The Battle Between Dealers and OEMs: Why They Have to Win—or Lose—Together | Joseph Agresta, Jr, President of Benzel-Busch Motor Car Corp

It's hard to understand what's happening in the markets right now. I mean, on the one side, you know, we're looking at prices, right? We're looking at inflation, and what's happening there, so it is hard to fathom a rate cut when the markets are this high, right? And when you're seeing these kind of prices, the way that they are. But the labor markets are not reflecting that, right? The labor markets are struggling a little bit. I think that's why you really have to kind of take that approach to it and say, okay, well, what's actually happening to the consumer?

One of the Mercedes-Benz dealer boards, Joseph represents hundreds of dealers nationwide, while safeguarding the success of an iconic brand. His biggest revelation in today's challenging market, dealers and OEMs don't win or lose alone, they do it together. A big thank you to our sponsors for making today's episode possible. Podium, Cox Automotive, and Nomad Content Studio. And now, let's get into the show.

Let's start on the CDG podcast, Joe. Jay, I should say welcome. Thanks, Yoshi. Appreciate you having me. Appreciate you coming on. This is going to be fun. You know, the, I'm sure I, I assume you, you have this context, but if you don't, I got to tell you how this actually came to me. I was coming back from NADA, I get off a flight, and someone taps me on my elbow. He's like, yo, Cardiff's your guy. I'm like, what's up? Who are you? And it turns out that it was a guy named gentleman named David that worked

at your group. Yeah. And I didn't, I didn't speak with David for about six months after that. And then one day we had a show, and we were looking for someone that was in

fixed ops at a Mercedes dealership. And don't ask me how or why, but my Rolex brain thought of David. I was like, wow, let me, let me call him. And I call him, and he's like, I just thought about you.

I'm not kidding. This is real, real story. True. Sorry. So I'm like, what are the odds where I was, we were just looking for someone that is in with Mercedes and fixed ops. He's like, I'm in. And of course, the rest of

history connected. So great to have you on. David, David's been a great, great team member for us. And he's a, he's a rising star, continually rising star in our, in our organization. He's done a great job for us.

Well, it's funny how it's just a simple little like, you know, introduction, like saying hello, and the things, you know, how, how life works, how it leads to different opportunities. So

for sure, it's always good to, you know, always good to put yourself out there. Yeah. This is going to be an interesting conversation. You are

the dealer board chair for Mercedes Benz. Is that correct? That's correct. Yep. How's that been for you?

It's been an interesting couple of years. I mean, I've been on this board in total for this is my fifth year serving on the board the last

three years. This is my third year as the dealer board chair. My term is ending the end of this year, which a little bit of a relief. You know, it takes a lot of time to be a board chair for one of the manufacturers. It's, it's like having a second job, the second full time job.

Just organizing, you know, the discussions and making sure that we're staying on top of the different issues that are coming up.

Worrying about compensation and margin structures and, you know, any kind of metrics that the manufacturers are using to judge our performance.

So it's a, it's a full time job. I'm kind of looking forward to transitioning back off the board and getting back to be able to focus on my operations for a bit. It's long needed. I keep warning my team. They're going to hate me in a couple of months because I'm going to be back in your full time doing what I needed to do.

Yeah, back in the weeds. Yeah, you know, tell me a little bit about the history of your group yourself. I know you've been around for quite a while. The group has been. So we'd love to understand a little bit about Benzel Bush and history there.

Yeah, it's a, it's a great story actually and it's kind of a true American dream story. You know, my great-grandfather came here from southern Italy as a blacksmith. He was a blacksmith and a, and a cart builder, you know, so he built like goat and horse carts.

And what, what are we talking about? What are those would have been in the early 1900s, like 1910-ish in that range. He came over and, you know, was processed through Ellis Island, like most, most immigrants would have been back at that time.

And the first stop off of Ellis Island for most people was either Jersey City or Hoboken so that they could get you to a train station and then, you know, kind of push you out to the rest of the country from there.

And he settled in Hoboken. He just, he felt like he just wanted to stay there. He didn't really want to go any further. So he, he kind of got himself situated there in Hoboken, New Jersey as a blacksmith.

My, my grandfather was smart enough to realize that blacksmiths probably didn't have a future in New Jersey. So as he was learning the trade from my great-grandfather, he started to adapt it and became a heavy truck dealer.

He had a franchise dealership for the Diamond T and Diamond Rio brand. Diamond T initially and then it became Diamond Rio and then eventually it was bought by White Truck.

So, so yes, so that was kind of the transition into the franchise operation. My dad went to work with my grandfather and learned that trade from him as well.

And he started to lease vehicle fleets. Most of the heavy trucks at the time were fleet leased.

There were really a lot of the car manufacturers didn't have a captive finance arm in full at that point. So they weren't really leasing vehicles the way that they do today.

But my dad saw that as an opportunity. He started his own leasing company and was leasing vehicle fleets to the same companies that my grandfather was leasing trucks to.

So it kind of evolved from there. He started to, you know, just experiment and pioneer some different products. One of them was just being able to do a single car lease rather than a fleet lease.

He was doing single cars on very expensive products like Rolls Royce, Mercedes Benz, Ferraris. So he established some relationships with dealerships there.

Eventually he was doing so much of that with with Benzell Bush Motorcar in particular that the previous owner Ziggy Benzell who was the founder of the company he offered to sell it to my dad when he was ready to retire.

So that was kind of the transition. I went to work for my dad as a kid. I've been working here ever since. So I've been, you know, truly in my blood from the very beginning.

What are we talking about 40 years or yeah, my dad bought dealership here in 1978. So I was 12 at the time. I started to work for him part time at that point. You know, so it's been it's been a 40 40 something year run in total.

Incredible. Now when you joined, how many locations are we talking about then? How many locations are we talking today?

