Dealerships, Free Access Articles

TOYOTA NZ, market leader in the Shaky Isles, has taken the bold step of moving from a franchise dealer business model and has now appointed its dealers as agents for the sale of new cars.

Toyota has 35 dealers in New Zealand run by 25 owners.

The move, which started on April 1, is designed to completely realign the relationship its dealers have with their Toyota customers and allows the company to set the same price for its cars across the whole of the New Zealand retail network.

Under the arrangement, similar in some ways to one introduced by Honda NZ two decades ago and still in use, Toyota owns the stock for sale and holds the stock. Delivery to the customers takes place once a purchase is made.

Toyota NZ managing director and CEO Alistair Davis

The arrangement, 10 years in the making, eliminates the need for dealers to buy stock from Toyota, hold stock and then sell the vehicles to customers – hopefully at a profit.

Instead dealers, or agents, receive a fee-for-service from Toyota on the sale of a car. The fee is paid immediately.

The new arrangement will see the end of massive volume target arrangements which are so disruptive to dealers and the reason for so much angst with customers.

The cars are held in compounds in Auckland, Wellington and Christchurch and most customers will get their cars delivered within one and two days of purchase.

The arrangement only applies to new cars, while all other aspects of the Toyota retail business remain under the traditional dealer-factory arrangements.

The dealers make very large savings by not having to fund the stock. The arrangement eliminates the freight cost of swapping stock between dealerships, which is “huge”.

Toyota will make very large savings by avoiding the cost of hundreds of thousands of dollars in monthly and quarterly incentive bonuses. The company says its cost savings will help to make its driveaway prices more competitive.

The change follows extensive research of Toyota customers who came up with a series of what Toyota NZ calls the “bothers” they had with buying a car from Toyota dealers.

In discussions with dealers it became clear that many of the problems customers had with the car-buying process were due to the systems and processes that traditionally existed between dealers and the factory.

For example, the company has limited or dramatically reduced or dramatically simplified many of the incentives bonuses that are a normal part of conventional dealership operations.

Toyota NZ managing director and CEO Alistair Davis told GoAutoNews Premium: “Sometimes those incentives are designed with the best of intentions but they end up creating some perverse behaviours.

“So part of the debate over the past decade with dealers was about how do you keep the good bits of those incentives and eliminate the bad bits.

“There is a tendency sometimes in trying to develop these strategies that one side can throw rocks at the other side and say, for example, that the customers are not happy with dealer performance. But dealers can then say that the reason we do that is because you create an incentive that makes us do that.

“So we have had a very frank and open relationship with our dealer network to get us to this point.

“We have all worked our way though issues to find ways that we need to change to deliver a better result for the customer.
“For example, the amount of money that was tied up in volume incentives. We used to run volume incentive programs that would mean the last vehicle sold that month could be worth tens of thousands of dollars to a dealer.

“So they could be inclined to almost give the car away because it got them to their final incentive. All that is gone. So now a dealership might have a difference of $100 on getting a particular target.

“So we have softened all of that sort of stuff because it created such adverse behaviour.”

What were customers telling Toyota NZ?

Mr Davis said there were six “core bothers” Toyota NZ needed to address.

“The price haggle was one of them, and the pressure of the hard sell,” he said.

“We identified that part of that was because the dealer is always wanting to push the stock that he has on hand and not necessarily push the whole range available,” he said.

“So we have taken the stock away from the dealers. There is now no new vehicle stock at a dealership. This has been replaced by a demonstrator fleet which is owned by the dealers.

“The second bother. The inability to find the right car to buy when you walked into a dealership – remembering that our dealerships are much smaller than Australia’s. So we have addressed that with a much more sophisticated website which allows people to build their own car in terms of accessories, colours and so on.

“The third bother was the test drive. Test drives were too often rushed and they turn into a stress drive because often cars are so complicated these days you don’t get a chance to understand what it’s about while you are driving it.

“So we have doubled the number of demonstrators in the dealerships so each dealership now has pretty much a full range of cars to drive. The dealers own these cars but they cannot sell them straight away. They must keep them for three or four months.

“Test drives can now be conducted over 24 hours and, while we did have 24 hours test drives available, they were not really promoted. So we are now marketing them. So there are more options for taking test drives.

“Under haggle-free pricing, buyers will know the price of the car they want from the website.

“This is to avoid all the rigmarole customers go through at the dealership in order to find out the price. Customers know that price right from the start.

