Auto dealers pressured to spiff up showrooms

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.