NEW YORK -- The new flagship Mercedes-Benz dealership here feels more like a Park Avenue boutique than an 11th Avenue car lot.
No tacky plastic flags fluttering over hot asphalt, "low down payment" signs or free hot dogs. The atmosphere is sophisticated and subdued at Mercedes-Benz Manhattan. Cars are sold in a spacious gallery atmosphere of hardwood floors and designer furniture, soaring ceilings and a video wall.
One of the 71 service bays is on display from the sales floor, as if car repair were a form of entertainment. That's part of an effort to make the dealership more "open and transparent," says Alan McLaren, vice president of customer service.
Mercedes-Benz's shimmering new dealership, built and owned by the automaker, is intended to set an example for its hundreds of franchisees. Mercedes wants its dealers' stores to match the luxury feel of the cars. And it's joining industrywide efforts by automakers to pressure dealers into sprucing up, fixing up and rebuilding.
Both foreign and domestic brands — especially sellers of luxury vehicles — are in the midst of a campaign to entice their dealer franchisees to rebuild or remodel to create sparkling new facilities with amenities such as coffee bars and gift shops.
Instead of claustrophobic, linoleum-floored service-department waiting rooms with dog-eared copies of Good Housekeeping or Road & Track, automakers want dealers to create environments where customers will want to hang out as if they were in the corner Starbucks.
But the campaigns aren't a slam dunk. Auto dealers are quick to point out that they are independent businesses. They welcome automakers' ideas but resist edicts — particularly those that would require million-dollar capital investments.
Dealers still in recession recovery
As much as many dealers would like to provide nicer showrooms, they are still feeling the hangover of the recession and snail's-pace recovery. Auto sales, which passed 16 million in the best years, are now only slowly coming back from a bottom at 10.4 million, according to Autodata, in 2009. Most industry analysts already have scaled back sales forecasts for 2011 and now expect the year to end with, at best, 13 million.
To lure dealers into the fix-up campaigns, automakers are offering carrots — and also sticks. Dealers are being wined and dined — Mercedes-Benz took a bunch to Germany for a peek at coming models — and given promises of new products that will justify big investments in bricks and mortar. At the same time, some automakers are cracking the whip, pointing out how the recession and bankruptcies have thinned dealer ranks, so more is expected of those that remain.
The automakers' case is being helped by changing consumer behavior. With so many customers now researching vehicles and pricing online before they come in, it's harder for dealers to turn more than slim profits on new vehicle sales. So they are focusing on trying to make serious money on accessories, maintenance and repairs, as well as on used cars.
The goal is to not depend on buyers who, at best, will return years later for another car. Instead, dealers increasingly want to develop relationships with owners to keep them coming in multiple times a year, whether it is for car maintenance or repairs, to chat with service advisers or just kick tires on the latest new model while grabbing a free cup of coffee.
None of that will happen if the place looks worn and the amenities are outdated.
Building buyer loyalty
Automakers used to judge their dealers by their "customer satisfaction" ratings in surveys. Now they put a greater value on customer loyalty — keeping buyers from defecting to other brands, says Steve Nickelsen, an auto-dealer consultant based in Akron, Ohio.
"To get loyalty, you've got to give them a good experience," says Nickelsen. It starts with the basics: "No one wants to sit in a ratty chair."
When Ernst Lieb, CEO of Mercedes-Benz USA, launched a campaign four years ago to upgrade his 355-dealer network, few of the stores would have fit the ratty-chair category, but he wasn't entirely happy with what he had found. Some stores were in tiptop shape, pinnacles of luxury down to stone fireplaces and putting greens for customers killing time during a tuneup. But other locations felt tired. "We had an inconsistency in the dealer network," Lieb says.
As part of the carrot approach, Lieb moved to have Mercedes set an example, starting with the corporate dealership, its only one in the U.S., that it operated in New York City, just across the Hudson River from its U.S. headquarters. "We told our dealer body, 'We're going to put our money where our mouth is,'" he says.