“That price can vary although we don’t intend to vary it very often. Our intention will be to maybe vary it every few months depending on what the (market) circumstances are. That price is also a Toyota driveaway price. There is no recommended retail any more,” Mr Davis said.

The driveaway price contains all statutory on-road costs and includes floor mats (which Toyota, for safety reasons, supplies to ensure they are correct mats for that vehicle), a service package and a full tank of fuel plus the first 1000km of road user charges which are levied on diesel vehicles in NZ.

There are three tiers of pricing for fleets. These are not published on the website but when a company qualifies as a fleet it will be provided with a list of fleet prices. The levels are based on the volume of cars in the fleet and the volume of cars they buy from Toyota – not dissimilar to how Toyota operates in Australia.

The fifth bother was what happens if buyer remorse sets in so the new deal includes money-back options. Essentially if a buyer is not happy, Toyota NZ will hand their money back.

The car can be handed back within seven days providing it is still in as-new condition and has been driven less than 500 km. Toyota will give the money back although the company says that it cannot guarantee it can restore the purchase to exactly the same conditions because, for example, the trade-in might have been sold by then.

“The sixth bother is addressed with a service plan package, which is very similar to Toyota Australia, which we are calling Toyota Care Service Advantage,” Mr Davis said.

“This offers a guaranteed price of service over the first four years or 60,000km covering all manufacturer scheduled servicing. This is partially subsidised by the (purchase) price and varies by engine size, fuel type, hybrid and includes AA roadside assist and warrants of fitness (roadworthy inspections).

“If the customer keeps coming back to Toyota dealers for service they will, after three years have their warranty automatically extended to five years. We have a lot of confidence that if we are servicing the car then it will be okay.”

How will dealers be affected?

Under the agents model, dealers are paid a fee from Toyota for selling the car.

“The fee is a dollar-based number. It is not a percentage of the vehicle price. They will get a better fee on a LandCruiser than they will on a Yaris but basically is is all on a dollar-fee basis,” Mr Davis said.

“There is no margin in the car any more. They are now agents that are paid a fee-for-service.

“We have done a lot of modelling with our dealer network and I think that we and they are pretty confident that this will result in an improved return on investment for them.”

Mr Davis said as agents, it “pulls the momentum away from arguing about price to being much more focussed on whether it is the right product for that customer”.

“This is why we are providing more demonstrators,” he said. “Dealers will have to sell the product benefits. This means a change in emphasis for the salespeople. We have been working with them on it for quite some time so I am pretty confident that they are all over this.

“We are trying to remove the pricing from the back-end of the process where it has traditionally been. When you think of the road-to-the-sale business model the price is not really revealed until the customer has reached the ready-to-buy stage.

“But we are putting the price right up front. Here is the price. We are not messing around playing that game. If it is the right price then let’s get on and determine whether it is the right product for you.”

Mr Davis said the company was “pitching the price at below what the transaction prices have traditionally been until now because we have been able to take quite a lot of cost out of the system just through the change in the business model – the saving of the freight and the saving of stock.

“So we are effectively passing those benefits on to the customers. So the prices are lower by far than the recommended retails from before and probably the average transaction prices.

“So, in future, in Toyota’s case, the price you see is the price you get.”

Mr Davis said the NZ regulator did not have to approve the arrangement because it was within competition law, although Toyota NZ did brief the regulator on its plans as they were being developed.

He said the first discussions between Toyota NZ and its Champions Advisory Panel (which is the best dealers from the year before in terms of new, used, parts and service) took place in May, 2008.

“So it has been 10 years of talking about it,” Mr Davis said. “We only made the decision to go ahead in mid-2014 so we have spent four years on implementation. So it has been a long time in gestation and it will be interesting to see how many companies pick it up over time.”

Mr Davis said that one of the biggest challenges was to introduce a common Dealer Management System (DMS).

“Our dealers across the network were on something like six different computer systems,” he said. “We have moved all of them to the one system. To make an agency system work everybody has to be treated in the same way where you have to commonise your CRM systems, all your financial systems, everything.”

Toyota NZ has adopted the DMS that Toyota Australia has been promoting. In Australia, it is called Tune and in New Zealand it is renamed TuNZ.

“It is provided by a company called Revolution and they have been great. We finished the last of our Toyota dealers about a month ago,” Mr Davis said.

By John Mellor