Brokering a deal
An individual who works for one of the RV industry’s manufacturers alerted me to a situation he said is changing the way RVs are sold and straining OEM and dealer relationships.
Apparently, sales of RVs have fallen so much in the last year, that some manufacturers (at least one) are shipping units to dealers on consignment. The dealer doesn’t have to carry the unit as official “inventory” because the title remains with the manufacturer. But, the manufacturer doesn’t get paid until the sale is made. When the sale is made, the dealer keeps a percentage and the rest goes back to the manufacturer.
Consignment has been in place for years with the sale of used RVs — and many dealers have reported tremendous success doing so. Having consignments on the lot builds traffic for the dealer. The seller doesn’t incur any expenses in trying to advertise the RV or any hassle in making lots of appointments to show the unit. The dealer can make money on financing, insurance and add-on parts and accessories. Some dealers also make money by getting the used RVs into saleable condition and buyers have more peace of mind purchasing an RV from a dealer than a private party. So consignment works for everyone.
But when it comes to selling new units on consignment, this sounds like a new development for which I can see pros and cons for manufacturers and dealers.
For dealers, the big advantage is that they wouldn’t have to pay floorplanning costs for units sold on consignment. They could stock their lots with many more RVs without having to make a huge investment. Plus, they could still enjoy all the other advantages associated with selling F&I and add-on products with the new units. For states that tax inventory as part of property taxes, I suspect consignments wouldn’t count in that regard and that would save dealers even more.
For manufacturers, one advantage to consignment is that they keep their shipment numbers up, which would keep investors, analysts and board members happy. Another advantage is that they can keep assembly lines operating by building the spec units. Rather than risk laying off good workers who never return, the manufacturer can keep them busy and give them a paycheck.
But that all sounds risky to me. A manufacturer must pony up the cost for materials and labor to build an RV, then pay to ship it to a dealer. If the OEM doesn’t get paid until the unit is sold, where does the company get the money to buy more materials and pay for laobr to build new units? Are banks financing these types of arrangements? Some RVs can languish on the lot for months or even a year before the right buyer comes along. Is there enough profit built into the units that a manufacturer can afford to wait 120 to 180 days for payment?
But, if a manufacturer works out the deal so that it gets a higher percentage of profit off a consignment sale than it would a traditionally financed sale, perhaps there is some added incentive for OEMs to move units through consignment.
Yet, if a dealer doesn’t have any “skin in the game,” is he sufficiently motivated to move consignment units at a speed comfortable to a manufacturer which bears most of the risk?
Perhaps these are arrangements in which dealers get something like “30 days free financing,” so if the unit isn’t sold in a month, then the dealer has to take out a floorplan loan.
The manufacturer who alerted me to this problem also noted his firm has seen an increase in the number of consumers sent to the plant to walk through units that haven’t been dispatched to the dealership. By becoming the de facto salespeople and making features and benefits presentations, the OEM staff is tasked to “sell” a unit that may not be in presentable condition. What if the buyer wants to see additional models? How much time should factory reps spend doing sales jobs with potential buyers?
Most manufacturers encourage factory tours. They want to show off their ability to produce quality units and help build relationships with end users. Some manufacturers even allow consumers to take a factory delivery for sales worked out at dealerships.
But this appears to go beyond that and it may be a byproduct of allowing dealers to sell units on consignment. Now, rather than stocking and selling units himself, a dealer can send prospective customers to the manufacturing facility, have them walk through a consignment unit and get a features and benefits demonstration on-site from a factory rep. Then, when the customer is ready to buy, the unit is basically shipped to the dealer for titling in the new owner’s home state and the dealer collects a consignment profit.
This whole issue could evolve into some type of franchising system where dealers basically become delivery sites for a manufacturer’s corporate stores. I doubt anyone in the industry would want to see that happen.
August 7th, 2007 at 12:42 pm
Greg, I suspect that the manufacturer who is consigning had a large yard inventory just stting there. One could argue that it is better to have product on the dealers lot where the public can see it… but only as a temporary measure to help reduce inventory.
A better plan is a strong IR program similar to what Roaodtrek offers: 90 days free flooring works for us!
