On-the-Point

The Car Business According to Bob Dylan

The industry is riding high, changing rapidly and generating new opportunities for dealers — and their detractors.

July 30, 2014

We’ve always known Bob Dylan was a friggin’ genius, but nobody ever realized his early song lyrics would double as cutting-edge future-casting commentary about the state of the retail automotive industry 50 years later.

We find ourselves working in an industry that is moving fast, changing shape and morphing at light speed. With all the changes we’re experiencing, it’s hard to get a true bead on what we, as retailers, need to change and embrace. It’s hard to know what’s real and what’s an illusion.

Most recently, we’re hearing a lot of alleged research aimed at reducing the sales process to less than 45 minutes, including F&I and delivery. Excuse me, but as Dylan would remind us, “You don’t need a weatherman to know which way the wind blows.”

Wake up, snap out of it and shake it off! Edmunds and a number of vendors are launching automated F&I programs to offer to consumers.

Everyone with their hand in your pocket is piously saying their every move is consumer-driven. We both know it’s just another attempt to steal one of your last remaining profit centers. Unless they can convince us to give it up, they can’t take away and fully automate car sales and turn your dealerships into warehouses. Now, they want to take your finance profits, divert your service profits and control trade-in values while they charge you for the privilege of selling your own customers back to you — after destroying any chance at a reasonable profit.

In most states, the legally required paperwork to deliver an automobile takes 15 to 20 minutes to disclose and sign, even with no sales presentation whatsoever. It can take two hours to shop for groceries. Nobody should complain about the time it takes to properly complete a $30,000 investment.

There are those who would lead you to believe that consumers hate us and the entire buying process while their ad campaigns fill the airwaves with negative and hateful reinforcement. No wonder some of our customers assume we’re dishonest and deceptive. The same vendors we support portray us as the scum of the earth. There is a mass conspiracy of formerly trusted vendors openly brokering car sales by destroying any positives we create.

Ask yourself this: Are you a bad person? Are your customers openly hostile toward you and your staff? Unlike the Manhattan ad execs who design those negative campaigns, I travel all over this great country and spend a lot of time in a lot of dealerships. Most of the customers I see are smiling and having a good time. They genuinely like the people they’re dealing with.

Like Dylan said, “There’s a battle outside and it is ragin’. It will soon shake your windows and rattle your walls.”

Look around your showroom. Do you see any angry people? Despite what some vendors would like the public to believe, there is nothing inherently adversarial about the car-buying process.
Look around your showroom. Do you see any angry people? Despite what some vendors would like the public to believe, there is nothing inherently adversarial about the car-buying process.
Finishing Dead Last
Fool me once, shame on you. Fool me twice, shame on me. It’s the Great Sergio Marchionne Debate, Part 33: “Genius or Crackpot?”

For the last five years, maybe longer, I’ve pointed out that both Fiat and Alfa Romeo were figuratively tarred and feathered and ridden out of the United States on a rail. With a reputation for poorly made and chronically defective cars, Americans spoke with their wallets in the early ’80s and Fiat retreated to Europe. Of course, that was before the Internet provided laser-focused reporting on every new piece of information and minutia.

Those catchy commercials with the sexy Italians coming ashore and partying on the beach coupled with promises of great product gave us all a spirit of optimism about the “New Fiat.” Leave it to J.D. Power’s Initial Quality Survey (IQS) to rain all over Sergio’s parade. With all the hype that accompanied the introduction of the Fiat 500 and 500L, you’d think there’d be no room for even the slightest screw-up, right? Well, according to the latest IQS, Fiat finished dead last. … as in, “worst.” … as in, “riding the bottom of the page.”

Of course those Italians do everything with a dramatic flair. Not only were they last in initial quality, they were last by an incredibly wide margin. Fiat scored — get this — 206 problems per 100 vehicles, compared to a national average of 116 problems per 100 vehicles. The second worst, also found under the Chrysler umbrella, was Jeep, which tallied 146 problems per 100 vehicles.

Fiat’s spokesmannequins attempted to explain and make excuses, but in my less than humble opinion, there is no possible excuse for blowing a launch with so much riding on it — especially since Alfa Romeo is slated to re-enter the U.S. market next, after a 20-year absence. If I were Sergio right now, I’d be furious. But, like Dylan said, “Ain’t no use to sit and wonder why, babe, if’n you don’t know by now. … You could have done better, but I don’t mind. ... Don’t think twice, it’s all right!”