It was just one location at the time. We've got three locations currently. We had another dealership in there that we, you know, have since liquidated from, but yeah, so currently three rooftops, two different brands, Mercedes Benz and Genesis.

What's your perspective on Mercedes Benz? It feels like the last couple of years, they've had, I would say the last five years, it's been, you know, somewhat of a roller coaster with the different models and

the, you know, demand and supply demand for the EQS and other, you know, electric models. I'm curious what your perspective on the current state of the brand.

So, you know, the last few years really have been challenging. I mean, they went through a very difficult time during COVID, trying to manage the supply chain. Much more difficult, I think, than some of our luxury competitors.

And that's, you know, largely supplier issues more than anything else.

So we really kind of struggle to keep a steady supply of all of our models in place.

Which was both a good and a bad thing, right? We gave up some market share and not have an access to some of that product.

Bad side of it was that, you know, we did see prices jump as a result of that lack of inventory. And once prices go up, it's hard to bring them back down. And I think that, you know, we've seen a little bit of that over the last couple of years.

The transition to electrification, like a lot of manufacturers have experience. It's not been a smooth one for anybody.

It's harder to want the smaller manufacturer, you know, when you're a niche player, like Mercedes-Benz or BMW or so on.

And you don't have, you know, the volume of product to rely on globally that some of the other manufacturers like Toyota might.

It's a harder transition because you really have to get it right. Like, you just don't have resources to waste there.

So that's been challenging. You know, you're looking at what's happening in Europe and China and North America. And they are all three very different places right now.

When it comes to electrification, China is all in and they're pushing hard in that direction. And they're really trying to support their own manufacturers more so.

In Europe, a lot of the regulation is really intended to try to push EV sales long term. So a lot of the manufacturers jump there. But here in the United States, that we're seeing that not really being the case right adoption rates are really low single digits for most of the country and on average.

We're seeing legislation, you know, swinging the other way. I know you just recently had Senator Moreno on right talking about this exact thing. So it's good that we are a market driven economy and we should be a market driven economy. We shouldn't be mandating what people buy.

And what we as car dealers have to sell. So I feel like we're getting it right as a country, but it is really hard for the manufacturers to keep pivoting like this.

So hopefully we're settling into a good space now. I think I think you know, the end of this month, we're going to see, you know, the subsidies completely coming off right.

And I think we're for the first time, we're going to get a real sense of what EV adoption rates actually look like. And I think we're going to see that they are incredibly low without those incentives.

Wow. Well, you're also in Jersey. Jersey historically has been a very pro EV state.

And there's right. And so there were greater. You know, there was no sales or EV sales for a while. We saw when that incentive disappeared either last year or the year before I'm blanking on which when it happened, but when that incentive went away, we did see an immediate impact on EV sales.

There was an immediate hit to EV sales. How much was that incentive? Do you remember exactly? It was the entire sales tax on a vehicle.

So if you, you know, whatever your whatever the value of the vehicle was, you're, you know, you're paying 6.25% on the vehicle against that. So it was significant. Plus you had the $7,500 or, you know, least incentive fleet incentive on top of that coming in federally. So your savings were very significant there.

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Okay. Now and do you remember what what type of hit did your business take when that 6.25% deduction disappeared?

I think we were at our maximum point. We were probably running somewhere around 15% EV penetration and we're in the single digits now.

We're running, you know, 8% 7, 8% has been the norm. And again, I think that that's going to drop maybe in half by the end of the month when we get to, you know, not having the federal incentive when that comes off of it as well.

I think that's going to, you know, be a game changer. That's definitely a big change.

So, you know, being in your position, right, you are in the board position or in the board chair, frankly. And so how does all this factor into what you're pushing for or what you're trying to communicate to the manufacturer?

Like what type of action are you taking or have taken really because now we're kind of at the end of it here with the EV such as being removed.

Yeah, so look, what we want to see overall is you want this to be fair for all all the dealers, right? All there are 384 Mercedes Benz dealers. We say this all the time on our board.

We represent all 384 in all 50 states. California has very high EV penetration rates. Other places around the country, you know, some of the some of the Midwest states have, you know, low single digits, maybe 1% penetration rate.

So we're trying to always find that balance. We don't want to we don't want to penalize one group of dealers over at the expense of another group of dealers.

So any kind of performance metrics that the manufacturer is using, they really have to be fair and consider that this is not, you know, this is not a one size fits all country.

I mean, the United States is a massive, massive country. And it's very hard to get this right with a cookie cutter approach. You just can't do it.

You need a lot of flexibility in the programs. You need a lot of flexibility in the metrics.

And you kind of need to let dealers figure out their markets as best suited to what we know and understand, right? It's hard for them to dictate to us.

On that point, though, when you say it's not one size fits all.

Yeah, right now, though, are the expectations from the manufacturer a one size fits all benchmark, or are there like regional weightings, right?

If you are in the Midwest or it's some part, you know, part of the South, we expect a lower percentage growth from you. Like how, how is that currently operating with Mercedes specifically?

Sure. I think Mercedes actually did a really good job. And a lot of that, you know, I don't I want to take, I'm not going to take personal credit for this, but a lot of the feedback that we were giving them as dealers in general was that, you know, again, because of these this wide disparity and adoption rates.

They have to be really careful about how they're using any kind of performance metrics and they did really adjust their strategy accordingly.

Based on that feedback. So I think that they got it right ultimately in having, you know, kind of this this varied approach to adoption rates.

Yeah, waited. That makes total sense.

Weighted and or just, you know, not maybe necessarily using some of those metrics as the as the catch all, right? Like you just can't do it. You can't require.

In low EV adoption states, it doesn't do you any good to require the dealers to do things that would push EV adoption, right?

You have to expect that consumers are going to drive this market always at the end of the day. It's always going to be a consumer driven market.

Of course.

And that's the nature that's actually the beauty of the car business, right? It is a ultra competitive business to the advantage of the consumer.

