer councils on how to respond to automakers currently implementing image programs, said Reuss, adding that brands that are cutting products should reflect those changes in the expectations placed on dealers.
“If certain brands were expanding their product lineups and that was the reason for requiring expanded showroom square footage, if those same manufacturers are now reducing their product lineups, then it only stands to reason that they should also adjust their requirements.”
Some industry forecasts suggest sales won’t return to pre-pandemic levels until 2024 at the earliest.
Carter Cadillac in Calgary was the brand’s first and largest standalone dealership in Canada under its updated image architecture when it opened in February 2019 at a cost of $16 million. Dealer Principal Jay McKeen said navigating the COVID-19 shutdowns while carrying the expense of new construction has been “a disproportionate challenge.”
Because the store was ramping up its business through the early months of last year, McKeen said, government programs such as the wage subsidy were unavailable during the pandemic’s toughest months.
“We technically haven’t dropped 30 per cent on revenue,” he said. “But as an example, if we’ve dropped 20 per cent on revenue but our expenses have at the same time gone upby20or25percent...the impact on the bottom line is substantial.”
Where McKeen did find assistance was in Cadillac Canada’s decision to pay out the full Cadillac Pinnacle program incentive payment to all dealers from March through June, money that he said was instrumental in keeping his dealership afloat financially.
“That Pinnacle money, when I look at all the components ... it would come awfully close to paying our mortgage payments. It’s that significant.”
Despite wondering at times whether the new dealership would prove to be too large for a post-COVID-19 world, McKeen said business has rebounded enough to see sufficient use.
“We’ve seen a strengthening of the marketplace here in Calgary. We may be in a position where we still feel like we have too much space for the next year ... [but] I’ve been on the reverse when times have been good here where you say, ‘Gosh, I wish I’d built that facility bigger because we’re bursting at the seams.’ ”
NEW OR RENOVATE?
In Lethbridge, 200 kilometres south of Calgary, McFadden Honda was weeks from breaking ground for a new $8-million, 30,000-squarefoot (2,800-square-metre) dealership to replace its 22-year-old new-car showroom and separate used-car store when the pandemic shutdowns began, said General Manager Greg Flom.
Under its image program, Honda Canada is now giving dealers the option to either erect a new building or complete a renovation of an existing one by the end of 2022. That amounts to a year-long extension over the pre-pandemic plan.
Honda Canada will work with dealers to “set a reasonable timeline” for upgrades, according to spokesman John Bordignon.
“Over the past few years, we have had many dealerships successfully take advantage of programs that provide help with upgrades that have improved the utilization of space, look and comfort of their showrooms and service areas. We believe this enhances customer engagement and their in-dealership experience, which leads to more positive brand affinity.”
Flom said he is examining ways in which the space of the new store can be modified without affecting design.
“One of the things we’ve [considered] is expandability, so we’ve designed the building so that it can have additions and look seamless. I can probably reduce it by a couple of service stalls and reduce my parts department a little bit and reduce the size of my showroom. ... We can make some changes to square footage without changing the design a lot.”
Although his financial situation remains stable, Flom said, even Honda’s extended timelines might not ease the blow for dealers who choose to renovate under the brand’s image program.
“Especially for smaller stores, renovating seems to hit them especially hard. A renovation doesn’t sell you any more cars.”