Rising interest rates and shrinking new-vehicle margins will make pricey investments in store updates a discussion item for Porsche dealers this year.
Last summer, Porsche introduced the Generation 5 concept that calls for a sales environment that resembles a department store. The concept also involves updated dealership exterior designs.
About 10 percent of dealers were updating to the Generation 5 specs late last year and another 10 percent are expected to do so this year. It's the No. 1 issue on the agenda of the Porsche Dealer Board of Regents.
"Porsche is constantly looking to improve the customer experience. One of the ways they do that is through very stringent facility guidelines," said Robert DiStanislao, member of the Porsche Dealer Board of Regents. "It's a challenge because many of us are landlocked" and unable to expand.
Improving stores into sprawling retail Taj Mahals is expensive. Meeting Generation 5 specs will require a substantial investment, said DiStanislao, president of Porsche of the Main Line in suburban Philadelphia.
Porsche recognized the problem and has exempted dealerships that meet the previous-generation standards from having to update to Generation 5.
"Most of the Gen 4 people have another eight to 10 years before they have to do anything," DiStanislao said.
About half the 190 dealerships are Generation 4 or Generation 5 stores.
"I think Generation 4 is the most functional and efficient dealership plan that I've ever seen in 36 years of the car business," said DiStanislao, 58. He talked with Staff Reporter Urvaksh Karkaria late last month. Here are edited excerpts.
Q: How was 2018 for Porsche dealers?
A: We had another robust year. I was very pleased with sales and I was very pleased with the continued success with Macan. The public's appetite for GT cars continues to be strong.
The year ended with a very good push because of the introduction of the Cayenne, which was very well received. We would have liked to have had the car sooner, but we continue to have delays with homologation approvals. But, when the car arrived, in true Porsche fashion, it did nothing but add to the demand.
Porsche sales rose 3.2 percent in 2018. What's the sales outlook for 2019?
Through the first six months of the year, we will have strong demand because we will be filling the Cayenne orders. Porsche will continue to produce GT cars for the first half of the year. These two cars represent the two ends of the Porsche spectrum.
The Cayenne is such an important part of our sales, especially in the Northeast. The new Cayenne delivers what consumers have been requesting, as Porsche continues to set new highs for delivering incredibly strong performance cars with outstanding ride quality.
The product highlight of 2019 is the Taycan, Porsche's first all-electric sedan. How important is that car for Porsche?
Toward the end of the year, we'll get an avalanche of new customers clamoring for the new Taycan, which will bring complete disruption [to the market].
Porsche is setting a new bar for electric cars. The Taycan will deliver a new level of technology — not just battery technology, but driving technology — that will far eclipse what is in the marketplace today. What is seen as the norm will no longer be relevant.
Porsche is recognized as a leader in [combustion engine] technology and engineering. With the Taycan, Porsche will make its mark on a new powertrain.
In addition to the Cayenne and Taycan, what are the most exciting products for 2019?
The new Macan is going to have the updated electronics and command center. It will have a new, more relevant, look. The Macan is our biggest volume car line.
The Panamera GTS is always an exciting car because it fits beautifully between the S and the Turbo. It's probably the best value Panamera.
Besides dealership improvements, what's another major issue on the dealer board agenda?
[Dealers want] Porsche Financial Services to provide subsidized financing for high-volume cars. In Southern California and the Northeast, we love to lease cars. We need subsidies on those leases. In the B-class segment, the fastest growing segment in the automobile business, the competition is fierce. We need Porsche Financial to keep us within striking distance.
What is missing from the lineup?
A third row of seats in the Cayenne. Customers would like us to build a larger sport-utility. People that carry extra passengers still want to drive their Porsche every day.
We have a philosophical divide with Porsche because they want to build cars that are sports cars at heart. They say an extra row of seats is an oxymoron with a sports car. I counter by saying, "But you're a Porsche engineer, and if anyone can do it, it will be a Porsche engineer."
I challenge Porsche to bring a car with three rows of seats that performs the way a Porsche can perform.
Porsche introduced the redesigned 911 last year. Why is that an important launch?
With the eighth-generation 911, Porsche is able to balance the old with the new. By making what appears to be subtle design changes, Porsche continues to support the resale value of its predecessor. But, the subtle changes make profound inroads in performance characteristics.
New-car margins are getting squeezed throughout the industry. What can dealers do to offset that?