And I think that sometimes the manufacturers and even even our legislators lose sight of that.

You know, we as car dealers don't drive the market. The manufacturers generally don't drive the market. Maybe during, you know, short, weird periods like COVID.

Maybe we can, but that's not the long term historical nature of our business. It has always been a consumer driven business and it should be.

You're also a very, you know, broker heavy market. Now I know your, you know, Mercedes or, you know, you're not maybe a more lower value high supply brand.

But does that impact you in any way? Can you quantify like the broker market in your region?

I don't know that I can quantify it, but I can tell you that it hasn't, it definitely has an impact. And there are, you know, there are consumers out there.

You know, there are different types of brokers, right?

So there are brokers that cater to the executive market out there. You know, busy executives that just don't want to go car shopping.

Don't have time for it or don't really care. They just want the, you know, in a class of vehicles.

They want to get the best deal that might be out there. And they want to have somebody else do that for them.

So there's that kind of that executive broker. There are, there are cultural and ethnic brokers that are in the marketplace.

You know, people who speak the in language for whether it be, you know, one particular cultural set or another oftentimes only want to do business with, with, with that, you know, person representing them or that group representing them.

So there are different levels of it. And then there are, you know, brokers who are really just trying to, I think, I don't know, game it a little bit, try to jump into the business without taking the risk of the business.

And those are, I don't know, I don't want to talk them, call them bad brokers, but those are the ones that can be disruptive to the process in general and disruptive to dealers and the customer.

I don't think they, I don't think they really do a service to customers. Ultimately, they're not saving them anything by being there.

So they're not providing a market efficiency. So to speak like some of those other types of brokers can, you know, deal with what you have an offer.

Yeah, what's your perspective then? I think as a dealer, while the value proposition for that broker might be different.

Yeah, for the dealer, the impact I would assume is this is the same across the board.

You're, yeah, it certainly is. And I think that we know what it opens the door for is a lot of these brokers will try to source their vehicles from outside the market that can have an impact on us, right?

Like these are vehicles now that they're, that they're, that they're, they're grabbing from other parts of the country and they're bringing them into this market and kind of, you know, selling them then to the, to the consumers.

I think the opportunity there for dealers, though, is for us to be better at what we're doing on our sales floors, right? So if there's a, if there's an ethnic cultural group that we're not representing on our sales floor, that's our fault.

Right, we, we need to be thinking about how to attract our own local market to our best advantage.

And that's, that's true with the executive market too. I mean, granted, I can't, I can't sell BMWs and I can't sell, you know, some of the other brands.

So if there are executives that are just truly looking for, you know, the deal of the day, that's a little bit harder for me to compete with.

But that's also a short-term, you know, win for, for people. It's not a long-term plan.

That's a very interesting perspective that I haven't heard from another dealer. We did have a segment where we discussed kind of brokerage dealers and the whole situation or the market.

And I think your perspective is a very, it's a very good introspective like it's one of accountability and ownership. And what you just said, if we can cater better to a sub market, then that's on us to figure that out.

Have you done anything like that? Given what we just mentioned. And if I, you know, I like to always think that everything eventually reflects in the PNL, right?

So in some ways, a broker in a market will ultimately impact your bottom line.

Has anything, have you, given what you did, like, have you done anything or introduced bilingual salespeople or whatever it may be?

Is there anything action you've taken to that point?

A hundred percent, yes. Some of it consciously, some of it unconsciously.

But, you know, we just kind of recently went through to see how many different languages we can actually transact in and I'm going to blank on what that total number is.

But it was a lot of, but specifically where we did go in consciously and say, hey, this is an area that we're under serving was that was the Korean speaking market.

So, you know, Bergen County in New Jersey is one of the most densely populated Korean markets in the United States.

Some of the, some of the largest Korean companies are based right here in my backyard.

LG is right here. So, you know, we want to, we want to be here with them, right?

We want to make sure that we're catering to that part of the market.

We saw an opportunity there. We added some Korean speaking staff and, you know, our best sales performers right now are Korean speaking.

And so it has, it hasn't get out of here. In fact, if you get it right now, there's more opportunity that we're not probably capturing that we need to consider for other markets.

But yeah, it's definitely, it's definitely something that we need to focus on all the time.

That's a very interesting observation because it seems like, or maybe I'm just becoming aware of it, but it's introduced this increasing opportunity for, like demographic or just telling the right sales people to their demographic.

I had a conversation with Mario Morgato, who is entire strategy is focusing on the Hispanic market and expanding the markets where he can serve them better in his way.

And so, to hear you say that, some of your, you know, highest performing sales people are catering to a niche.

I think that's a very good observation. And it's a good way to tap into at least one of the three broker buckets, which you just mentioned, the ones that appeal to a certain ethnic group.

I do agree with you that maybe the first one, the executive bucket is one that is just going to be tougher for you to be competitive.

And because if that person is just looking for the best deal and they're not so concerned about the vehicle, then they don't really have loyalty to the brand or to Mercedes.

And so they're just going to go shop somewhere else and find that deal. So go ahead.

No, I was just going to say, I think the way that we want to try to counter that part of it is through the experience that we provide.

Like we're looking at that executive and saying, this is somebody that clearly values their time.

They're looking for convenience probably even more so than price, right? They're really looking for the convenience. They just don't want to deal with it.

So the easier the more simple that we can make these transactions for them. And then what we do for them after the sale, right? Like that ownership experience, the broker is not there for that.

The dealer is right. And if we can really do a good job there and win the trust of that executive at that point, maybe we could just roll it from there.

And then back at that point, and then we can continue to sell them just our brands that we represent.

But that's, you know, that all comes down to things that we provide.

So Jay, tell me a little bit more about the demographics of the Mercedes buyer.

Just from the outside, the brand has, I would say the design has changed, right? The push into some of the EV territory has the brand lost some of its prestige.

