Don’t forget the lessons learned during dealer reinstatement arbitrations 

General Motors has published dealers’ Retail Sales Performance Reviews for the calendar-year-to-date June, 2011. The report has also been posted on GM’s DART website. The Reviews place dealerships in one of five performance categories for the sale of new cars and new light duty trucks, respectively:

• Superior (100 RSI or greater and in top 15% of eligible dealers in the state).
• Satisfactory (100 RSI or greater but not in top 15%).
• Needs Improvement (85 to 99.9 RSI).
• Needs Significant Improvement (84.9 RSI or less but not in bottom 15%).
• Unsatisfactory (84.9 RSI or less and in the bottom 15%).

It is likely that many dealers will glance at their review and then toss it in the trash can. If you are being labeled as any of the following: “needs improvement,” “needs significant improvement,” or “unsatisfactory,” I would suggest that ignoring the report would be a big mistake!

The lessons learned from GM’s bankruptcy dealership terminations and the reinstatement arbitrations that followed are still very much applicable. The primary basis for GM’s termination of a dealer, and GM’s main arguments made to the arbitrators, was the dealership’s RSI performance was inadequate. GM argued vigorously that if a dealer could not maintain sales consistently at 100 RSI, which after all is performing at average, then the dealer should be terminated for failing to meet a reasonable minimum standard for performance. As I am sure all GM dealers have noticed, the “new” GM is no different than the “old” GM — the same company that terminated hundreds of dealers based upon their RSI scores. We should not expect a different approach by GM now.

Those GM dealers receiving a report that listed their RSI at less than 100, in either car or light duty truck, should respond in writing describing the reasons why you believe that the review gives the false appearance of poor sales performance. For many dealers this explanation will begin with a review of dealership inventory and lack of popular product.

Surprisingly, the Retail Sales Performance Review includes details of the number of each model vehicle earned by the dealership through June and how many of the earned allocation was turned-down by the dealership. In review of the allocation numbers included in these performance reports, it can be seen there is a consistent pattern showing that the number of vehicles allocated to those dealers is substantially less than the number of vehicles the reports reflect the dealership would need sell to be at 100 RSI. In some cases, the allocation provided by GM to the dealership is only 50% of the number of vehicles GM says the dealership must sell to be at 100 RSI.

Using GM’s own allocation numbers, dealers need to be replying to the Retail Sales Performance Review laying out the case that GM has failed, not the dealership, in its obligations. GM has to make available a sufficient number of vehicles, which would allow the dealership to meet 100 RSI. If GM is not capable of doing so, this is a prime example of a circumstance out of the dealership’s control that is giving the false appearance of poor sales performance.

In addition to woefully inadequate allocation of vehicles, dealers with a review showing RSI at less than 100, for either car or light duty truck, must consider GM’s recent change to the dealers’ Area of Primary Responsibility (APR) and Area of Geographic Sales and Service Advantage (AGSSA). As I have discussed in this column on a number of occasions, an increase in the size of the territory for which a dealership is responsible, or a change in territory that includes an area for which the dealer does not have the advantage over other same-line make dealers (even if that area doesn’t increase the overall size of the dealership’s APR), will automatically cause a dealer’s RSI score to decrease. Whether or not a dealer challenged GM’s recent changes to the dealership’s APR, if applicable a challenge should be raised in response to the Sales Performance Review. Having a territory assigned to you that is simply too large, or is mis-drawn such that other same line-make dealers are more convenient to the residents of that area than your dealership, is a recipe for a reduction in your RSI which is completely out of your control to correct.

GM dealers having an RSI less than 100, for either car or light duty truck, should also consider whether the use of a state average is fair under their specific market circumstances. There are certainly many states, which have such diversity in consumer preference that a comparison to the performance of other dealers within the same state is unfair. For example, in many metro markets there is a bias by the consuming public toward the purchase of import vehicles. If you are a GM dealer in such a metro market, there is a high likelihood that your RSI score will be below 100 in large part, if not exclusively, because you are being compared to GM dealers in other parts of the state where there is no such import-bias. If there is something unique about the purchasing preferences of the consuming public in your market as compared to other parts of the state, these factors should be set out in a response to GM’s Sales Performance Review.

One additional example of unique circumstances within a dealer’s market and outside of the dealer’s control, which is particularly poignant for GM dealers, is construction of an Essential Brand Elements compliant facility. GM’s RSI formula fails to take into account the disruption caused by construction at a dealership. We have GM dealers who have recently completed an EBE upgrade to their facilities at great cost to them only to have GM send them a Sales Performance Review showing their sales performance is less than satisfactory. These are facility upgrades, mind you, that GM insists that dealers make to their facilities! But for that insistence and the incentives tied to compliance with the EBE guidelines, most GM dealers would not see the need to renovate their facilities. So, for GM dealers who have conducted any significant facility construction during the first six months of 2011 and who have an RSI score of less than 100 in either car or light duty truck, we strongly recommend that a written response to the review include a description of the inconvenience to customers caused by the construction.

We have little doubt that the “new” GM is nothing more than the proverbial “lipstick on a pig” as compared to the “old” GM. Don’t be fooled by the lipstick, new GM would be more than happy to run dealers out of their franchise who they perceive are costing GM lost sales opportunities. GM, like most manufacturers, believes they always know best how a dealership is to be run and uses the arbitrary RSI formula to keep constant pressure on the dealer body without any consideration for a dealer’s specific market circumstances.