Monday, March 16, 2009

A Little Car Talk

Pretty much everyone who knows me knows that I spent the last dozen years working in the car industry—selling them, training people how to sell them, consulting with dealers on how to be more efficient and profitable. So, I thought I’d spew forth some thoughts on the industry, its ailments and what would help.

We know that GM and Chrysler are on the brink. Ford is shaky. Toyota lost money last year. If Honda made money, it wasn’t much. VW is now making noises that it wants to grow to become the top auto manufacturer in the world. Lots of turmoil and changes.

Even when things were going pretty well, people had quit buying vehicles from American manufacturers. The reason was pretty simple, for too long the Detroit 3 didn’t make very good vehicles, put its priority on SUVs even when gas got to $4 a gallon and in general didn’t do a very good job. Then the economy went down the toilet and people just quit buying. It crippled an already wounded Detroit 3 and hamstrung the major Asian manufacturers. But that’s only part of the problem.

Bailouts from the taxpayer may keep the manufacturers afloat—or not. But that doesn’t have a whole lot to do with the process of actually buying and selling vehicles. That’s done at the franchise or dealership level. And at the dealership level is where the car industry gets it deserved bad name. Let’s be crystal clear, there are a lot of dealers out there that are ethical (the last place where I sold cars epitomizes how to do it with integrity). But, there are also a lot of dealers, irrespective of their nameplate, who seem to revel in perpetuating the image of the double dealing, lying, screw the customer car dealership.

Here’s the bottom line—if there’s something going on in a sales negotiation with a customer that you won’t, can’t or don’t disclose then you damn well shouldn’t do it. Things such as “stealing trades”—which is intentionally undervaluing a vehicle trade appraisal to boost profit. Things like claiming that a customer’s credit isn’t as good as it really is in order to boost the interest rate of a naïve or unsuspecting customer. Things like high-balling a proposal (“pencil” in the jargon of car sales) in order to “launch” the customer and then get them “under control” and more reasonable during the remainder of the negotiation.

Things like failing to disclose “back-end” (warranty, GAP insurance, etc.) during the negotiation and close, which isn’t supposed to be done, but still routinely happens. And after underallowing on a trade, financing a customer for 84 months (7 years) knowing that the customer will want to replace the vehicle in less than 4 years and will have thousands and thousands of negative equity (talk about shooting yourself in the foot).

These are just some of the things which alienate customers. There is an even longer litany which can be listed. However, these types of behaviors put the retail side of the industry in a bad light and even worse, are indicative of a mind-set which is concerned only with “today’s sale” rather than on building loyalty and repeat business. I know of a dealer in the L.A. area who brags about the $2 million sign he has soaring over the dealership paid for by the profits from the over-priced after-market service contracts he sells with proceeds going into off-shore accounts. His profit margin is so high because he revels in making it exceedingly difficult for customers to get pay-outs on the service-contracts for repairs.

And, there are still far too many sales managers and sales staff who think it is perfectly all right to lie to customers. All this combines to imperil the auto industry in a totally different way than the poor decisions and management of some manufacturers. No brand of car is immune from dealers who operate in this fashion. It’s not confined to the Detroit 3. You’ll find Lexus and Honda and Mercedes and Kia dealers who do the same kinds of things. By the same token you’ll find Infiniti and Toyota and BMW and Suzuki dealers who are totally ethical.

Caveat emptor has long been the watchword of the retail side of the auto industry. Until this changes, the industry will continue to be in peril—at the expense of the consumer.

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