And I think it shifted back and forth a little bit. You know, there was a time kind of in the 2015, 2014, 2015, 2016 time period where Mercedes had a heavy focus on that entry level Mercedes product, right?

And they really were looking at that as an opportunity to bring a whole new generation of buyers into the brand. And then, you know, using that strategy of hopefully a lot over the life cycle.

What we saw during COVID was a necessary shift because of some of these production constraints, but also a conscious decision strategically on Mercedes Benzpart to focus more on top end vehicle.

So they they had more of a top end vehicle strategy to really try to become a more premium brand and move back up market.

So I think they're kind of settling somewhere in between the two. It's hard to do.

It's hard to be one or the other. I think you have to have a little bit more of a balanced approach, which is where they seem to be heading now.

If you go too far up in that premium market, you're given up market share clearly, right? You're pricing yourself to a point where a good segment of the population will never be able to afford your product in any of the segments that we compete in.

So I think their strategy now has been let's try to find a little more balanced approach. Let's focus on the top end vehicles where we own the market.

Let's try to make that a profitable portion of our business, but let's also focus on market share in these competitive segments like our GLC and GLE and the C class and even some of the new MMA platform cars, the GLA and so on.

I think that's a fair take. It seems like that way from the outside. And what about the actual customer, the demographic? Are you seeing a younger customer and older customer just about the same has that changed?

I don't think we've really seen it change. I mean, it's also hard to judge a lot of what's happening right now with pricing inside of the car market partially because of interest rates.

You know, like if you go back again pre COVID, we were almost at zero rates, right? Like an unsubsidized manufacturer rate was like 2%.

You know, now an unsubsidized anger rate for most manufacturers isn't that it's in that 7% ballpark right unsubsidized.

And that's representing the biggest addition to the price of a payment. It's more there than it is even in the price of the cars having gone up.

Now, our cars have inflated, you know, considerably over the last five years. But more of that increase in the payments is coming from the interest rates side.

Yeah. So it directly impacts affordability. It affects, you know, affects affordability. If anything, we're seeing probably more of a change in the nature of our business from that factor.

I think, you know, as we're looking at interest rates now, probably coming down, you know, right now, right? They're literally right now right now.

Whether it's a quarter point or a half a point wherever it's going, there's probably a couple of percentage points that we can afford to take out of that standard rate to start to move us back in the right direction.

What's a perspective on that, right? As a luxury dealer, markets at all time highs, right?

It's very few instances in history where interest rates have been cut when the market is performing at these levels.

Yeah. What's your take as a luxury dealer? What do you think about that?

You know, it's hard to understand what's happening in the markets right now. I mean, on the one side, you know, we're looking at prices, right?

And you're looking at inflation. And what's happening there? So it is hard to fathom a rate cut when the markets are this high, right?

And when you're seeing these kind of prices, the way that they are. But the labor markets are not reflecting that, right?

The labor markets are struggling a little bit. And I think that's why you really have to kind of take that approach to it and say, okay, well, what's actually happening to the consumer, right?

This rate cut really should be, I think, in place at least at the half a point level for right now.

And I think we'll see a little bit of an adjustment then in the labor market. But I think you have to take the labor market as your primary gauge.

It's a good perspective. Are you projecting for the latter part of this year? Do you have any specific impacts to your projection with the rate cuts or you're not looking into that deeply? You're kind of doing what you're doing. How do you think about it?

Yeah, I mean, I think we're more focused in total on trying to drive efficiency inside of our business. We know that there are challenges right now because of interest rates, right?

We know that are the demand levels are probably a little bit lower than we'd like to see them because again, these payments are higher than we need them to be.

We're also carrying inventory at those inflated rates, right? So as efficient as we can possibly be in as many different measures that we can find to become more efficient.

We're trying to drive that and partially trying to look at the impact of how we can use AI to drive some of that efficiency on our side.

So yeah, I mean, we're kind of keeping our focus there. We don't control rates. We can't control, you know, our manufacturer programs look like we just have to sell the cars at the end of the day to our best of our ability.

So we're just we're more focused there on control on the controllables and really pushing the efficiency side of it.

Tell me more about that efficiency. What have you actually done or have you done anything that's made it impact on your business?

Yeah, I mean, you know, we started looking at AI a while ago as a potential real game changer, right?

So it's, you know, the beauty of AI at its highest level is that it is, it eliminates the gatekeeper of information, right?

You now are putting information in anybody's hands. So having this imbalance and information from one side or the other disappears, that's great for consumers, right?

You could look at it as a car dealer and say, wow, this is terrible for me. I want to be the gatekeeper of that information.

I want the consumer to have to come to me to understand how to buy a car and what the best deal is for me and so on.

So while some of that might be true, you know, we have the same opportunity to improve efficiency on our side using these same tools.

So that's largely where we started to focus on on our own performance.

One of the things that we've seen as a progression in our business, there's a shift from digital form leads to click to calls.

So our click to call rate is four times greater today than it was pre-COVID.

And that's a function of more people shopping on their phone rather than on a desktop, right?

You know, more people are shopping just naturally using their iPhone or whatever kind of phone that they might have.

So that mobile capability gives you that click to call capability in a very simple way.

And it's changed the game for us from a lead perspective.

What we saw in that though is that we were still handling a lot of these phone calls kind of old school, you know,

looking to try to get the customer to make an appointment, try to drive them into the store immediately, not really giving them the information that they were looking for.

Well, I think those days are long gone, right?

If you're not listening to the customer providing, you know, exactly what they're looking for,

taking some opportunity to sell yourself and sell the store, then you get it.

You get the right to ask for an appointment at that point, right?

Then you have a right to do it.

If you've done everything that customer asked for, then I think you have the right to ask for that appointment to get them inside the dealership.

We started to use some AI for that purpose.

We became a developer for a product called clever automotive.

It's CLLEVAR.

So clever is designed to be almost like a floor manager on your phone, right?

