I'll believe it when I see the pro-forma

Samizdata's basic point is sound and I think unquestionable, if I understand it correctly:

You tend to get more of what you reward, and less of what you punish.

Even the most die-hard liberal should be able to accept that one.

But.

But the example offered as evidence that something is awry is anecdotal and unconvincing to me:

The repair and service department at the Subaru dealership in downtown Madison is incredibly decrepit and run down, even though Subarus sell like hotcakes in Madison and the place is always busy. I mentioned this to the manager, and he told me that they had not done any work on the place in many years, even though it cost them business and made it hard to keep good workers. Reason was, any renovation would trigger a raft of regulations that would require environmental testing, remediation, handicap access, sound reduction, etc. ad nauseum, which would cost more than the dealership is worth.

As I said, I'll believe when I see "the numbers."

Of course it could be something endemic to Subaru dealers. I had a Legacy LS for ten years --- absolutely great car and the only reason I traded it in was that I thought I needed to be driving something more pretentious --- but the dealer (in Seattle) always struck me as a bit under-invested in its infrastructure. But boyo, were they ever busy!

Comments

[Bob Frederick]

For this to make sense, it helps to look at the economics of modern American automobile retailing. Most car dealers make little or no money on new car sales--their profits largely come from services such as parts and accessories sales, repair & maintenance, new vehicle financing, and used vehicle sales.

When you review the departmentalized P&L statement for a new vehicle dealer, it's common for the New Vehicle Sales department to show little or no profit. The profit is all in the other departments, particularly in financing, service, and used vehicles.

If the service department of the Subaru dealership was a separate business, it's likely that there would be sufficient profits to undertake the necessary renovations. But since the profits from the service department are used to subsidize the new vehicle department, the money just isn't there. The auto dealers who do invest in renovations of the type discussed here usually do so based on personal and social motivations, rather than business reasons.

While a few car dealers make a great deal of money, the average dealer would make more by investing elsewhere--the return on investment just isn't there in automotive retailing. (They stay in the business because they love it or because they don't know how to do anything else.) It's an industry truism that many, if not most, car dealers generate the largest amount of their personal wealth from related real-estate transactions, as opposed to business income.

The industry response to this ROI problem has been towards economies of scale, hence the proliferation of chains and publicly-held dealership conglomerates like AutoNation.

(Caution: credentialism ahead)

I've spent twenty-five years consulting with automobile manufacturers on retail distribution, in the course of which I've visited, surveyed, and photographed well over a thousand car dealerships worldwide, and had access to the consolidated financial statements of thousands of domestic and foreign car dealers. (The variances in domestic versus foreign balance sheets are particularly interesting, given the different retailing and financial issues in other countries.)

The firm I was with the majority of that time had over twenty full-time architects on staff, designing dealership facility programs (both greenfield and renovation) for domestic and foreign automobile manufacturers, and occasionally for individual dealers. Although these included a sprinkling of "icon" architects concerned with making a statement, most were very realistic about the financial and functional constraints of dealership design and renovation.

When you are planning a renovation program for five hundred dealerships, you very quickly learn a great deal about the impact of regulation on renovation. Regulation often made it less expensive to relocate and build new than to renovate. As a Christopher Alexander fan, and someone interested in New Urbanism, I spent a great deal of time in off-line discussions on these issues.