Sales Effectiveness: Use, Benefits, and Pitfalls (Part 1)

National Association of Motor Vehicle Boards and Commissions 2016 Fall Workshop SALES EFFECTIVENESS: USE, BENEFITS, AND PITFALLS (PART 2) Joseph F. Roesner The Fontana Group Tucson, AZ Sharif Farhat Urban Science

Detroit, MI Introduction Fontana Group Based in Tucson, Arizona Founded in 1973 Retail Automotive Industry Emphasis Dealers and Dealer groups Heavy Trucks Motorcycles Other Industries Rigorous Empirical Analysis Statistical and Economic analysis

2 GM Performance Standard 3 4 5 Mathematical reality: everyone cant be above average Welcome to Lake Wobegon,

where all the women are strong, all the men are good-looking and all the children are above-average. Garrison Keillor 6 Introduction Urban Science

Founded 1977 Over 900 professionals globally Automotive focus Dealer operations business management Consumer engagement bang for buck Dealer network planning Number / Location / Performance Sales effectiveness 7

Sales Effectiveness Ratings Dealer performance varies Any measure must be consistent Any reasonable measure will show variation good / average / bad / worst Objectively assess dealer concerns Improving performance benefits all consumers / dealer / OEM Reasonable for OEMs to assess and manage performance Dealers are the only option for new vehicle sales

8 Sales Effectiveness Typical Concerns

PMA definition Imprecise/Incorrect Segmentation Topography/Climate Economic conditions Demographic bias (income/age/ethnicity/etc.) Factory / other brand bias (i.e., import/domestic) Number / strength of inter-brand competitors Incentive bias (i.e., lease vs buy) Advertising bias Commuting pattern bias

Allocation Cant sell them if I dont have them 9 PMA Definition GAMMA Hometown Market Example PMA Map Definition of a PMA: geographic area in which a dealer enjoys a

competitive advantage over all other same-line dealers due solely to geographic factors Urban Science, All Rights Reserved | Ni2 2015 Serial Number: 940837 2010 TANA Inc. 2012 DigitalGlobe All Rights Reserved Geog Ref:T - HOMETOWN MARKET ZOOM Example PMAs shown 10

RMA not necessarily PMA GAMMA Hometown Market Example PMA Map 10 Mile Radius RMA Example Definition of RMA (Relevant Market Area) Circle of specified radius Larger of dealer contract area or circle

Community or territory (Florida) or the Market (Texas) must be developed for each analysis Urban Science, All Rights Reserved | Ni2 2015 Serial Number: 940837 2010 TANA Inc. 2012 DigitalGlobe All Rights Reserved Geog Ref:T - HOMETOWN MARKET ZOOM Example PMAs shown

11 PMA Definition Two step process for creating PMAs: How are PMAs properly constructed? Hometown Example By developing their Market geographic

boundaries using an objective and systematic. GAMMA GAMMA PMA Map Initially assign geographic units to the nearest dealer. Adjust for natural and man-made barriers,

trafficHometown patterns, and shopping habits. Hometown Market Example GAMMA Market Example GAMMA Hometown Market Example Hometown Marke PMA Map

PMA Map PMA Map Final PMA Definition Drive Distance Consumer Behavior Drive Time

Air Distance = Urban Science, All Rights Reserved | Ni2 2015 Serial Number: 940839 Urban Science, All Rights Reserved | Ni2 2015 Serial Number: 940833 2010 TANA Inc. 2012 DigitalGlobe All Rights Reserved

Geog Ref:T - HOMETOWN MARKET ZOOM Urban Science, All Rights Reserved | Ni2 2015 Serial Number: 940840 2010 TANA Inc. 2012 DigitalGlobe All Rights Reserved Geog Ref:T - HOMETOWN MARKET ZOOM Urban Science, All Rights Reserved | Ni2 2015 Serial Number: 940838