So on the call with the salesperson, kind of guiding them through the call, providing a transcript of the call post call,

giving it an objective scoring to make sure that we are leading in the right direction that we are listening to the customer and providing information properly to them.

That's really been, I think, a huge game changer for us from a sales perspective.

And the immediate impact from that, which is having an impact on our closing rates as well.

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Wow, I haven't heard of this.

So just so I understand that I'm looking at it now.

I'm looking at your website and I'm looking at clever.

So basically, this is like a concierge or companion on the calls when your sales team is speaking to customers.

Correct.

Right.

And what actually happens?

How does it interact with your salesperson at that moment?

So more of it happens post call, right?

A lot of follow-up information.

Hey, you committed to the customer that you were going to do X, Y and Z.

Here are your follow-ups from the call.

But it's also giving us that objective opportunity to measure the performance of the salesperson.

Did they have the right tone on the call?

Were they in the right mindset to accept that?

Okay.

Oh, that I understand.

Follow-up.

We've got it.

Right.

It will eventually, I think, lead to more of a real time.

Hey, you know, this is what you have the opportunity to do right now with the customer on the line.

And the other thing that it does is it flags some of our calls where maybe our performance was substandard.

Maybe we did maybe we had a car that was sold.

The customer asked about and we didn't provide an alternative.

Right.

Calls like that are flagged.

If the customer seemed a great feedback customer said they might be going somewhere else to buy the car.

Those are flagged and immediately pushed to one of our managers.

So that they can jump in with the salesperson to try to come around to the solution.

So I like how you did the click to call.

And I really don't see that often.

I obviously chat with lots of dealers and you typically don't see dealers leading with the call.

And you have it in orange.

It's a very bold.

You mentioned it for extra leads.

What about conversion though?

Are those leads?

I mean, is it garbage in garbage out?

Are these leads converting at a, you know, at some similar clip?

Even if it's a lower percentage, frankly, you're 4x that you can convert at a lower percentage,

but you're bringing more sales.

Like what have you really seen from that?

So what we, the premise of what we're trying to do in general is that we know when we have an appointment

and somebody comes into the dealership, 65 to 70 percent of the time.

It's a deal, right?

You know, customers are shopping 1.4 dealers per sale, right?

They're visiting 1.4 stores.

That's it.

Which is significantly lower than it used to be.

It used to be, you know, as high as six, right?

And then we thought drop, you know, probably a mid 2015ish or so somewhere in there.

It was probably somewhere like four.

Now we're seeing it at 1.4.

We look at that as just the customers already made up their mind.

They've done their research.

Whether they use AI or, you know, other search tools, whatever they did,

they did all of their homework online.

It's your deal to lose now.

If they're coming in, it's your deal to lose.

You have to, you have to consciously make a decision to let that customer out the door without buying a car,

because they want to buy it from you.

So for us, what we saw the disconnect there was that between our phone calls and our appointments,

we felt like we were lagging there, right?

We wanted to drive more people to that appointment from the phone call.

And that's been kind of the change in our strategy.

So yes, we're naturally seeing now a higher closing rate,

because we are pushing more people onto our sales floor.

It's kind of the winning strategy of, hey, we got them on the phone.

Let's give them what they need.

Let's give them what they want.

And then let's ask them to come into the store to kind of finalize things here,

because they've done all the work, right?

Now we just want to finalize it for them.

Okay, I want to take a step back for a second.

How are you spending your time?

It seems like you're in the details here.

You clearly, you know the numbers, you know the metrics,

you seem like a hands-on involved dealer,

yet before we even started recording,

you know, we were talking about your involvement in, you know, of course, the board,

and just other things that are a suck on your time,

not in a connegative way, but you only have 24 hours in a day.

How are you doing this today, right?

Where are you spending time and where are you putting the most focus?

You know, a little bit.

We haven't even talked about, we haven't even talked about your,

the hockey team that you have to go watch, your daughters and hockey,

and so you have to do that as well.

That's it.

The board involvement drives a lot of it, right?

I get one of the benefits of being on a dealer board

and especially being in the chair role,

is that you do get access to talking to a lot of other dealers.

Dealers call me all the time, right?

And one of the big changes that we made on this board over the last couple of years

was inviting publics to serve with us on the boards.

That's not normal for manufacturers.

Why?

Publics have a different overall model, right?

Like yes, they want to be profitable, but for a lot of them,

they're trying to drive revenue growth.

That's what's driving share prices, that continual revenue growth.

That's not what dealers necessarily focus on.

Dealers are focused more on, you know,

ROS or net to growth as a strategy.

So it's not that our interests are totally not aligned,

but there are some differences there.

And there is also an incentive for the publics a lot of times.

You know, there is always that fear or hey,

are they getting too close to the manufacturer

because they just want a lot more stores, right?

So, you know, independent dealers have always been a little bit wary of the publics.

There's always been this little bit of separation.

We made this change at the request of Mercedes-Benz.

We did it strategically where we have, you know, some say in which,

which public and who from that public can be on our board with us.

But it's been a game changer for us.

I mean, the access to information and the way that you're seeing now,

you know, the publics represent generally all 30,

some odd, 34, 35 manufacturers out there.

So you have access to that information.

That helps me personally too.

It helps me in my own business, not just on our board.

But now I have a different perspective on where the industry is going,

what things are looking like.

And how do I apply that back in my store?

How do I take that back to my own teams and try to get them to think the same way?

Talk to me more about like the manufacturer deal or relations.

You mentioned it briefly here.

Yeah.

But what's your philosophy on that?

This question, I mean, I get a variety of answers.

Yeah.

How do you think about it?

So, if I kind of take it at the highest level

and kind of work down a little bit, first and foremost,

I don't think there is any model that works where the manufacturer wins

and the dealer loses or the dealer wins and the manufacturer loses.

That can't work long-term.

That can work in isolated, you know, negotiations in very short periods of time.

