December 2013, Auto Dealer Today - Feature
I am writing this article to issue a warning to automobile dealers and virtually everyone who is employed by the retail automotive industry. Please bear with me and read this article in its entirety. The deeper meaning of the story at the beginning will become abundantly clear later in the text.
It was Nov. 22, 1963. I was sitting in Mr. Crohn’s chemistry class, bored out of my mind and wishing I was anywhere else. A burst of static from the PA system interrupted the lecture. It sounded like somebody was trying to tune in a radio station. The static cleared up and a voice announced that President Kennedy had been shot.
No details followed. I sat there in class with 30 other 16-year-old kids in total shock. Some of us were crying. I know I did, briefly. We were scared. Was this the beginning of World War III? We began asking questions that have never been answered. Kennedy had been killed and his assassin was murdered before he could go to trial. It seemed all too convenient that the facts and details we needed were buried forever.
In the midst of this depressing time, in early January 1963, I was watching Jack Paar (Johnny Carson’s predecessor) on late night TV. Paar surprised his audience with a taped appearance by a British rock ‘n’ roll band. These guys had strange haircuts and their music was like nothing we’d ever heard. A month later, the Beatles appeared on the Ed Sullivan show, and the world would never be the same again. Beatlemania swept the nation and I was right there in the middle of it.
As you may know, I was a rock jock at WAPE Radio in Jacksonville, Fla., from the late ’60s through the mid-’70s. I consider myself an expert on the music of that generation, but I am a 10th-degree black-belt authority on virtually everything about the Beatles. My collection of Beatles memorabilia might bring as much as $50,000 on eBay.
By 1968, the band had produced a string of wildly successful albums and was working on their most ambitious collection, a two-record set known simply as “The White Album.” One of Paul McCartney’s contributions was “Helter Skelter,” a song featuring thinly veiled references to the fall of the British Empire, the Roman Empire and perhaps the end of civilization. It made a lot of noise, as the writer intended, and inspired countless covers, imitations and, in the case of Charles Manson and his followers, extremely antisocial behavior. They say it was the beginning of heavy metal.
Young, second- and third-generation dealers stand to lose everything they and their families worked their whole lives to build. So why is their participation in national and state dealer associations so sorely lacking?
That brings us back to the title of this month’s article. “Helter Skelter” is an inherently ominous and threatening phrase that means many things to many people. Through the years, I have been the most accurate future forecaster in our business. Whether or not you agree with that is of little consequence to me. The predictions I have made in print over the preceding decades have often gone against the grain of popular thinking. But I stand by my record: More than 90 percent of my predictions have come to pass with little variation from what I forecasted. So believe me when I say we are facing the Battle of the Apocalypse in the retail automotive business. In fact, it’s already upon us, and it’s moving so fast it is going to run us all over.
In times past, it was easy to identify and isolate the threats to our business. Today, the main threat is a consortium of diverse players with an overt, collective mission to totally dismantle and destroy the franchised dealership system.
Bear in mind, I am not saying they are going to transform the system. Their goal is to completely eliminate dealers and dealership employees. That would send shockwaves through the economy, as many of our local support and service suppliers will also be eliminated. You are not safe and you are not immune. Unless our industry mounts a major resistance, I predict you and I will be out of business in less than three years. And the system that replaces us will be a disaster for consumers.
If you are a dealer principal or operating manager, don’t feel secure in knowing you have a major investment in land and facilities. It really doesn’t matter how many generations of your family invested to promote your franchise and build the business. The wave that is coming will render your points completely worthless, right down to the real estate value.
Last month, General Motors launched “Shop-Click-Drive,” a new program that will allow consumers to buy vehicles online. GM says dealers will benefit from slam-dunk leads, but manufacturer-controlled sales could take pricing out of the dealer’s hands
“Okay, Ziegler,” you might say, “you’re acting like you think you’re Paul Revere, but aren’t you being a little overdramatic? The NADA, the AIADA and our state dealer associations are on top of these things.”
Yes, I agree. Your associations are supposed to protect the franchise system and the dealers’ best interests through lobbying and legal actions. But in case you haven’t noticed, it doesn’t appear we’re totally winning on some of the most important issues facing us today.
