Embracing ESG: Paving the Path to Sustainable Dealerships
By Brandon Cohen, National Chairperson, the National Automobile Dealers’ Association

In today's ever-evolving business landscape, the automotive industry faces a pivotal moment of transformation. What was once a mere blip on the radar has now emerged as an undeniable force reshaping how we operate our franchised motor dealerships. As the National Chairperson of the National Automobile Dealers' Association (NADA), I am at the forefront of this paradigm shift, witnessing firsthand the profound impact of Environmental, Social, and Governance (ESG) principles on our industry.

Operating a franchised motor dealership was comparatively simple years ago, with many owner-operators running successful businesses with a small staff complement. However, the landscape has dramatically transformed in recent times – particularly over the past decade.

A multitude of compliance and governance regulations have emerged, alongside other obligations such as increased social awareness and community engagement. These requirements, along with legally-enforceable environmental rules, have reshaped the dealership environment significantly.

All these changes are encapsulated within a relatively new process termed ESG – Environmental, Social, and Governance. ESG functions as a framework to evaluate and manage an organisation’s business practices and performance across a range of sustainability and ethical concerns.

In today’s business climate, sustainability is a fundamental requisite for ongoing success. ESG plays a pivotal role in ensuring the longevity of businesses by providing tangible measures of performance.

For instance, the presence of an effective ESG programme in a retail motor dealership is a substantial advantage for consumers choosing a dealer while purchasing a new or used vehicle.

It serves as a means to mitigate potential issues that may arise during or after transactions, a particularly pertinent factor given the recent surge in new financial and banking regulations.

According to a PWC Australia paper released in April this year (ESG Trends in 2023[1]), research found that 60% of people are basing their purchasing behaviours on sustainability and ethical criteria and this number is expected to grow by 10% annually. South Africa is not Australia, and our vehicle-purchasing habits may be based on differing criteria, but the results cannot be ignored.

Even the ESG-wary USA, where Harvard University reported in its mid-year ESG review[2] that although highly politicised and with upwards of 100 anti-ESG bills introduced across state legislatures, 60% of people surveyed in a Public Affairs Council pulse survey indicated that Americans would like large corporations to look at social issues, environment, and gender-related matters.

NADA continually recommends that their members establish effective, 'living' ESG programmes for the benefit of both them and their customers. There are many headwinds and ensuring the sustainability of a dealer is paramount. Selling vehicles, parts and services is no longer enough to ensure our futures and the more agile we are in learning, understanding and applying logical and effective responses to ESG matters, the better we will fare in opening up a future for each business in our industry.

In the modern landscape, between 50% to 80% of dealership deals are financed, whether they involve new vehicle franchises or used car operations, and whether the dealership is independent or part of a group. This necessitates a firm grasp of legislative requirements within the organisation to ensure full compliance It can be costly if dealer personnel are not familiar with the requirements and able to implement them.

Moreover, South African businesses face an array of regulations including the Broad Based Black Economic Empowerment Act and the Employment Equity Amendment Act, with a specific focus on transformation.

Within ESG, environmental aspects encompass factors such as energy efficiency, waste management, and pollution control. These considerations can extend further to measuring the carbon footprint of the dealership, including greenhouse gas emissions, resource depletion, deforestation, and biodiversity loss.

While environmental factors may entail expenses, dealers are striving to strike a balance between meeting standards and adhering to legal and franchise obligations.

For instance, the installation of solar panels on the dealership's roof can prove costly, and recouping the initial investment can be challenging. However, given the context of load shedding and power constraints in South Africa, ensuring a reliable electricity supply is essential for efficient dealership operations. Consequently, cost-saving measures in other areas of the business may need exploration.

Addressing the social dimension, with the number of franchise dealers operating in our country across multiple brands and vehicle derivatives, companies must approach how they treat various stakeholder groups such as employees, customers and suppliers. This entails fair compensation, diversity initiatives, workplace safety measures, and more. NADA is already playing an important role in the social space with its long-standing, annual Dealer Satisfaction Index (DSI) survey. It is a good way for dealerships to conduct an ESG assessment of their OEMs or importers.

Lastly, the governance facet of ESG pertains to a company's internal controls, compliance practices, and adherence to industry standards. Maintaining sound governance is crucial for building and sustaining trust with customers and protecting the hard-earned profits dealers strive to attain

Governance encompasses areas like leadership, board composition, executive compensation policies, financial transparency, regulatory compliance, ethical practices, and more. Selling a vehicle may bring in an immediate financial boost but being transparent and honest and providing excellent service while meeting the needs of the client will ensure good publicity, workshop throughput in maintaining the vehicle for services and even the possibility of future sales from the client and their immediate circle.

ESG in the retail automotive space can be as simple as:

  • Looking at the immediate Environmental requirements (we already safely dispose of oil, lubricants and old components), moving to energy-saving lamps and timers or sensors and looking into greener energy solutions (better for the environment, long-term cost benefits and the ability to trade during load shedding or water restrictions in the drought-affected regions)
  • Ensuring the dealer has plans to hire, train, upskill and retain a diverse workforce that represents the communities and country in which we operate; and
  • Complies with laws and regulations so as to avoid reputational and financial damage to the business.

The success of ESG hinges on the commitment of dealership staff members to a workable and practical programme that benefits all parties involved. This necessitates a focus on ESG's all-encompassing nature. Ultimately, the integration of ESG should become a way of life for dealerships, securing their long-term prosperity, and enhancing the personal financial outcomes for their employees.

[1] https://www.pwc.com/kz/en/publications/new_publication_assets/esg-trends-in-2023-eng.pdf

[2] https://corpgov.law.harvard.edu/2023/07/31/esg-mid-year-review-key-trends-in-2023-thus-far/aa