Let's Remake a Dealership By redesigning its showrooms, Mazda was able to please--and profit from--the Web-savvy buyers who were once its worst nightmare.
By Bob Parks

(Business 2.0) – When Jason Suker walked into the Mazda showroom in Bountiful, Utah, he quickly found what he was looking for. No, not one of the sporty Miatas he'd been coveting, but a Web kiosk--one of six stationed around the showroom--where he could track down the latest pricing information from sites like Kelley Blue Book and Edmunds.com.

Having glimpsed out front a car he could afford--a four-year-old limited-edition Miata in mint condition--Suker, a 27-year-old college student, quickly pulled up the average retail price on Kelley's. At $16,000, it was $500 more than the dealer's sticker. Then, on eBay, Suker checked bids for similar models and found they were going for far less. With a salesman looking over his shoulder to confirm his findings, the skeptical Suker made a lowball offer and expected the worst: endless haggling over price. But the salesman, after commending Suker for his research talent, eventually compromised and offered up the Miata for $13,300. Deal.

It was an even better deal for Bountiful Mazda. By helping Suker find the bargain price he wanted, not only did the dealership move a used car (with a higher profit margin than a new model), but it also opened the door to the unexpected upsell: Suker left the lot not just a happy customer, but toting a $1,300, 36,000-mile service warranty, ensuring he'd be back for more business.

With bold new showroom designs and revamped sales methods, Mazda is just one of many automakers spending millions on long-overdue dealership overhauls. (Taking advantage of low interest rates, manufacturers and dealership firms have remodeled more than half of all U.S. showrooms since 1999.) But Mazda ranks as the savviest of the bunch, because it's the first to figure out how to make money from the industry's chief enemy of healthy margins: the Web-smart, pitch-proof car buyer.

Folks who bargain-hunt online before visiting the lot account for 60 percent of auto buyers these days. If they're buying new, that means finding the invoice price of the car--the wholesale cost plus a "destination fee" (usually several hundred dollars) and, frequently, a small percentage cut for the dealer. Buyers bring in the price quotes like they're a form of consumer kryptonite, capable of neutralizing any super-powered sales spiel for a higher price.

But Mazda's new dealerships, by taking the unusual step of inviting customers to do their price research in-house--and by giving up invoice prices and discount rates on new and used cars--have pulled off something even more unusual. It's getting those typically standoffish, price-conscious buyers to cozy up to the sales folks, who can then focus on pitching them products like warranty packages and other extras that usually yield much higher profit margins than the car. Says Jim Hoostal, Mazda North America's retail development director, "The invoice price of a car is all over the place. Why not talk about it one-on-one? Customers come in well-armed. Acknowledge that, and you can have a meaningful conversation."

After years of sagging dealer sales, Mazda has some significant numbers to show for its effort. Its six revamped showrooms (Mazda plans to overhaul 200 dealerships by 2008), two of which have been operating for more than a year, are seeing 32 percent jumps in annual sales and generating twice the profit of older dealerships that have experienced similar sales increases. And Consumer Satisfaction Index surveys--important to dealers because they augur long-term success through repeat buyers--show that the Mazda overhauls yield a 10 to 15 percent increase in happy customers.

With the help of Design Forum, the firm that helped launch Saturn's showrooms a decade ago, Mazda threw away old store layouts and plotted the redesign around the profile of its new breed of customer. To fix problems, they made physical changes that they hoped would nudge practices in a profitable direction. With overhauls costing dealers an average of $810,000 apiece (Mazda kicked in $300,000 in seed money for exclusive sites), here's what they got for their money.

Let the Prices Hang Out

Instead of pretending the dealer invoice value doesn't exist--as so many auto salespeople still do today--Mazda trains its sales staff not to play dumb. They'll ask buyers whether they've been looking at cars online and what they've seen.

At the new showrooms, they can see anything they want: While other dealers still keep their PCs locked down to the makers' own websites, each new Mazda store has four to eight Internet kiosks that allow users to browse anywhere, check e-mail, or catch up on news while they wait for an oil change. Buyers compare models, trade-in values, or invoice prices while chatting with a salesperson. The kiosks "help build trust and close sales faster," says Michael MacDonald, owner of Bountiful Mazda, which boasted a 57 percent rise in sales for the first quarter of 2004.

That change in attitude plays directly into a dealer's hand. As Hoostal explains, "Once the customer's guard is down, you find out they can afford more car. You can upsell, cross-sell, and accessorize." The open dialog on pricing helps sales staff broach discussion about finance and service packages and accessories worth thousands of dollars.

Drive First, Talk Later

If there's one thing buyers want from a dealership that they don't get online, it's the chance to inhale that new-car smell, burn some rubber, and feel those seat warmers come to life. But before the makeover, Mazda frustrated many of its customers. Hoostal found that dealers' sales staff spent too much time "qualifying"--and thus annoying--customers with questions about budget and transportation needs before they'd hand over the keys. And price wars between dealerships often made test-drives a fruitless exercise, so many dealers downplayed them.

No more. The new dealerships feature canopied drive centers just outside the front door, with all the latest models gassed up and ready to demo. (And if you make a test-drive appointment through Mazda.com, a greeter will have your "build a vehicle" information on hand when you arrive.) Hoostal retrained his sales crews to get customers into a car as soon as possible. "If I offer them a test of any vehicle they want, it gives them one less reason to leave," Hoostal says. Another benefit: The experience of driving steers buyers away from their fixation with price. "It helps sell the product before you even talk about cost," says Mazda North America COO John Mendel. "It used to be the other way around."

Create a People Magnet

In most Mazda dealerships, Mendel says, the only place customers can sit down and drink a cup of hot--albeit terrible--coffee is a service waiting area, adjacent to the garage. Customers have little incentive to return. "If you could get an appointment," he says, "it would take more than 30 minutes sitting on a broken couch."

In the redesigns, Mazda junked the spartan waiting areas and instead created 400-square-foot cafes, stationed at the middle of the stores, where they serve a dual purpose. They're comfortable places for buyers like Suker to hang out, and entertainment zones for those coveted service and warranty customers. Whether they're buying a new set of Firestones or dropping in for a 50,000-mile tune-up, the cafe gets them out of the garage and surrounds them with gleaming new cars. Says Eric Noble, auto industry analyst for the CarLab, "It's very smart. Why have a separate room in the corner of your service department where they're looking at Parenting magazine, when they should be looking at your latest inventory?"

To draw more people inside, Mazda also declared the cafes a no-fly zone for salespeople. Those buying a car can invite salespeople to join them in the cafe to draw up paperwork, but Mazda has done away with traditional sales booths--further driving home the impression that everything's out in the open. The cafes also offer big-screen TVs and PlayStation 2 consoles--outfitted with Gran Turismo, which, naturally, features the Mazda RX8, just a few steps away from the real thing.

Slick as the new stores are, there's one glitch that Mazda hasn't yet worked out. Log on to Mazda.com and try finding a price quote from any of the listed dealers. What do you find? No prices, just a tacky form to fill out--to request a quote--that you're sure to ignore. Mazda may indeed have discovered how to satisfy Internet customers. But here's the surprising truth: It has very little to do with the Internet at all.