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Efforts to Improve Efficiency In Automotive Retailing Losing Ground

5 February 1999

PricewaterhouseCoopers Says Efforts to Improve Efficiency In Automotive Retailing Losing Ground

    DETROIT, Feb. 4 -- Despite higher profits in automotive
manufacturing and retailing in 1998, the industry is heading in the wrong
direction when it comes to improving efficiency at the retail level, according
to "Measuring the Automotive Retail Revolution," a new report by
PricewaterhouseCoopers, the world's largest professional services
organization.
    "Without a doubt, there is a revolution in new vehicle retailing," said J
Ferron, PricewaterhouseCoopers LLP partner, in Detroit.  "However, the
industry is slowing its own progress by continuing to 'push' vehicles into the
marketplace that are supported with heavy sales incentives and by rewarding
traditional practices instead of the new retailing practices everyone says are
needed."
    The report, published today, offers comprehensive analyses of current
retail practices and efforts to improve efficiency.  It also discusses
evolving retailing scenarios that have been directed at reversing the negative
trend.
    The report declares that adding incentives masks mis-forecasts, mis-orders
and mis-payments, slowing real progress toward a truly effective vehicle
"pull" system.  Such incentives impair the very distribution and retail
changes that are needed to improve customer relationships and engender
customer loyalty.
    To measure retailing efficiency and its trend, PricewaterhouseCoopers has
devised an Automotive Retail Barometer (ARB) that captures the degree to which
marketing costs, relative to a vehicle's selling price, deviate from target
levels based on macroeconomic and industry variables.  The concept of ARB and
how it was used to gauge retailing efficiency over the past three years is
detailed in the 12-page report.
    ARB basically compares the price that people are willing to pay for new
cars and trucks with costs associated with the transaction.  ARB also measures
how effective the distribution process is in linking consumer demand with the
industry's ability to meet that demand.
    "Given the facts that over the past seven years, 1,600 dealerships have
gone out of business and new vehicle sales at the average dealership jumped by
180 units, you'd expect to see positive results," said Herb Walter,
PricewaterhouseCoopers partner who, along with Ferron, authored the report.
"Surprisingly, the industry actually reversed direction at the retail level."
    Added Ferron, "For an automotive retailing approach to be truly effective,
it must be consumer-centric and have the flexibility in organizational and
product assembly and delivery to function effectively in multiple distribution
channels simultaneously."
    Other significant findings and comments in the report are:

    *  "Mom and Pop" dealerships that provide personalized service not
       practical in larger retail formats will continue due to market demand
       and supports.
    *  One or more non-automotive retailers will leverage economies of scale
       and customer focus to challenge traditional retailers.
    *  Market share increasingly will be determined by the manufacturer's
       ability to manage the transaction price and brand experience rather
       than the dealer's.
    *  E-commerce will continue to grow in importance for sales, service,
       financing and every other aspect of new vehicle owning.

    PricewaterhouseCoopers, the world's largest professional service
organization, helps clients build value, manage risk and improve their
performance.  Drawing on the talents of more than 146,000 people in
148 countries, PricewaterhouseCoopers provides a full range of business
advisory services to leading global, national and local companies and to
public institutions.  These services include audit, accounting and tax advice;
management, information technology and human resource consulting; financial
advisory services including mergers and acquisitions, business recovery,
project finance and litigation support; business process outsourcing services;
and legal services through a global network of affiliated law firms.
    PricewaterhouseCoopers refers to the U.S. firm of PricewaterhouseCoopers
LLP and other members of the worldwide PricewaterhouseCoopers organization.