Does Switch to Census Tracts Make Sense?
By Frank S. Washington Ward's Dealer Business, May 1, 2003 12:00 PM

There was little notice last summer when The Polk Co. began reporting vehicle registrations by census tracts, rather than zip codes as in the past.

But it left some dealers unsettled when auto companies began using those census tracks in lieu of zip codes as marketing territories for dealers and for measuring their performance.

It's led to some dealer “unrest,” says Jim Dimond, the Chrysler Group's senior manager for network planning, anxious to clarify misunderstandings.

It's a switch in the geographic boundaries in which dealers are measured for competitive criteria. That includes hitting sales numbers and achieving customer satisfaction goals. A lot rides on those, including manufacturers' dealer incentives and inventory allocations.

Polk assisted several auto makers as they begin redefining their dealer territories based solely on census tracts predicated from the 2000 Census.

Census tracts' boundaries are smaller than zip codes'. Five census tracts can fit into one zip code. According to Polk, census tracts are small statistical subdivisions of areas that average about 4,000 people.

For tracking and measuring, census tracks allow for better zeroing in on population, economic and vehicle registration data.

Jerry Cizek, president of the Chicago Automobile Trade Association, says his group is viewing the change with deliberateness.

“I'm not one of those who tilts at windmills based on some conspiracy theory. We try and wait for reality,” he says.

Robert Peltier of Peltier Nissan-Pontiac in Tyler, Texas doubts the switch will affect rural and small town dealers, since on brand basis they pretty much have wide swaths of territory to themselves.

Nor is Doug Waikem, head of marketing at Waikem Motors' 14 new-car franchises in the Massillon-Canton, OH area, worried about the change — yet.

But he says, “If the census tract changed to benefit manufacturers' marketing costs at the expense of dealers, well, then you've got a story.”

Joe Magarity, of Magarity Ford near Philadelphia, says, “I don't see it being a problem except that dealers are judged on their market share and penetration in their primary market area.”

He says, “Registration by census tracts makes more sense especially in cities where no one is living in some of the houses.”

However, Brett McBrayer, president of the Birmingham (AL) Automobile Dealers Association, cautions that census tract data are not perfect.

“Minorities in urban areas have complained for decades that the Census is off, that they are routinely undercounted,” he says.

The marketing spin from Polk and several manufacturers is that the U.S. Postal Service changes zip codes almost monthly. Thus, on an annual basis, manufacturers must write new contracts altering dealer sales territories to reflect the change in the zip codes that comprise their boundaries.

That no longer needs to be done since census tracts change once a decade. And since census tracts are much smaller than zip code areas, the theory is that data can be better analyzed than in larger areas.

“There is more integrity to the data, it's current, more accurate, it doesn't fluctuate and you don't have to guess why changes are happening, which was the case when we were using zip codes,” says Robin Vrachan, retail market development administrator for Toyota Div. “Census tracts are a lot smaller, therefore, you get a much clearer picture of what's going on.”

Vrachan says Toyota's conversion to census tract registration “barely changed” her dealers' primary market areas.

“In the beginning, they had a lot of questions and they were hesitant,” she says. “But when it happened and they saw the consistency and how they could even track the registrations better themselves they were all for it.”

Still, some dealers are wary.

“The degree to which it impacts us, we'll have to wait and see, “ says one Detroit area GM dealer who asked not to be named. “My concern and the concern that several dealers have expressed is, ‘How will that information be manipulated?’”

In other words, if manufacturers are changing to census tract data to determine dealer areas of responsibility, then there will be an impact. The question is what kind of impact.

For instance, GM switched from evaluating its dealers based on national figures to an evaluation system based on state figures. Variances in buying patterns, says the GM dealer are greater within a state than they are nationally.

“I had had outstanding stellar performance from a national standpoint, but I've had some challenges in meeting what General Motors says I should be doing based on state evaluations,” says the Detroit dealer. “There's a lot of heartburn going on because of that. So it is a manipulation of the data that has everyone worried. What will it mean?”

It means that the Chrysler Group's rural dealers already got a letter from Dimond specifying their primary marketing areas by census tracts, rather than by zip codes. They also got maps showing their exact territory and an explanation of what's going on.

Dimond says, “Dealer areas can change in size. So there is some uncertainty and some paranoia about this. But it has nothing to do with some master plot. It's just a better way to do business.”

Polk says the change offers stable territory definitions for 10 years as well as a more precise breakdown of population segmentation in urban areas.

The new data will also be used to “simplify” dealer performance measurements by eliminating complexities associated with managing dealer areas where zip code changes have occurred.

“We see this as a real improvement,” says Steve Flinker, a senior vice president at Polk. “Anytime you can build from a smaller building block you have a greater impact on the accuracy by which you define a dealer's territory.”

The GM dealer remains unconvinced.

“When people don't know about something, typically it impacts them a lot more than all the things you do know about,” he says. “You better watch it closely, there's a curve ball in there someplace.”