Fiat was greeted with much fanfare upon its return to the North American market in time for the 2012-MY. The marque may have suffered a setback with the release of J.D. Power’s latest Initial Quality Surveys, which calculated a national average of 206 problems per 100 vehicles. 
Fiat was greeted with much fanfare upon its return to the North American market in time for the 2012-MY. The marque may have suffered a setback with the release of J.D. Power’s latest Initial Quality Surveys, which calculated a national average of 206 problems per 100 vehicles. 
Record Sales
Car sales are booming! The SAAR — that’s the seasonally adjusted, annualized U.S. selling rate — just trended upward to 17 million new units sold by year’s end. A more realistic figure might be closer to 16.2 or 16.8 million, depending on whose predictions you subscribe to. Regardless, this is shaping up to be the best year in the history of car sales, so long as nothing derails the momentum.

Let’s pretend we see an additional 43 million pre-owned sales at record transaction prices, new and used. That would easily make this the best year in our history, surpassing 2004, which was the last time we saw numbers like this. It’s a good time to be in the business. Of course, even in the midst of record numbers, it’s interesting to see how the players are jockeying for position and market share.

What was that Dylan line? “And the first one now will later be last, for the times they are a-changin’.”

General Motors recalled nearly 12 million additional units in July, bringing their total recalls to more than 28.9 million units this year. We’re talking about a company that sold only 30 million units during the period covered by the recalls.

That being said, it hasn’t noticeably affected their sales so far. Dealers are, however, beginning to see a little consumer pushback recently. The Chevrolet brand has taken a 3% hit. But, incredibly, GM sales are still up 1% across the board. Their saving grace? Buick, which surged 18% year-over-year. Who would’ve thought Buick would be the premium brand that pulled their OEM out of the fire? I remember hearing that marque was slated for demolition, right after Oldsmobile.

“… And the loser now will be later to win …”

After surviving the overhaul that saw the retirement of the Oldsmobile, Pontiac and Saturn brands, Buick sales increased by 18% in the first half of 2014 and provided a success story for General Motors in a difficult year. 
After surviving the overhaul that saw the retirement of the Oldsmobile, Pontiac and Saturn brands, Buick sales increased by 18% in the first half of 2014 and provided a success story for General Motors in a difficult year. 
OEM Roundup
There are a lot of industry insiders keeping a watchful eye on Ford. Their sales are down 6% as brand loyalists and many others await the launch of the redesigned F-150, Mustang and Edge. This is going to be new CEO Mark Fields’ trial by fire. Those three launches must be absolutely perfect.

Meanwhile, sales of the new Jeep Cherokee are on fire. … Wait, what the heck? Didn’t we just hear that Jeep finished next to last in J.D. Power’s latest Initial Quality Surveys? I guess car buyers couldn’t resist the allure of the Cherokee’s sharp new design and squinting headlights. (They’re actually the turn signals.)

Chrysler and Nissan are leading the pack in market share increases year-over-year and month-over-month. Driven by over-the-top Jeep and Ram sales, Chrysler is up nearly 10% and recently chalked up its 52nd straight month of sales increases.

Toyota showed a steady but limp 3% increase — the industry average for gasoline-powered vehicles — while Nissan continued to surge with a 5% increase, marking its 15th straight month of progress. Honda was down 6% and Mazda was up 17%. Kia and Hyundai eked out a 4% gain.

As I recently predicted, Volkswagen dropped another 22% while suffering from severe clue impairment at the executive level. On the plus side, their Audi luxury division surged by 30% and extended their record-breaking winning streak to 42 months.

The numbers prove that, without exception, every manufacturer is shifting positions in the marketplace and collectively showing record sales. The smallest cars are suffering as the consumers opt for greater size and luxury and continue to demonstrate a deep, abiding love for trucks. The Mini Cooper S suffered the most with a 38% drop-off.

The recent surge in lease deals guarantees a supply of well-maintained, late-model CPO units in the coming years. To ensure repeat business, dealers must resist the urge to sell leases with mileage caps they know their customers will exceed. 
The recent surge in lease deals guarantees a supply of well-maintained, late-model CPO units in the coming years. To ensure repeat business, dealers must resist the urge to sell leases with mileage caps they know their customers will exceed. 
Leasing is Back With a Vengeance
Those of you who have followed my writings and speeches through the years know I have always said leasing is trendy. Its popularity waxes and wanes in cycles. When it’s hot, it’s hot. When it’s not, well, you’d think it never existed.

The reason for the ups and downs in this segment centers around the fact that leasing seldom works out for the manufacturer. It starts out great but then, as competition heats up among lessors, they invariably begin to stretch and ratchet up incentives and edge up with unrealistic residuals. Leasing usually runs strong in a very good market or a very depressed market.

Right now, sales are soaring and the manufacturers are, for the most part, making money. Leasing currently exceeds 25% of new-car financing. Lessees get more car for lower payments, they’re always under warranty, they’re always driving a late model with no risk of being upside-down, and they can keep it at lease end or walk away with no further obligation.

