Are all your dealers financially viable? If not, early sight of problems is vital – and in everybody’s interest
30 March 2016
For any motor manufacturer, having a major dealership go bust is high up the list of potential nightmares. Aside from the immediate costs in terms of lost sales and damage to brand reputation, the reverberations around after-sales service contracts and customer disputes can rumble on for months, if not years.
The sudden disappearance of a major dealership can also serve to underline the critical role that dealer networks play in auto manufacturers’ business models. Also, if a dealership – short of actually collapsing – is underperforming or financially stretched, its problems will inevitably have an impact on sales, knocking back all the way to the production line.
It follows that manufacturers need early warning of financial strains anywhere in their dealership network, preferably before these emerge publicly. Having this inside track can enable OEMs to take action behind the scenes to help a troubled dealer work through its issues, or at worst to engineer a managed shutdown that minimises the effect on customers.
Our experience suggests that, historically, many automotive manufacturers have been surprisingly poorly protected against – or informed about – the risks around the viability of their dealer network. But, encouragingly, we’re now finding that growing numbers of OEMs are taking positive steps towards proactively monitoring and reacting to the risks of dealer viability – a shift that’s seeing us help more and more manufacturers assess the financial wellbeing of their dealerships across the UK.
These projects generally start with the client providing us with a template of the areas and metrics it wants us to scrutinise in its dealers’ businesses, taking a holistic perspective including profitability, funding, and utilisation rates. Having pulled together the relevant data using web-based tools, we bring in a specialist PwC team of business improvement experts – people who conduct viability plans on a regular basis – to assess the dealers’ financial position and forecasts.
As a result, the client gets a comprehensive snapshot of its dealers’ current viability position, complete with the factors that could affect them going forward. We can also take the wealth of data we’ve collected and analysed on individual dealers, and run it through a powerful data visualisation tool called QlikView. This enables us to benchmark the performance of the client’s dealers against each other quickly and flexibly, on a nationwide basis, in particular regions or areas, by product, and under several other criteria.
This approach reveals situations where – for example – ‘Dealer A’ is dramatically outperforming ‘Dealer B’ just down the road, enabling deeper analysis of why this is the case. And looking across the country, the solution enables an OEM to clearly identify its top 25% of ‘star’ dealers and bottom 25% of laggards – enabling actions to help the underperformers raise their game.
Depending on our findings and the specifics of their own businesses, our clients take a variety of different steps in response to our analysis. But the great thing is that they can make decisions on the basis of granular, accurate and up-to-date information on the viability of every individual dealer.
One response we see frequently from OEM clients is to put the bottom 25% of their dealers into ‘intensive care’. This approach reflects the fact that with dealer viability – as in so many other areas – preventing problems is better than waiting for them to happen and curing them. So it’s in carmakers’ interests to work closely with any troubled dealerships in their networks, collaborating with them to provide whatever type of help and support they need most – be it marketing assistance, sales expertise, more technical knowledge, or an entire new management team.
Based on our viability analysis, one ongoing action that many OEMs take is to encourage their bottom 25% of dealers to adopt best practices used by the top 25%. PwC can also help by sending in business recovery specialists to help turn around struggling dealers. If the worst comes to the worst, and a dealership is beyond saving, our services mean the manufacturer has the early warning needed to gradually unwind the relationship in a planned way and minimise the fall-out.
All of this means that our OEM clients are increasingly asking us to provide an ongoing dealer viability review service as part of their business-as-usual. This involves us monitoring viability across the dealer network on a rolling basis – and following up with implementation support for tailored interventions as and when the need emerges.
To the casual observer, it might seem that manufacturing cars is simply about rolling them off the production line and selling them to customers at a margin. In fact, as all OEMs know, making a great product is just the start. Without viable sales outlets the factory would eventually shut down. So dealer viability is key – and it’s an area where smart, forward-looking manufactures are focusing ever greater attention and effort.