2010 TANA Inc. 2012 DigitalGlobe All Rights Reserved Geog Ref:T - HOMETOWN MARKET ZOOM 2010 TANA Inc. 2012 D Geog Ref:T 12 APRs and AGSSAs, which are used by GM for the analysis and evaluation of brand, product, and dealer performance, consist of census tracts as defined by the U.S. Census

Bureau. APR and AGSSA configurations are based on numerous factors including, but not limited to, the proximity of census tracts to nearest dealership, highway and road networks, any natural or man-made barriers, and buyer behavior information. 13 14 15

Air Distance in Miles from Dealer A and Surrounding Same Linemake Dealer Locations to APR Census Tracts 16 17 18 Segment Validation 19

Economic Conditions Segmentation adjustment 20 Brand Bias: Import / Domestic Bias 21 Beck Chevrolet Segmentation adjustment 22

Objective Verification US District Court, Southern District of New York Beck Chevrolet v. General Motors, September 2013 Judge Hellerstein: GM uses other indices to check its dealers performance If imports are, as Beck argues, a major impediment to measuring its performance, that should be true equally to the Ford dealer and the Chrysler dealer, but GM shows statistically that that is not so and it is outperformed by Ford and Chrysler in its AGSSA. 23

Beck Chevrolet Import Bias? 24 Beck Chevrolet Import Bias? 25 Beck Chevrolet Import Bias? 26 Factory Bias Normalize Registrations

Confirm factory bias exists o Confirm factory bias is negatively impacting your sales o What level of performance is anomalous?

GM in Buffalo Normalize o Calculate reduction in sales opportunity to account for factory bias 27 28

29 30 31 32 Number of Franchises Line Make Metro State Metro % State Chevrolet 3 71

4.2% Ford 3 63 4.8% Buick 2 57 3.5% Cadillac 2 34 5.9%

Chrysler 2 51 3.9% Dodge 2 50 4.0% GMC Truck 2 33 6.1%

Jeep 2 49 4.1% Mercury 2 42 4.8% Pontiac 2 57 3.5% Saturn

2 4 50.0% Acura 1 2 50.0% BMW 1 4 25.0% Honda 1

9 11.1% Hyundai 1 6 16.7% Infiniti 1 1 100.0% Isuzu 1 3

33.3% Line Make Metro State Metro % State Jaguar 1 2 50.0% Kia 1 6 16.7% Lexus

1 1 100.0% Lincoln 1 25 4.0% Mazda 1 8 12.5% Mercedes-Benz 1

2 50.0% Mitsubishi Nissan Porsche Saab Scion Subaru Suzuki Toyota Volkswagen Volvo Sum

1 1 1 1 1 1 1 1 1 1 4

10 3 2 6 5 6 15 4 1 25.0% 10.0% 33.3%

50.0% 16.7% 20.0% 16.7% 6.7% 25.0% 100.0% 30 536 5.6%

33 Number of Franchises Fewer / Larger VS Greater / Smaller 34

35 36 Advertising Bias Differing Levels of Manufacturer Support Secondary Markets and Media Coverage Does National/Regional Advertising Fit the Market 37 38

39 Allocation get to sell or sell to get When are allocation systems relevant? o Demand > Supply

Role of allocation Equalize Days-Supply o Balance inventory levels to sales rates Faster seller = more effective Slower seller

40 Bates Nissan Trend 41 Santa Cruz Nissan Trend 42 Beck Chevrolet Trend 43

Chrysler Dealer Port Arthur Texas 44 Chrysler Dealer Irving Texas 45 What future holds? NY State Court of Appeals, May 2016

the comparison data must take into account the market-based challenges that affect dealer success. 46 Market-based challenges = Local brand performance? 47 Beck Chevrolet v. GM US Court of Appeals Second Circuit, May 2015 State average does not account for depressed [local] brand popularity

Yet a localized average would doom the brand to mediocrity because it would not encourage better sales in poor performing areas 48 49

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