The downside is that you don’t own it until you buy it. If the residual is set too high — which most of them are going to be — it would make no sense to buy it. If it has equity, you own the equity, although we’ve heard some horror stories recently involving the fine print in some lease contracts that says the buy-out figure is not guaranteed if you try to trade the vehicle in for a competing brand.

In those cases, under that language, the buyout can revert to “wholesale” value, which could leave the consumer owing thousands more than they assumed the buyout to be. Finally, many lessors are whacking the consumers with ridiculous recon fees and bogus disposal fees at lease end. Naturally, consumers never blame the leasing company. No, the dealer takes that hit. Then they get trashed in the surveys and on the review sites. Bottom line: don’t sell bad leases.

One example is asking a lessee to sign a lease with a 12,000-mile annual limit when you know full well they will probably drive much further. I see a lot of dealerships doing that on every lease. Very few consumers really stop at 12,000 miles, and you know they are going to get zapped for excess mileage at lease end. Don’t set them up for a fall. They will despise you for it.

Meanwhile, all these leases are going to add a heck of a lot of late-model, premium, certified pre-owned units to your used-vehicle inventory. Brian Benstock at Paragon Honda in Queens, N.Y., is one of my retail heroes. He and his team sold 346 CPO vehicles in May, breaking their own all-time record. Benstock credits the resurgence of leasing as one of the contributing factors fueling the availability of quality pre-owned inventory. Paragon will blow past their previous record of 3,300 CPOs this year.

More Liability Concerns
Everybody is more than aware that 2014 has already been tagged the Year of the Recall. GM leads the pack, but they’re hardly alone. Consumer groups are petitioning the Federal Trade Commission (FTC) to investigate CarMax for reselling cars after failing to check their recall status. The Consumers for Auto Reliability and Safety, The National Consumers League and the Consumers Union were among 11 petitioners whose campaign could have far-reaching implications for all dealers. I’m talking about lawsuits involving pre-owned vehicles you retailed, especially off-brands that may have outstanding recalls pending from their respective manufacturers.

This is just one more thing we need to be aware of to add to the check-in and recon process. These groups are putting pressure on the FTC not only to investigate, but to levy fines, penalties and enforcement on CarMax, a massive, nationwide retailer that could have a long road ahead as they rebuild their process. You have the power to make changes today.

Meanwhile, I am pleased to announce that yours truly has taken the top prize for Sales Training in this year’s Dealers’ Choice Awards. Yes, the awards are sponsored by this magazine. No, I didn’t get a vote. The DCA form can only be completed by dealers and dealership personnel. Past winners in this category include luminaries such as Grant Cardone and Joe Verde. I am truly honored, but I refuse to rest on my laurels.

Come September, you will find me at Paris Las Vegas for the annual Industry Summit. I will be there to host a special one-day Sales Management Conference on Monday, September 8. I sure hope to see you there, because we are going to cover every aspect of sales management and profitability. This one-day session is included in the admission price for Industry Summit, but you must reserve in advance if you wish to attend. Attendees ordinarily pay upwards of $1,500 per head to attend my management seminars, so come for the deal and stay for the education.

The author has nothing but fond memories of the recently departed Ed Bobit, chairman of Bobit Business Media and a friend to the industry. 
The author has nothing but fond memories of the recently departed Ed Bobit, chairman of Bobit Business Media and a friend to the industry. 
Me and Ed
If Ed Bobit had an enemy in the world, I never met them or even heard of them. Everyone loved him. There are very few people in this world worth crying over. When we lost Ed Bobit a few short weeks ago, we lost one of the greatest and quietest heroes in our industry.

You may know Ed as the founder and chairman of the company that publishes this magazine and F&I and Showroom, but the empire he built extends into every corner of our industry and beyond. Please read the tributes that begin on Page 30 with deep respect for the loss of a great man. 

Above all else, Ed was my friend. I’ve been writing for his magazines and speaking at his conferences for nearly five years now. He was kind and generous and he always had amazing things to say and insights on the business to share.

At the NADA Convention in New Orleans a few months ago, he and I had the opportunity to visit one-on-one for several hours. It was apparent he was failing and I was saddened by that. But the memory of that personal time will always be with me. I hardly knew him before he was gone, but believe this: I loved this man as one of my own. I just wish I had met him sooner and known him better.

Jim Ziegler is president of Ziegler SuperSystems Inc. and one of the industry’s most recognizable experts, trainers and speakers.
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Comments

  1. 1. Ken Rosenfield [ July 31, 2014 @ 08:50PM ]

    Great article, as always...right on the money with a little folk rock added in....thanks Reverend Jim!

  2. 2. Bubba B [ August 13, 2014 @ 03:08PM ]

    Great article, as usual. But dude... what's up with all the jewelry - like seriously?

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