But over the long run, dealers and manufacturers of any brand need to win and lose together.

It's just the only way that this model actually works in a franchise system.

So, when you start from that mindset and you start to think about what are the implications of that,

negotiations the way that you approach them have to change a little bit.

Dealers, you know, we use our state associations very, very effectively.

We use our legislative arms to protect us significantly.

Does it get overused at times potentially?

And the manufacturer is responding kind, right?

So every time one side does something, the other side has a response opportunity.

And I think in part, you know, if you take the warranty pricing as an example here, right?

The manufacturers are continually trying to cut those times for what they want to pay dealers and dealers kind of respond

by trying to get legislation to support our ability to protect those times.

Ultimately, what I think is happening long-term is that customers are starting to lose here, right?

We're focused more on that battle over here and not on being competitive in the marketplace

to protect our customers.

And I think if we really want to change this game, the dialogue has to change from, you know,

kind of fighting each other there to, hey, how do we move this to a business development opportunity, right?

How do we shift that conversation to, how do we win our customers and keep them with us long-term?

Because that benefits both the customer, I'm sorry, that benefits all three,

the customer of the manufacturer and the dealership, right?

That's the only scenario where everybody wins is when we're doing it together that way.

So at a high level, I kind of start from there.

I think the other big problem in our industry is that our compensation plans are margin structures.

I believe are really outdated, and I don't think that they are doing anything to drive performance in reality.

You know, it may be in a very small way, but as card dealers, so do you have salaried salespeople?

What I'm saying this, I mean, from the margin structure of how the manufacturer pays us,

how we get compensated or opportunity to make money there from each car sale.

I think it's outdated, and I think that it needs a drastic change.

Almost every manufacturer has some kind of a performance bonus built into it, right?

Where some percentage of your sales performance and your service performance, your pre-owned performance, your customer experience,

all of that is kind of measured in some way, and then you earn additional bonus monies for doing those things well.

As card dealers, we're all in already, right?

We're heavily invested to wake up every day to come to work to sell and service cars.

You don't have to give me another dollar of incentive to do that.

I want to sell every car, I want to service every car, I want to sell any part.

We're already driven, our economics are driven to exactly what the manufacturer wants.

Having performance bonuses out there, I don't think really changes anything.

That's true, I think, for 90% of your dealers.

You have this bottom 10% of the dealer pool that are always kind of there.

They don't change, they always seem to stay in the bottom 10%.

The other 90% are going to work every day, and I think what we end up doing is by having some of these performance metrics

and forcing dealers to do things a certain way.

We're just handcuffing our best dealers.

Dealer innovation is what drives this business.

It's what's driven automotive retail for 100 plus years,

and I think that's what's needed in the industry.

I think that's what will continue to drive it forward.

It won't be driven by the manufacturers on the retail side.

It'll be driven by the dealers.

I want to say that I'm kind of out of our business that way.

We'll tell me about that.

If it wasn't for performance based bonuses, what would you suggest would be a better solution for manufacturers

who are trying to move volume?

I would slightly argue that it's not perfectly aligned incentives

because they want to push volume, and you want to push volume with margin,

or there's more of a balance there.

It's not perfectly aligned, but what is your...

Again, these things vary, but what would you do differently if you were the manufacturer?

How can you, in your perspective, align incentives better?

Firstly, again, if you start from that top-line view of we win together, we lose together.

If they want to push volume, they can't do it at the expense of dealership profitability.

It has to be done to move the needle together.

I'm just a quick pause.

You're basically saying, produce fewer cars.

You don't need to incentivize me. My profits will be higher.

Is that what you're saying?

I think that's...

The hard part about it is that if you're in a market share strategy,

which most of the manufacturers are, not all of them, but most of them really are,

if you're in a market share driven strategy, there are philosophies always that they want to have one extra car out there in the marketplace.

As dealers, we need them to have one fewer cars out there in the marketplace,

and it's that little dividing line that drives profitability up and down, right?

When there's a little bit fewer cars out there, at the right price point, that's also the key.

If you're going to have fewer cars out there, put them at the right price point,

and you don't need the incentive, you don't need the subsidies, right?

I know that that's a delegate balance.

I know I'm speaking in high in the sky generalities to some degree,

but I think as an overall direction, what we're doing is not really moving the needle.

Most manufacturers are using some type of either customer experience metric

or maybe a service loyalty type metric.

That is just not actionable.

There's nothing that's moving the needle there, right?

Or if you're a manufacturer that's using sales effectiveness,

I don't think we're really moving the needle on performance.

I think, again, your top 90% stay in your top 90%, your bottom 10% stay in your bottom 10%,

so what are we really changing at the end of the day?

Well, I think the elephant in the room is that the manufacturer gets to keep control

where they can issue subsidies or incentives whenever they want to add their leisure.

The reality is, if they underproduce cars or produce fewer vehicles

that added profit if the demand arrives accrues to the dealer, right?

It does not go to them.

Versus, they produce more vehicles.

There's more supply in the market, right?

You said they get more market share,

and even when they need, they can throw in some incentives,

but it's a dealer who's discounting.

And so I think that's where the friction lies.

It's that it is just not in their best interest to produce fewer cars long-term

unless there's some other benefit or strategy,

but ultimately we saw what happened during the pandemic when yes,

demand was through the roof and supply was low

and the majority of the profits accrued to the dealer, right?

Exceptions being when they started raising prices.

Don't forget, though, the manufacturer has also hit their record profits

at the same time that we did, right, as dealers.

You saw Mercedes-Benz at a 15% return on sales globally,

and that wasn't just in the US.

That was a global hit, right?

Well, let me take the other side of that.

But they're not seeing it that way.

They may have risen 15%, but the dealer rose 100%.

No, their actual return on sales was 15%.

That's what I'm saying.

So that was a record profitability during that time period,

just like the dealers did.

So that's a scenario where we both won at the same time, right?

