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Automotive News - Mercedes dealers get relief on renovations

 
Mercedes dealers get relief on renovations
10-year buffer aimed at easing tensions over Autohaus standards
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 Automotive News | February 20, 2017 - 12:01 am EST

A pledge by Mercedes-Benz to give U.S. dealers a 10-year moratorium on making facility changes is unusual.

Mercedes-Benz dealers, once they've updated their stores to the brand's second-generation Autohaus image standards, won't be required to make more changes to their dealerships until January 2024 at the earliest.

The pledge, announced this year to the Mercedes dealer network, is unusual. It follows the contentious launch of the original Autohaus standards in 2008. That initiative kicked off a period of tension in which dealers of many brands objected loudly to automakers' demands for dealership image changes.

Work on the 2024 pledge was initiated under former Mercedes-Benz USA CEO Steve Cannon, who left the company at the end of 2015. But the brand's current U.S. chief says he's fully behind it.

"It was the right thing to do," Dietmar Exler told Automotive News. "There is no backtracking from that. We've made a commitment to the dealers."

The reasoning for the 2024 timing is that the first dealerships to convert to the second-generation standard, also referred to as Autohaus2 or Autohaus Black, launched in early 2014, Mercedes spokeswoman Donna Boland said. The intent is to provide a 10-year cushion.

Most of Mercedes' 379 dealerships have yet to complete Autohaus2. Dealers were required to submit renovation plans to the company by last Sept. 30. Work is to be completed by June 30, 2018.


Exler: "It was the right thing to do."

State statutes

With the move, Mercedes takes a kinder, gentler approach to dealership image standards. The brand's dealers generally applaud the move. They also note that Mercedes was bound to certain time restrictions in some states because of a wave of franchise law changes that passed this decade.

"Mercedes hit the sweet spot," said Jeff Aiosa, a Mercedes dealer in New London, Conn., and the brand's line representative for the National Automobile Dealers Association. "Ten years is a good number for the state statutes across the country."

The Alliance of Automobile Manufacturers estimates that 13 states have passed seven- or 10-year limits on how often manufacturers can demand dealership updates. At least one state, New Hampshire, has a 15-year provision.

It's a common issue in state franchise law fights, alliance spokesman Dan Gage said. The alliance would prefer no time limit, he added. If one is inevitable, the automakers favor seven years "but have accepted 10 years in state-specific negotiations."

Though the law in many states spells out a minimum period between dealership updates, automakers rarely provide them unless required, dealership experts said.

Dealer lawyer Mike Charapp of McLean, Va., called the Mercedes move unusual but not surprising.

 
Autohaus rollout
Here are key dates and details in the Autohaus image standards for Mercedes-Benz dealers.
• Autohaus launch: Jan. 1, 2008
• Autohaus original program end: Dec. 31, 2010
• Cost for original program: $1.4 billion total spending from dealer network
• First Autohaus2 dealerships launched: Early 2014
• Deadline to submit Autohaus2 plans: Sept. 30, 2016
• Deadline to complete Autohaus2: June 30, 2018
• Estimated average cost to complete Autohaus2: Undisclosed but less than for original
• Earliest changes would be required beyond Autohaus2: January 2024
Source: Mercedes-Benz USA, dealers, Automotive News archives
 
 
 

Earlier tension

Some dealers who were late finishing the first round of Autohaus improvements likely come under the protection of the updated state statutes. In 2011, Virginia, for instance, adopted a 10-year provision.

"The commitment is probably part of the sales effort by MBUSA for dealers who can claim state law protections by giving them comfort if they go along with the latest plan," Charapp said.

Mercedes didn't get such buy-in during the first iteration of Autohaus.

Many dealers objected, saying it would require them to raze perfectly fine, even luxurious, facilities at a cost of many millions of dollars. Some had only recently completed expensive new dealerships or expansions, but their updates didn't fit the sleek, contemporary styling prescribed by Autohaus. That the timing coincided with the dramatic falloff of auto sales during the Great Recession compounded dealer worries.

Sonic Automotive Inc. even filed a lawsuit in 2008 against Mercedes over the demands before settling with the company in 2012.

The exact costs for the original Autohaus are unclear. Mercedes says its dealers put a total of $1.4 billion into facilities as part of the program, and previous estimates in Automotive News put the per-dealership cost at $4.7 million for the roughly 300 stores that had agreed to renovations at that time. Boland, the Mercedes spokeswoman, said that per-store figure isn't a good number but declined to provide an updated figure.

Today, five or six dealerships haven't upgraded to the original Autohaus look, Exler said. He described them as small stores in rural locations that may be dualed with other brands. "It's a tough economic case" for those dealerships to spend the money, he said.

Regardless of the earlier cost, Autohaus2 won't be on the same scale, Boland said. For many stores that were updated to Autohaus, it means changing out paint and carpet and refinishing some furniture. "For others, it is more substantial, but overall, we expect much less investment necessary from the network," Boland said.


Walser: "A fair time frame."

Support from dealers

Mercedes proposed the Autohaus2 changes this decade but put a required update on hold for U.S. dealers even as Mercedes dealers in other countries were asked to move to the design earlier.

Dealer Paul Walser, who last year acquired Mercedes-Benz of Wichita in Kansas, praised the 10-year pledge by Mercedes. "That's a fair time frame," said Walser. His Wichita store moved to a new Autohaus facility in late 2013.

The Mercedes-Benz Dealer Board supports the 10-year pledge.

"Dealership facilities have gotten terribly expensive in the last 10 or 15 years," said Ken Schnitzer, a Texas dealer with four Mercedes stores and chairman of the dealer board. "It's impractical to ask dealers to renovate their facilities in any time frame less than 10 years."

 
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