The result is the recently completed $220 million overhaul of Mercedes-Benz Manhattan into a five-story luxury superstore.
Flat-screen TVs in the service area show a customer the name and picture of the technician working on their car. Video cameras cover the service bays. And then there is the car being serviced in the bay on display from the sales floor.
"For lots of years, there has been this sense of mystery about what happens with servicing," McLaren explains. "There is nothing to hide."
BMW isn't far behind. Mercedes' German archrival is building a $67 million dealership in Manhattan. The Mini portion opens this year and the BMW part next year.
The goal here, too, was to be a model. "It is important to show our dealers we are putting our money behind it," says Jim O'Donnell, BMW's U.S. leader, and, he adds "to present yourself well."
Such coaxing apparently is working. BMW's dealers have spent more than $400 million on improvements "even in the darkest days of the recession," says Tom Kowaleski, chief of communications.
Not just a luxury trend
The industry trend is not limited to luxury automakers. Chrysler Group has built a high-profile dealership for all its brands near downtown Los Angeles, about a mile from the Staples Center, home to the NBA's Lakers and Clippers.
It features glass boxes on one side to show off various models to motorists whizzing by on the Harbor Freeway. Inside, it has an area for each brand, including one of the most design-forward Fiat 500 "studios," as the fashionable Fiat brand likes to call its showrooms. But in Chrysler's case, good intentions backfired when the automaker's independent dealers objected under state franchise laws to the automaker moving in on their turf. Now the state is investigating as Chrysler seeks a buyer for the store.
Both Ford Motor and General Motors, which have trimmed their dealer networks in the past few years, are tying comebacks for their upscale brands to more-premium stores. Ford has demanded that its Lincoln dealers spend millions to upgrade their showrooms with a modern look to showcase what it promised them would be a relaunching of the brand with seven new or significantly refreshed models over three years.
"It's got to be really tough for some dealers," says Beau Boeckmann, whose family runs Galpin Motors in Los Angeles, which also includes the world's biggest-selling Ford dealer. "We went for it, and not all the dealers did." He says that the family had already made 85% of the required improvements to its Lincoln dealership.
"We will be spending some money, but we really did the Lincoln design nine years ago," says Boeckmann, best known around the country as the former ringleader of MTV's Pimp My Ride series.
'The company Kool-Aid'
Dealer Richard Bazzy in Wexford, Pa., says the retrofit to his Lincoln dealership will cost about $2 million — and to some extent, that galls him.
What's to keep every future CEO at Ford from ordering another set of improvements, he says? He notes his facility is just 10 years old. And he disagrees with the premise of requiring upgrades for Lincoln stores without the same requirements for Ford facilities. "I don't think a Ford customer wants to be treated any differently than (one at) Lincoln," he says.
But he has agreed to the renovations insisted upon by Ford. "I drank the company Kool-Aid," he says.
Likewise, GM has embarked on a massive program to spiff up all its dealers, but especially Cadillac. The grand Caddy design template, unveiled in June, calls for limestone tile and aluminum exteriors, theatrical lighting for vehicles inside, a coffee bar, art and designer furniture.
"The new showroom greets potential buyers with a look and feel that puts us at the top of the luxury market," says Mike Mosser, general manager of Suburban Cadillac of Ann Arbor, Mich., the first dealership to complete the overhaul.
GM's new look doesn't stop with Cadillac. The automaker is trying to entice dealers for the rest of its pared-down roster of four brands to tear down and rebuild.
At Taylor Chevrolet in Lancaster, Ohio, brothers Milt and Martin Taylor say they've gone above and beyond with renovations in hopes of increasing business up to 30%.
"It's going to be a 'wow' factor," Milt Taylor says. "We are trying to create an atmosphere where people are encouraged to hang out."
To foster that, their customer waiting room alone will be three times the size that GM had called for, and will have big flat-screen TVs and a stone fireplace.
In this example of the new world of car selling, customer waiting areas, he says, will be "like a cross between a Starbucks and an airport executive lounge."