When General Motors and Chrysler hit rock bottom and disenfranchised thousands of dealers just a few years ago, the national and state organizations were all but powerless to get involved because of the way the situation developed. And, believe me, the manufacturers still think they have too many dealers.
I am a huge advocate of the NADA. I’ve had confidential conversations with their top leadership, and I can tell you they are on top of the issues. But how much can they do with the flaccid level of dealer support they’re getting? It’s called an association because its power depends upon its membership.
I have been a keynote speaker at scores of dealer conventions. The one glaring flaw I see in the state and national organizations is the lack of participation of the younger, second- and third-generation dealers. If you are in that group and you do take an active role, you deserve credit. The rest of you don’t show up, don’t contribute enough and don’t participate.
Tesla only expects to sell about 20,000 Model S electric sedans this year, mostly to wealthy Californians. But this niche builder is poised to expand, and their leadership team is dead set on bypassing or eliminating state franchise laws to do it.
Tesla Is Winning
The direct-to-consumer campaign run by Tesla Motors and its CEO, Elon Musk, is not the worst or most dangerous issue we’re facing, but it deserves our attention. Tesla is a serious threat to the fabric of the franchise system. Musk is challenging the franchise laws, state by state, with what I perceive to be a sympathetic administration in Washington. And make no mistake about it, he’s winning.
Tesla makes only one model so far, a sport sedan, with a crossover SUV in the future. The sedan is a phenomenal product. Mercedes-Benz is already looking to make some kind of alliance. The manufacturer’s target is a luxury niche, meaning it will only sell about 20,000 units this year. But it already has a market cap approaching $20 billion. That’s more than Fiat.
What if Musk positions his environmentally friendly, high-mileage electric car as a marketing and distribution victim of the evil archaic protectionist state dealer franchise laws? Is anyone so naïve as to believe he couldn’t start a national legislative movement out of Washington? You don’t believe he’d find a sympathetic ear on the Hill?
Maybe it’s just my slant, but I believe if Musk wins, you’re toast.
If the franchise laws were to be abolished nationwide, do you trust your manufacturer not to compete directly with you? They have tried it before. And just last month, GM’s CEO, Dan Akerson, announced the rollout of “Shop-Click-Drive,” a program designed to sell cars to consumers over the Internet. One major publication called it “sales without showrooms.”
Assuming you trust Akerson and the senior management at GM to do the right thing by directing those shoppers to dealers — I’m glad you can’t see me smirking right now — who is going to set the pricing? Who is going to distribute the business? Do you really want the manufacturer controlling your sales?
I am convinced there is more than a strong possibility that, once GM has paid off their government debt and bought all their shares back, that they might very well be the first American manufacturer to totally sell out to China. Let’s face it, since its post-bankruptcy restructuring, GM has been busy shipping production and jobs overseas, mostly to China, and south to Mexico. Now, some of that overseas production is almost certainly going to be exported back to the U.S.
Recent research by reputable sources says that Toyota and Ford contributed more to the U.S. economy than any of the other manufacturers. GM was in the middle of the pack.
In the fight to preserve the franchise system, our biggest enemy might in fact be among our most trusted vendors. How many times in the past few weeks have you seen the phrase “Find out what others paid!” on an ad? Did you wonder how the advertiser knows what others paid for their vehicles?
I’ve asked that question of the executives of half a dozen vendors. What I got was a lot of double talk. Apparently, they get most of their information from the insurance companies, some from various government agencies and the rest is provided by the Keebler Elves. I have another theory: I think their information is coming straight from your DMS.
If that is the case, you are paying vendors huge amounts of money to lower your profits and slander your reputation. Why? Because they barrage the consumers with messages that we are crooks who won’t give anybody a fair price if they don’t find it on their own. And yet you willingly sign agreements that give vendors access to all your data, especially your transactional information.
Worse yet, if you take the time to read the agreements, you might find that some of your vendors are so bold as to make you sign over ownership of your data to them. In other words, they own it, you paid them to take it and they can sell it to anyone they damn well please. They’re passing your customers’ information around to each other and their own affiliates, and then using it against you to lower your profits.
Have you Googled your dealership lately? You may be surprised to find that dealers in other cities have squeezed you out of the first page of organic search results.
Did you ever question why they need that information?