August 6th, 2007 at 6:43 am
Logic works against this method of selling large ticket items that require some measure of communication with a prospect before the sale. Think about it, if a dealer has Brand A on consignment, Brand B on a floorplan, or Brand C that he/she paid cash for - which one do you think they are going to sell first? it sure won’t be the one on consignment, that’s a freebie and they will have no incentive whatsoever to move it over one that is costing, or has cost them, real money.
Unless this was the norm (and it isn’t) for the entire industry, then a legitimate dealer would not want to participate in this kind of arrangement. If this same manufacturer also sold to Internet bandits (no brick and mortar to support their selling efforts) then it would be the first one I drop when business slows up a bit.
August 4th, 2007 at 9:35 am
Sun-Line tried this not too long ago, where are they now????
August 3rd, 2007 at 4:49 pm
A properly trained and motivated sales department will make the first sale, but it’s the service department that’s going to make that second & third sale possible. Most manufacturer’s know this, and value legitimate dealers that educate customers on it’s products, while making sure that a through make ready is done. Skipping these steps only comes back haunt manufacturer’s in excessive warranty claims, and compliants. Fact is: we need “brick n’ mortar” dealerships to help us grow and service our future cutomers.
I have never heard of consignments by manufacturer’s except when financial trouble existed or to prevent buy back stituation from a dealer. Both cases (late 70’s early 80’s) were temporary, and seemed to make sense for them at the time. In general; Consignments from manufacturer’s is more rumor than fact.
There are plenty of legit manufacturer’s that won’t sell to internet only dealers. Why would any dealer do business with those that do?
August 3rd, 2007 at 11:27 am
I can see where this would give the dealer some advantage
but I would wonder what would happen to the smaller OEMs
because they couldnt afford to finance the dealer inventory. I think this has been going on with some of the Mega dealers for some time. Stories have been told of Mfgs sending inventory out on consignment for the last
20 years. However no one wants to talk about it.
I know that the mega dealers will kill all of the smaller
dealers on pricing new units, but they can not service those, because they are going back to some other dealers
area. Now, when they come whining up to the service dept.(that we provide) and want us to feel sorry for them
because they have a problem, and promise to buy their next unit from us, If only we will take them on out of the goodness of our heart. (we only lose the profit on
the sale) and the difference between retail labor and warranty labor. I am sure when pigs fly they will buy from us. Most all of these mega dealers have loaded them
up with Full extended warranty, tire warranty ect on a 20
year payback with nothing down and 120 % finance off invoice. So after 16 or 17 years, maybe they can trade.
So keep the faith, fellow dealers and maybe this will happen.
August 3rd, 2007 at 11:00 am
Yes the internet is getting stronger each day but are we as dealers asking for a major problem for the future, just as long term financing created years ago, and is making trades payoff’s a problem of today.
NO the manufactures are not doing anything to help us the smaller dealer build our business because most of them will not take a strong business posture on warranty issues. Most of them want to say no to 85% of the claims and then the dealer has to spend money to prove to them that they built the unit with the problem and they don’t want to stand the expense of fixing that problem and yet when they say they do the next unit that comes in has the same problem and more. This statement is easy but what is the answer to the problem. We need the RVIA and the RVDA to address the problem and make the RVIA set major standards for each of the members, and if they don’t then they need to pay large fines or not have RVIA approval them to build anything.
August 3rd, 2007 at 12:02 am
Greg;
I think this is the future of the internet dealers.
This allows them to become brokers for the manufacturers and continue to eat away at the legitimate dealers.
With no inventory cost (it’s the O.E.M.’s), no insurance needs, minimal advertising, literally no staff needed and little if any infrastructure, they have no overhead.
We’ve had manufacturers over the years that had their own outlet stores, but that didn’t work.
If anyone goes to Elkhart, there is an internet seller that has a small shop just around the corner from one of the big, up and coming manufacturers, just off the Indiana Toll Road and Hwy 19.
This “dealer” is nothing more than a broker for the manufacturers and would (or does) benefit greatly with this consignment agreement.
This arrangement, if allowed to persist in our industry, will make this “dealer” more money than any of us could possibly imagine.
Yes, I know, we can all sell ourselves and our dealerships; but don’t kid yourself. With no brick and mortar, no overhead, he will change the way people perceive an RV should be purchased.
Gosh, he won’t even have to go to all the recruiting trouble and expense of buying the pizza and beer for my shop guys when they’re at school in Elkhart.