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Sunday, 22 June 2014 22:00

Minimizing Disruption: Auto dealers renovate showrooms to meet automakers’ specs, work with contractors to slash turnaround

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With 18 stores spread over West Michigan, suburban Chicago, Elkhart, Ind. and Amherst, N.Y., Ziegler Auto Group has seen more than its share of construction as it built out new stores, renovated facilities and added new brands. “We have been under construction constantly for the last 10 years,” said CFO Dan Scheid. With 18 stores spread over West Michigan, suburban Chicago, Elkhart, Ind. and Amherst, N.Y., Ziegler Auto Group has seen more than its share of construction as it built out new stores, renovated facilities and added new brands. “We have been under construction constantly for the last 10 years,” said CFO Dan Scheid. COURTESY PHOTO

Given the brisk pace of new vehicle sales in the past couple of years, auto dealerships can ill afford downtime in their stores as they compete for customers’ attention and dollars.

But while dealerships remain focused on getting new sales, auto manufacturers have demanded that they also pay attention to their facilities, in some cases providing incentives — and in others issuing mandates — to renovate and modernize their showrooms.

With average vehicle sales per store projected to reach an all-time record this year, dealerships must balance manufacturers’ demands with the need to serve customers, sources said. Ultimately, the situation is putting more pressure on contractors working on the renovations to complete them in a timely manner and with as little disruption as possible to the sales process.

“These remodels are a bit of a challenge for dealers because they have to stay in business,” said Chris Veneklasen, president of Grand Rapids-based A.J. Veneklasen Inc., which recently completed a Maserati store for Zeigler Auto Group in Grandville and is in the middle of a full-scale remodel of Tony Betten & Sons Ford Inc. dealership on Plainfield Avenue in Grand Rapids.

The firm will often heavily staff showroom construction jobs to work around dealers’ schedules, Veneklasen said.

Cutting turnaround time

The $630.5 million (revenues) Grand Rapids-based Fox Motors, which operates 19 stores in Michigan and Illinois, worked with Triangle Associates Inc. to pare down turnaround times for dealership renovation projects, said President and COO Diane Maher. For example, Triangle Associates recently wrapped up a renovation project to meet current GM brand standards at the Fox Buick GMC store on Alpine Avenue north of Grand Rapids, she said. The process lasted just 16 weeks.

For Grand Rapids-based Triangle Associates, dealership work typically accounts for 10-15 percent of the firm’s annual book of business, but it could approach 25 percent in 2014, said President Mitch Watt. Triangle has completed 20 dealer projects in the last four or five years, he said.

The contractor recently began construction on Fox Motors’ new 25,000-square-foot Subaru store in Cascade Township. The new facility will be adjacent to the dealership’s existing location as part of Fox Motors’ Delta Imports store that also sells Porsche and Audi. Once the new store is completed, Fox plans “a full showroom renovation” of the existing Delta Imports store location, which will transition to focus exclusively on Porsche and Audi vehicles.

Triangle is also working on the estimated $25 million build-out of Fox’s new Ford-Lincoln store on Chicago’s near north side.

Meanwhile, A.J. Veneklasen has also experienced brisk business with dealership projects, which should account for 5 percent to 7 percent of the company’s business this year, Veneklasen said. That’s down from as much as 15 percent in recent years, he added.

Dealership executives have come to accept that many of the costly renovation projects are necessary to keep up in a highly competitive marketplace.

“We have been under construction constantly for the last 10 years,” said Dan Scheid, CFO of Zeigler Auto Group. “We have recognized that (doing renovations) are just a part of being part of the manufacturer and representing their brand and image.”

In addition to the new Maserati store in Grandville, where the company will also add an Alfa Romeo franchise later this year, Zeigler Auto Group has started construction on a Fiat, Maserati and Alfa Romeo dealership in Schaumburg, Ill. and plans to upgrade a Ford-Lincoln store in Elkhart, Ind. The $644 million (revenues) Zeigler Auto Group operates 18 dealerships in Michigan, suburban Chicago, Elkhart, and Amherst, N.Y., and sells a range of brands including Chevrolet, Dodge, Jeep, Fiat, Maserati, Honda and BMW.

Balancing act

Given the competitive pressures and the current sales environment, the dealerships need to balance their selling activity while also keeping favor with manufacturers by meeting their strict showrooms specifications, sources said.

