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03-06-17, 04:32 AM

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http://www.autonews.com/article/20170306/RETAIL07/303069961/sales-per-franchise-soften-as-market-rises

Sales per franchise soften as market rises

Dealership count rises slightly from a year ago

March 6, 2017 @ 12:01 am

Stephanie Hernandez McGavin

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BMW brand offers a cautionary tale to automakers who seek to add franchises amid softening sales.

In 2016, BMW added only two franchises, bringing its total to 341. But BMW's U.S. sales dropped 9.5 percent. The double whammy of more franchises and fewer sales dragged average throughput -- sales per franchise, a key indicator of dealership health and profitability -- down 9.6 percent to 922 vehicles sold per franchise.

Asked to comment, Greg Marks, head of center development at BMW of North America, wrote in an email: "The size and locations of the dealer network is strategic, determined by customer convenience and sales potential. Our dealerships have among the highest throughput of new and pre-owned vehicles in our segment.

"The network of BMW Centers is mature, successful and working well."

An analysis of Automotive News' annual exclusive dealership census, compiled by the Automotive News Data Center, shows that average industry throughput slipped 1.3 percent last year, as a small increase in U.S. franchise count outpaced an even smaller increase in light-vehicle sales. But a brand-by-brand tally showed that throughput gains and losses were almost evenly split.

Total U.S. light-vehicle sales edged up 0.3 percent in 2016. The total franchise count rose 1.8 percent to 32,305. That pushed throughput down to 544 vehicles from 551 in 2015.

Marks: BMW’s “dealer network is strategic.”

The overall dealership count in the U.S. did not change drastically. As of Jan. 1, the number of franchised light-vehicle dealerships was 18,251, up 1 percent or 183 stores from a year earlier.

The current dealership count is about 3,500 stores below the pre-recession total of 21,761 dealerships as of Jan. 1, 2007, reflecting both franchise terminations by General Motors and Chrysler related to their bankruptcies and stores that went out of business during the Great Recession.

A franchise is an agreement that gives a dealer the right to sell a particular brand of new vehicles. A dealership is the building in which one or more of those vehicle brands is sold. For example, a single dealership might include four Fiat Chrysler Automobiles franchises: Jeep, Ram, Dodge and Chrysler.

IHS Markit forecasts U.S. vehicle sales will decrease slightly in 2017 to 17.4 million, but Stephanie Brinley, senior automotive analyst at IHS, stressed that IHS estimates sales will remain around 17 million until about 2021. "So while you'll see a slowdown year to year, staying above 17 million is an indicator of an incredibly healthy market," she said.

That fairly steady sales outlook means "remaining stable in dealership count is the solid choice," she said. Brinley noted, though, the adjustments in dealership networks is very dependent on each brand's needs. Some brands, such as BMW, continue to add franchises in markets where they believe they are underrepresented.

Top spots

BMW's fall in throughput last year dropped it behind Mercedes-Benz and Subaru on the throughput rankings. Mercedes' throughput eased to 996 vehicles from 1,008 a year earlier. Its sales inched up 0.4 percent but it added 6 franchises, to 379.
Subaru had a 5.2 percent gain in throughput, to 980 from 932, even though it added 5 franchises. Behind the throughput gain: a 5.6 percent rise in sales.

Honda retook 2nd place in the rankings with throughput of 1,412, up from 1,349. Lexus, which had claimed the No. 2 spot last year, had its throughput decline to 1,398 from 1,460.

Toyota-Scion held onto the No. 1 spot even though its throughput fell 1.8 percent to 1,711. Sales fell 1.7 percent, while the brand's franchise count dropped 1 to 1,237.

Mazda's franchise count decreased 4.4 percent, or 28, to 607. It was the largest decline of any single brand. But Mazda's sales also fell 6.7 percent. So even with fewer franchises, Mazda's throughput slid 4.4 percent to 479.

Tom Donnelly, vice president of U.S. sales and retail operations for Mazda North American Operations, said the automaker will move "away from sales volume as the ultimate indicator of success" as it focuses on brand value management.
"For that reason, we do not have a specific target for the number of dealerships we would like in our network, but are more concerned with the success of those dealerships," Donnelly wrote in an email. "Our focus is now on profitable growth for our company as well as our dealers."

Automotive News' focus on sales per franchise allows apple-to-apple brand comparisons, but ignores some corporate strategies.

Jaguar Land Rover

For example, Jaguar had a slim throughput of 94 vehicles in 2016, up 5.6 percent from 89. But parent Tata Motors is encouraging Jaguar and Land Rover franchises that are geographically close to combine in a single store. As of Jan. 1, only 16 of the 163 Jaguar franchises were exclusives. Add in Land Rover's sales, and franchises, and the combined Jaguar-Land Rover franchises had average throughput of 317 last year, a much healthier total.

FCA's consolidation strategy -- which calls for its Jeep, Ram, Dodge and Chrysler brands to be sold at all of its dealerships -- led to an increase in its franchise count.

Chrysler's franchise count rose 21 to 2,363 as of Jan. 1, while Jeep's count climbed 24 to 2,349. Only 12 Jeep outlets were exclusives, and only 1 each for Chrysler and Ram. As a result, each of the 4 brands has approximately 2,350 franchises.