Expand the certified pre-owned business. Part of that is buying more lease returns and being aggressive in trading local Porsches with good pedigrees.
With Porsche, the pedigree of the car is very important. So, we like to keep cars [in the CPO fleet] that we've sold in the dealerships.
Our dealership continues to be in the top 10 nationally of CPO Porsches. We will be spending several million dollars to improve our facility for pre-owned.
Is Porsche doing enough to promote certified pre-owned sales?
Porsche supports certified used-car sales with periodic finance rate subsidies if you finance a used car through us.
We've also been in conversation with Porsche Financial to finance classic cars. I anticipate [the captive finance unit] will come up with a program for classic car sales, and that will be very helpful as we expand both our certified pre-owned and our classic car sales.
What are Porsche dealerships doing to help profitability and reduce expenses?
We rarely look at reducing expenses. We never want to compromise the level of service that we provide. I believe Porsche dealers should not look to expense control, but look to improve services to maintain our owner base.
How might potential tariffs on European auto imports affect dealers, given that all Porsches sold in the U.S. are imported and potentially subject to tariffs?
The biggest threat, as a Porsche dealer, is our president's threat of tariffs. We really have to abandon the idea of tariffs on German cars because it would be counterproductive. German automakers are building factories and creating jobs [in the U.S.]. The concept of tariffs is a slippery slope, especially given the "chicken tax" question.
How are rising interest rates affecting dealerships?
Rising interest rates have a profound effect. We have two very large expenses — facility expense and inventory expense. In a large Porsche store, every quarter point [increase in interest rates] can cost you $400,000 a year in interest expense.
How are Porsche and its captive finance unit helping to mitigate challenges created by higher rates?
Porsche Financial continues to subsidize our leases, but it becomes a greater challenge as interest rates go up. Despite rate hikes, Porsche Financial has picked up a great deal of the shortfall.
Are production and inventory levels in line with demand?
Of all the manufacturers that I represent, my Porsche inventory is balanced very well. Demand for Porsche used cars is stronger than any other used-car brand that I carry, which speaks to the value of the brand. I don't have any aged out Porsche used cars.
Are incentive levels appropriate to manage that?
To help dealers manage inventory levels, Porsche has adjusted financial incentives to accommodate for rising interest rates and has been flexible in approving used-car buyers with less than perfect creditworthiness.
What do you think about sales quota-based stair-step bonus targets?
I am happy to report that Porsche does not have any such program. It's a terrible program and all manufacturers should cease that program.
Rewarding on volumes hurts margins and is not good for dealers or consumers, because you are setting unrealistic expectations.
If dealers take the mindset that they will hit the highest target, the experience will be centered around price, not around customer support and service. The consumer gets the best initial price, but more goes into a transaction than price. When the customer is most in need, when they have a product failure and the dealer can't provide the level of support, that's a problem. Buying the car takes a few minutes, owning the car is a lifetime.
How is the Porsche dealership sales process evolving?
We are transitioning our sales force to no longer be museum curators, but becoming brand ambassadors. The sales process is becoming less elitist and more educational. Porsche Cars North America and dealerships invest huge amounts in training our people to become brand ambassadors, so they can help clients configure their bespoke Porsche car.
How is the Porsche Passport subscription pilot going?
People responding to [Passport] are well-heeled, successful, younger customers that would ultimately come to our brand, but have an opportunity to experience our brand sooner than possibly they would have naturally gravitated toward us. The promise of driving many different variants of Porsches is appealing, because our models are dramatically different.
Porsche has committed to a major electrification effort. How is the company advising dealers to prepare? What specific changes will need to happen at the dealership?
Dealerships are going through extensive training on sales, service, and facilities are being upgraded. We will have to have charging stations to accommodate our customers. Our facilities have to be able to handle the batteries, our techs have to be properly trained to handle electric cars and our salespeople have to obviously be trained.
Porsche expects dealers to invest $300,000 to $400,000 per store on charging stations. How are dealers reacting?
As the orders [for electric vehicles] increase, we are less concerned with having to make the investment in chargers.
Will selling a mostly silent electric Porsche to fans raised on the gurgle of combustion engines be a challenge?
The absence of noise is an issue. The fact that the Taycan doesn't gurgle and breathe like a sports car, I think, is a missing component. But people are going to buy the Taycan despite the fact that it's electric. The car performs so well, brings a whole new level of technology, with an incredible design.