From the facade of the buildings and the colors of the walls to the furniture used in the waiting areas and other interior spaces, the automakers want uniformity for their showrooms across the country to maintain consistent branding.

“Dealerships are always trying keep up an image,” Veneklasen said, noting each brand has a different set of rules around branding. “It’s our job to make sure we are following the manufacturer’s rules.”

Aside from the need to stay competitive and modernize showrooms, many dealers can access incentives from the OEMs, often in the form of cash assistance, to upgrade showrooms to current brand standards.

Recent programs from General Motors and Ford Motor Co., however, have taken different paths to assist dealers with the costs associated with renovations. A recent GM program, known as Essential Brand Elements (EBE), provided dealers with bonus cash. Smaller dealers typically received $600,000 to $800,000 per year if they participated in the program. Larger dealers could sometimes get double that amount, MiBiz previously reported.

Ford’s Trustmark design program provides a dollar-for-dollar match for a dealer’s investment in upgrades, up to $750,000. Tony Betten & Sons worked through the program on the renovation of its dealership on Plainfield Avenue, said General Manager Glenn Betten. The assistance helped the company completely remodel its original showroom that dates back to 1962 and has seen mild upgrades throughout the years.

“Ford was pushing us to renovate because they want the Ford look,” Betten said. “When they kicked in the money, it was an easy decision to make.”

Overall, the Betten Ford remodel translates into about a $1.75 million project for A.J. Veneklasen, Betten said.

Small dealerships in particular find benefits in the Ford incentive programs, but many still are forced to seek out financing assistance, said Triangle’s Watt. Other manufacturers don’t offer specific programs to help with dealership renovations, although the majority still have standards that must be met, he added.

The costs associated with renovating a dealership also vary greatly, said Maher of Fox Motors. In her tenure at the company, she’s seen a renovation project cost as little as $600,000 or as much as $3 million to $4 million in some cases.

The added expenses in facilities and in the necessary technology required to run a modern dealership — not to mention the cost of training employees on increasingly complex vehicles — favor larger dealership groups that can share back-office resources and spread out thinner margins over higher sales volumes, options single-point mom-and-pop stores just don’t have, sources said.

Preparing for growth

The current pace of] demand for new vehicles also poses a challenge for both dealers and contractors.

Sales in May suggest demand could go even higher than many analysts projected earlier in the year as the seasonally adjusted annual rate of auto sales reached 16.8 million units, the highest rate since July 2006, according to a report in Automotive News.

The attrition that occurred among dealerships in the recession and the relatively flat number of franchises over the last couple of years have led to higher throughput (sales per dealership) for the stores that remain in business.

If vehicle sales hit LMC Automotive’s projections of 16.15 million units for this year, Detroit-based global retail consulting firm Urban Science expects dealerships to “shatter” an all-time high for average throughput with 914 sales per store.

Last year, the dealerships sold an average of 874 vehicles per store, according to the Urban Science report.

In 2013, net profits before taxes increased 10.5 percent compared to the previous year as total dealership sales grew at an average of 8.8 percent, according to the National Automobile Dealers Association (NADA) Data 2014 report.

To handle the additional sales volumes, car dealer groups also increased their hiring 3.4 percent in the last year, the NADA said. In a May report, the industry group said car dealers employed more than 1 million people last year.

Uniformity has pros and cons

As manufacturers ramp up mandates for standardization in their showrooms, some dealer groups have beg’un to push back, according to recent reports. A 2013 study by auto industry consultant Glen Mercer found that while the expansion of auto dealers and service departments can pay off, modernization efforts typically have little return on investment. Standardization, Mercer found, had no apparent benefit to dealers.

However, standardization can make life easier for the construction companies working on the projects, said Watt of Triangle Associates.

“(Auto dealers) are very experience-driven,” he said. “It’s really no different than a Macy’s or a Target. … They are always looking at how to enhance the experience and the image. … We see it as a consistent market for our business.”

Despite some pushback from lobbying groups and other dealers, Zeigler’s Scheid said that the recent ramp up of construction work in the industry shows positive signs from a broader economic standpoint.

“From our perspective, the economy is hot right now and there is tons of business and opportunity out there,” he said. “We have seen the ebb and the flow over the last 10 years. … We feel it with construction right now because construction is hot, and I think that’s a great sign.” 

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