The main problem is that so many dealers haven’t got the testicular fortitude to tell these vendors to get out of their dealership and out of their computers. They have you buffaloed into believing you can’t stay in business without them. Believe me, you don’t need any of them. You just need to learn how to generate your own business organically.
The dawn of the Internet Age brought the first lead providers to our industry. Their job was to introduce you to the customers and that’s all they did. Now, they have the technology and your information. They can control the sale and set the profits lower and lower until you choke on your own data. The vendors are selling the cars; all you can do is deliver them — for now.
Has it dawned on you that their ultimate goal is to replace you with their own distribution centers? We’ve all heard vendors bragging about doing away with the current system. They’re talking about you. Just look at the marketing copy. They’re telling customers that we can’t be trusted. Their websites feature bogus horror stories perpetuating old stereotypes about us.
All they would have to do is make a deal with one or two of the big public companies to become distribution centers. By that time, the current major stockholders will have cashed out and retired to a tropical island.
The Big One
As long as we’re talking about hostile and rogue vendors, have you checked Google lately? Google is the battlefield where you, the car dealers, are getting your ass handed to you by your formerly loyal vendors. There are several mild skirmishes going on with Yahoo!, Bing and AOL, but the main battlefield is still Google.
I’ll prove it. Visit Google and enter these three items in the search field: your manufacturer, any hot-selling model and your city. Now hit “enter” and see what comes up. First, there should be a few paid listings in the shaded area. Hopefully your dealership will show up here. Below the shaded area are the organic listings. Does your dealership show up first, second, third or … anywhere on the first page?
Most likely, the first page is going to be a parade of vendors who are dominating your own market in Google search results. One of my dealers performed this test and found that one of his competitors in another city had commandeered his entire first page with videos and ads. Vendors are stealing your customers by shipping them out of your market.
This is not harmless. I read a recent blog entry from one of the biggest so-called lead providers bragging about how consumers who use them will now drive three times farther than just a few years ago to get one of their deals. Fair enough, but notice all the weird little websites showing up in Google that you’ve never even heard of. Those are “bandit” websites where some of your vendors are parking your inventory to give the appearance they’re driving more traffic than they really are.
The No. 1 priority for every dealer right now is to secure the organic listings on the first page of Google. You have to take back your turf. My advice is to spend whatever it costs to run the vendors off the first page in your local market listings. Cancel your business with rogue vendors, and divert that money to SEO specialists who can produce a measurable return on investment. And when the vendors try to lure you back with the number of “impressions” they give you every month, don’t buy it. The bottom line is the number of unique leads they delivered, and the number that resulted in a sale.
Your No. 2 priority is to find out where your inventory is being posted. This part is easy. Just put your used cars’ serial numbers in Google and see which websites come up. You do not want your units on any websites you didn’t ask to list them. Many of them are using your inventory to switch the consumers to other dealers. If you find out one of your other vendors gave them your units, then make a muscle with your money. You are the customer.
As if all this wasn’t mind-blowing enough, we’ve got the Consumer Financial Protection Bureau (CFPB) breathing down our necks. They’re scaring the bejesus out of the lenders by claiming our interest rate markup practices are somehow creating a disadvantage for minority buyers. As I wrote last month,
The NADA convention returns to New Orleans in January. If you don’t think your dealer associations are doing enough to save your business, it may be time to start taking a more active role.
I believe this is another one of those battles we will lose even though we are not guilty of anything other than doing business. There is a strong possibility that F&I will go to flat-rate contracts sometime in the near future.
Meanwhile, the NADA’s annual convention will be held in New Orleans in late January. If you are a dealer or a GM and you’re not planning on participating, I suggest you change your plans. This is a big year. It’s important that we all get militant, and get mobile.
I’ve heard many people, including some friends, whining about how the NADA is handling this decision or that policy. Well, it’s your organization. If you don’t like it, change it. There are some major storms brewing and they’re coming on fast. “Helter Skelter” indeed.
You know, it took the Beatles 18 takes and overlays to get that song right. After the final take, Ringo Starr flung his drumsticks across the studio and screamed, “I got blisters on me fingers!” You can hear it on the recording.
We all need to dig in and fight for our industry until we have some blisters of our own.