AUDI: 'True partners' with dealers

Profitability has been the key issue for Audi dealers for years, but while pressure on new-vehicle sales margins remains, some of the stress of dealership profitability has eased thanks mainly to the work of an Audi National Dealer Council task force.

Council Chairman David Rosenberg, 55, CEO of Prime Motor Group in Westwood, Mass., says he puts Audi in a tiny group of brands that are true partners with dealers, and credits Audi of America's president, Scott Keogh, and senior management with improving dealer profitability.

Rosenberg praises Audi for reconfiguring the service loaner program that last year resulted in a $700,000 swing in profitability at Prime Motor Group's Audi dealership in Westwood.

Rosenberg spoke with Staff Reporter Larry P. Vellequette about Audi's product and dealer network.

Q: What are the biggest issues facing Audi dealers?

A:I think the issues facing Audi dealers are the same issues facing most dealers: pressure on margins, record numbers of used cars coming off leases that we need to retail.

Are there issues specific to Audi?

There are not — not any longer. It's just that it's basically whatever the industry issues are: increased demand for SUVs, and Audi has done a great job at matching supply with demand for SUVs, and this obviously decreased demand for passenger cars. So Audi's been very, very responsive, and they've had great foresight as far as that goes.

Profitability was a big issue for Audi dealers for several years. Has it waned?

No. But I will tell you that our profitability as the dealer group has definitely been improving and improved last year with Audi. We actually formed a dealer profit subcommittee and we meet regularly three or four times a year with [Audi of America President] Scott Keogh and the entire senior management team. And I will tell you that together, we've worked out a number of solutions that have led to increased dealer profitability.

That has been a big issue with Audi dealers for a long time. What has changed?

One major example is the new loaner program introduced in 2017. We were getting killed on the old loaner program. Audi recognized that, and we now have an unbelievable program — it's the best in the industry. And Audi's been very, very transparent with us. They let us know what their perspective is, and they understand what our perspective is, and we're constantly trying to work on things to improve the profitability of the dealer network. When the profit subcommittee has a meeting, you walk out of there and you say, "Those are the best meetings we've ever had." It's so refreshing. And it's totally transparent.

What were the changes in the loaner program?

Audi discounts the cars significantly to the dealers for the loaner program. Basically, Audi sells us the cars at their cost, and there's a monthly charge. Now when we take these cars, we own them for the right amount of money. We're not upside-down on them. We actually make money selling these cars. Before, we were losing $3,000 or $4,000 on each one. Just in my stores alone it was about a $700,000 swing in net profit last year. It's a great program. It's pretty amazing.

You have experience with many automakers. As CEO of Prime Motor Group, how many brands do you have?

I recently merged with another company and I'm the CEO of the larger entity. We now have 65 dealerships, and we have every brand except for BMW, Lexus, Jaguar, Land Rover and Lincoln.

There are three companies that I classify as real true dealer partners: Toyota, Audi and Subaru.

I've got a good relationship with Ford, I've got a good relationship with Mercedes-Benz, I've got a good relationship with Porsche and I have good relationships with the majority of our manufacturers that we represent.

But I don't consider them dealer partners. I honestly believe when Audi is making a decision, they look at it ... with a dealer's perspective. Other manufacturers will come out with programs that are great for them, but not too great for the dealer.

Another reason why it's good to be an Audi dealer is that everything starts with product, and our product is hot, and it's been hot, and it's going to continue to be hot. The money that's been spent over the past decade on r&d is astounding, and we have vehicles coming out that we just can't wait to hit the shelves, including a new battery electric vehicle. And let me tell you, when that vehicle launches, people should start shorting Tesla's stock, because that SUV will have superior range, and it will cost less than the Tesla, and obviously, it's got an Audi interior.

Audi's streak of month-over-month sales increases hit 100 months in February. How long can it continue?

Eventually, it will end. But I'm going to tell you, Audi is going to be on the streak for quite some time. Scott Keogh recently shared his perspective on the future of the industry; he's very bullish on the future as it concerns the traditional dealer network. And he lays out the plans and he shares with us what his concerns are for car dealers. As dealers, we are constantly trying to think of ways to deal with the disruptions that are going to be facing our industry. For example, Audi made an investment in Silvercar. I think it's a great petri dish. It's a great experiment.

I can't tell you how many more record-breaking months we're going to have. But I can tell you that we will continue to have products that will have exceedingly high demand in the marketplace.

The redesigned A8 will have what Audi calls the industry's first Level 3 autonomous driving system when it arrives in the U.S. this year. How will dealers sell that?

It's safety and safety. To me, safety is one of the most important product qualities that people consider when buying a vehicle. And you have to sell it as a safety feature. The body shop's going to be a little less busy, but that's OK.

Speaking of the A8, it's a luxury sedan, and sedans aren't selling well. It's getting major improvements, but is it a tougher sell because it's a luxury sedan?

That whole segment of the market is tough, and it's been tough. I mean, the [Mercedes-Benz] S class, the BMW 7 series, the Lexus LS — it's not as brisk as it used to be, definitely. Our previous version of the A8 was very long in the tooth, and it was a great car. It was actually a great lease — it's still a tremendous lease deal. But the problem was, it was too long in the tooth and people that can afford that vehicle want the latest and the greatest, so we're going to see an improvement in A8 sales. Frankly, one of the reasons we're going to see an improvement is because previous sales were so low in the flagship vehicle.

What will the Q8 bring to the lineup?

I think it'll bring more men to our SUV line. The Q5 and particularly the Q7 do OK with men, but I think the Q8 is like a muscle SUV. That's what it looks like to me. It's certainly something that I would consider driving.

Is Audi's leasing level healthy, or does it need to change?

We're in the Northeast so we do a lot of leasing. I love leasing vehicles because there's a shorter ownership cycle/driving cycle than for a traditional buy, and we can often pull these customers in the dealership prior to their lease expiring. So our retention is very, very high on leases.

But am I worried about some of the vehicles coming off lease? I'd be a fool not to be. In 2015, we were 60 percent sedan and 40 percent SUV. The demand is flipped now, so we've got a bunch of sedans coming off and not enough SUVs coming off.

So I think it's going to be a lot of grunt work to retail out of these sedans, and we need to do that because the dealer body needs to get behind retailing these vehicles because we need to maintain the brand value. We need to continue to have high residuals. I believe Audi spends less on incentives than competitors. So that's good for us and it's good for Audi. That's one of the things that the profit task force is looking at — finding ways to continue to work and strengthen our used-car programs.

Should Audi increase incentive spending on its certified pre-owned program?

We have seen a strengthening of the certified program. We want to continue. I don't think it's any secret that we're going to continue to ask for additional help with used cars. I like the fact that Audi doesn't have to spend a lot of incentive money to retail vehicles because the money is better spent on r&d. And when you have a Q5 come off lease, it's not likely it will last on the lot more than 30 days. Of course, as dealers, we want incentive programs on everything because that makes it easier to sell cars, but I think Audi does need to strengthen its used-car program, and that will be one of the things that we ask for at the task force.