And I think that that's what we should be trying to strive for,

is that type of a direction.

I agree with you.

I'm just saying that they, from their perspective,

and I don't know, I'm not speaking for any specific manufacturer,

but they might say, oh, the dealers' profitability rose faster than ours.

You know what I mean?

That's just like when the market is flush with demand

and everything's great and people get greedy.

And we're kind of, I mean, I'm kind of speculating at this point,

but it just makes sense.

It's human nature.

I do agree with you though.

Yes, they profits rose, dealer profits rose.

But it is a good question.

How do you align that incentive long term?

I don't know that I have the right answer for what a perfect margin structure

should look like.

I mean, you know, old days the margin was just a flat margin, right?

Yeah.

And even as high as a 20% trade margin that the dealer could negotiate with.

And that was it.

And then, little by little, it's gotten kind of chipped away at.

Some of it has become performance bonus.

Trade margins generally now are in that 6% range or lower.

So there's a very little room of negotiating wiggle room, if you will.

You know, I'm just not sure where that ends up going in the long term.

That's a good question.

I like it.

What do you think about, let's put a margin aside,

what do you think about aligning incentives with facility mandates?

And you know, other, it just data on security who owns what data and stuff.

There's all these other elements, which are part of the picture.

Yeah.

And I could make the argument that the incentives are not aligned there either, right?

You tell me to go invest a million dollars in my facility.

Yeah.

I know it's, of course, you're benefiting, benefiting from that as well.

And sure, I'm benefiting to a certain extent.

But who's benefiting more?

Should he be contributing, you know, a certain amount?

Yeah.

What's your take on other parts of the manufacturer deal, really?

That's a great question.

I'm glad that you brought this up because there's a lot in this, right?

So as a board, in general, the way that our Mercedes boards looks at this

is that we want there to be some type of reward for these facility investments, right?

And they should be there.

If a dealer is going to invest $20 million, $30 million, $40 million or more in a facility,

they should have the opportunity to earn differently than a neighbor who might not be willing to invest.

Right?

Just flat statement.

Start there.

They also should get an opportunity to get a fair return.

So over a period of time, 15 years is what I think we believe is the right payback time.

So don't ask me to do it again for 15 years, right?

I just gave you this investment.

Give me an opportunity to now use the money that I'm getting paid inside of my performance bonus

to help pay for what I put together here for you with you.

So I think that's that's one piece.

Second piece is that we don't want to see these facilities impede how we do business, right?

You want to have, you want to have brand standards?

Wonderful.

You want us to have a certain look and a feel to the operation.

We're all in, right?

But once you start telling me how it has to be designed,

and now that changes how I have to do business, that's a problem.

You're changing my process.

That's a problem.

Correct.

Dealers have to be able to form their own processes for their own local markets, right?

We're not, you know, we're a franchised market here in the United States.

Globally, a lot of manufacturers are looking at direct sale models,

and they're looking at their facilities, thinking about it from that perspective.

We're, you know, our teams are all in on transactions.

We have to be accessible to these transactions.

Our management team has to be available in the transaction with the customer all the time.

So the way that we do business really has to be structured around that premise, right?

You can't have designs that don't fit that properly.

So you need flexibility in the design layout.

They can control somewhat of the design element.

We don't have any issue with that.

I mean, everybody needs to have a standard.

And we do agree that a certain look and feel is appropriate, right?

And we do also agree that, you know, we want a level playing field with one dealer invests

and another dealer doesn't.

There should be a difference in compensation for them.

I don't think there's any complaint there or any argument there.

So anyway, that's kind of the thought process there.

You brought up data sharing, and that's a critical one.

And that's when we're, you know, our previous board, when I first joined the board and was in just the role as a member,

we spent a ton of time trying to get this right.

And I believe that, you know, at least from what NADA shared with us,

we were the first and potentially still the only manufacturer between Mercedes-Benz and the dealers that has this type of data sharing agreement

where we're providing information to the manufacturer in an anonymous way.

So they have access to the data that they can manipulate and push back to us to enhance it through their own, you know, information,

but without actually capturing it and holding it, right?

So lead information can be scored.

The missing pieces and a transaction or in a customer shopping journey that happened online can now be shared with the dealer without violating any kind of terms of privacy.

And that's really important, right?

So the customer's expectation is, hey, I went online.

I started on MBUSA.com.

I went to a dealer website.

I put in a lead.

I looked at 14 different vehicles, right?

I don't want to start over now when I'm talking to the dealer.

The dealer should know what I did.

And we've created that capability inside of this ecosystem with the data sharing and data privacy agreements that were put together.

And we did it all by eliminating third parties, right?

It was direct between us and Mercedes-Benz.

All of this happens directly between us.

I think that's a huge win for the customer ultimately and from a data security standpoint, it's way better for the consumer.

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Jay, what's at the top of your wish list when you think through manufacturer deal relations?

Again, we spoke about several examples here.

Facilities, spoke about data, inventory allocation.

What's at the top of your wish list that you'd like to see happen here in the future?

I'll go back to that first thought process that we have to change the nature of our discussions around trying to create a bigger pie and not trying to slice it.

We spend a lot of time, I think, between dealers and manufacturers fighting over the pie itself.

But we need to be thinking more about how do we grow that pie?

How do we make it bigger?

What are we doing from a business development standpoint?

Are we staying up to speed with what's happening with AI and the way that consumers are shopping today?

I just read a report a couple of days ago.

I can't remember if it was the Wall Street Journal.

But just talking about how consumers are using AI and what AI values in where somebody should buy something is different than what it used to be.

If you shopped on Google, for example, and you started asking Google questions, a lot of times you might be driven towards what was the cheapest price point out there?

AI is not necessarily looking at price point as being the number one driver of where somebody should buy something.

If you're asking the right questions and you're letting the bot do its job, it's looking for value.

That value can come in a lot of different forms.

