The automotive industry is a tricky business. Automakers offering the right product at the right price is a big step in the right direction, but not a sure fire formula for success. Beyond product, other factors are key to an automaker's success, including a strong and capable dealer network.
Yet in China - now the largest and most important in the auto market in the world - the vehicle distribution system remains a work in progress.
The build-out of retail infrastructure with independent dealers is a top priority for each and every automotive company competing in China today. As anyone familiar with network development knows, this is not an easy process. The process starts by determining the optimal dealer locations - an art unto itself - then turns to the search for capable dealers in targeted locations.
Automakers search for dealers that are willing to invest their private capital and take the risk of private enterprise while at the same time be willing to adhere closely to strict guidelines set out by the company. They search for entrepreneurial personalities with good management skills, and the financial strength to withstand the ups and downs of a cyclical industry.
The right dealers
Of course, it's not easy to find an entrepreneurial personality willing to closely follow company rules - but that is the challenge facing the dealer development manager in China.
Successful companies work to build strong and trusting relationships with their dealers. After all, with an independent dealer, a manufacturer is asking an outside company to handle some of the most important responsibilities along the distribution chain.
Consider that a dealer is the main contact point between manufacturer and the would-be buyer of its products. A bad experience for shoppers at the dealership means the potential for making sales rapidly deteriorates.
Automakers look for dealers willing to invest wisely in a physical site that represents the personality of the brand, and to maintain the site in good condition. They ask their dealers to invest in an inventory of vehicles and an inventory of parts, and to carry the responsibility of cost until the product is sold on to the customer.
Automotive makers want dealers to be their eyes and ears on the ground in specified territories, to provide market feedback and to build relationships with the community.
Dealers are asked to understand - and take great care to communicate to customers - the strengths of the manufacturer's products. Manufacturers seek dealers willing to place customers on a pedestal, to provide the customer an experience beyond the simple transaction.
And manufacturers look for dealers that will be as concerned about customers after the sale as they are before the sale. A vehicle requires ongoing maintenance to continue to perform at an optimal level. A manufacturer wants its customers coming back to its dealer network for the opportunity to sell spare parts, but also to continue the existing relationship. All things being equal, it requires less effort to keep a customer than it does to conquer a new one.
Auto companies spend enormous effort on the search for dealers that look beyond short-term profits and strive to deliver a top level of service to customers - with good reason.
Customer satisfaction studies conducted by JD Power and Associates indicate that a high level of customer satisfaction with dealer complements the strength of a brand's product, and encourages car owners to endorse the brand to prospective buyers.
To emphasize to dealers the importance of customer satisfaction, manufacturers expect rising scores from dealers in customer satisfaction tracking studies and invest heavily in performance improvement programs. Frequently, higher margins accompany higher scores on customer satisfaction studies.
Dealers are independent businessmen. Their main goal is to make money. For most Chinese businessmen, that means making money today. A long-term perspective is only slowly taking hold among dealers as their confidence in the brand and the overall system rises.
While the manufacturers are selective in the dealers they choose, the capable dealers can be selective in the brands they choose. Dealers want to represent brands that help them build their business. Strong products are a must, along with fair margins and importantly other types of support systems.
Another recent study by JD Power and Associates that looks at dealer satisfaction with their brands found that dealers cited manufacturers support as the leading factor contributing to their satisfaction or dissatisfaction with the brand. Dealers want more organizational support as they learn the business of selling cars and servicing customers.
The author John Bonnell is the senior director of JD Power Asia Pacific Forecasting.