It's not just price, it's got to be an experience and convenience and whatever else can be provided there.

I think that's a game changer there.

For my experience, that adds up because I actually needed a pillow the other day, a new pillow.

And so typically you'd Google it, right?

You compare it at this time.

I said, I just need the best F and pillow, right?

I literally put it in the chat GPT and it gave me a link to some website that I shouldn't be shopping on, but here I was looking for like a super expensive pillow.

But it actually was it's a great pillow. I bought it.

And I trusted it.

So it is a good point.

Now again, I'm not saying every consumer would do that.

I only wanted a freaking good pillow.

So I proceeded to do that, but you're right.

It is going to impact a certain part of the market.

And it goes to, I don't know if I would even say value, but it sort of goes into a new type of algorithm.

It's kind of holistic.

It's not just price, the bottom line.

There's other factors that come into play.

And I'm just not sure that we're thinking about that between dealers and manufacturers.

Like we want to make sure that we're staying relevant in this discussion, right?

So are we working together to accomplish that?

I'm not sure that we are.

That would, so that would be kind of a higher priority on my wish list.

And I do think that this margin compensation structure piece is something that we've got to figure out.

It's really, it's cumbersome.

I mean, the manufacturers take, they expend massive resources tracking all of these performance metrics, right?

What do I want my people focused on?

I want them focused on my customers every day, right?

I want them in the transactions.

I want them thinking about, you know, how do I win the next transaction?

Not just this one, but are we doing everything right today so that I'm win the next one as well?

And I just feel like we're wasting a lot of time and resources both at the manufacturer and the dealer level chasing these things that are not moving performance anyway.

Yeah, you, you're, I really like your perspectives.

You're very pragmatic and it seems like you tie a lot of your decisions back to the customer.

And I think, you know, if every dealer thought like you an executor like you, I think we would see a tremendous improvement in the industry because you really seem to nail a lot of these points.

And I agree with you with many of them.

Jay, a couple more questions before we wrap up here because it's been phenomenal conversation.

First, I got to ask you, what's your pulse on the ultra luxury market?

I mean, GWagans, I listen, part of the reason I rose, the early account rose so quickly, was tracking the GWag in market.

We literally had this like GWag in index.

And Sam, Sam Dark, who's a co-host on the podcast, they discovered Cardio Ship Guy because Ziegler, Aaron Ziegler actually saw or someone sent him a tweet that I tweeted about GWagans.

I forget it was like at the auction or something like prices dropping like crazy.

And so Aaron got, saw this tweet and you know, they have a couple of Mercedes stores.

And so instantly spoke with the GM and they started liquidating them and lowered the hold a couple of weeks later.

GWagans prices were just like nose diving. This was again, pandemic era.

But I got to ask you, like, what is the pulse on the ultra luxury market today?

Like, how is, how are, give us the GWag in index?

So the GWagans sales are still phenomenal.

You know, there's still a wait for them.

I think that's a really, I'm talking G63, 9.63, right?

550's are still strong. G63's are still as hot as they've ever been.

You know, maybe with the exception of that little window there in 2021, you know, somewhere around there.

But they're still super hot and super desirable.

The current model, you know, some of the adjustments that were made to the vehicle features and things.

I think we're absolutely phenomenal.

They just announced that we're going to get a drop top GWagon coming.

So that's going to be incredible to see.

I can't wait to see what they've got in store there.

You know, one one model that I think is probably not done as well as everybody hoped was the G580 electric.

I think we all expected more from that.

But that's an indicator that, you know, consumer sentiment is not necessarily thinking electric's either.

Right? It's a small portion of the market that really wants an electric.

And I think that's going to continue to be the case.

You know, we'll see where that one goes long term.

But I feel really good about where GWagons are today and where they're headed.

I think it's just going to be exciting.

You know, Mercedes has done a great job of managing the flow.

So that they're not just, you know, pumping extra product everywhere.

Yeah.

You're on a very good job of kind of balancing that.

It is interesting when you think about luxury electric vehicles.

And you look at the escalate IQ.

Yeah.

Which is.

Yeah.

I've only heard raving reviews about this thing.

Yeah.

So it makes you wonder, like, what is that product market fit?

Yeah.

Is it range?

I mean, what is it?

But there's an opportunity there for sure.

There's an opportunity.

And I'm not sure that we found that yet.

But, you know, the more to come on that one right there for sure.

I love it.

Jay, as we wrap up, what did I ask you?

There has to be something out there.

What else is on your mind?

You know, I don't know.

I think, you know, from an industry perspective, I feel good about where the industry is today.

I know that there, you know, there have been a lot of.

There's a lot of fear around where digitalization electrification,

AI autonomous drive where all these things, you know, end up pushing the business.

It is going to all have an impact.

But, you know, the beauty of the car business, the beauty of car dealerships.

And what we do is that we're incredibly adaptive and adaptable.

And we, I think more than anything, we try to understand the changes.

And, you know, the threats as they're, as they're called.

But we look at the more as opportunities, right?

How do we, how do we jump on the bandwagon as opposed to running away from them?

So, I feel good about where we are for the next few years at least and beyond.

But it's going to change, you know?

And I think we just all have to be prepared that we're going to have to change with it.

You know, but I do feel good about it.

It's a great statement.

I love it.

Jay Agresta.

Wow, what a pod.

That was super fun.

Thanks for being candid.

And keep crushing, man.

You're doing great job focusing on customer.

Thank you.

I really appreciate you having me.

Your podcast is awesome.

Appreciate you.

Thank you.

All right.

Hope you enjoyed that episode.

Please give the podcast a rating.

Consider subscribing to the show and check the show notes for links to what we talked about.

Thanks for tuning in.

I'll see you guys next time.

The Battle Between Dealers and OEMs: Why They Have to Win—or Lose—Together | Joseph Agresta, Jr, President of Benzel-Busch Motor Car Corp

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