On-the-Point

Flock of Turkeys

March 2, 2016

In November, Debbie and I resumed one of our favorite holiday traditions: Thanksgiving at the Ritz-Carlton Lodge Reynolds Plantation on Lake Oconee, Ga., about an hour’s drive from Atlanta. It starts the night before the holiday with the “Lighting of the Lodge” and the arrival of Santa Claus, accompanied by hotel employees dressed as Mrs. Claus, Santa’s elves and Elizabethan carolers. The Thanksgiving feast, complete with dueling chefs, is like nothing I’ve experienced anywhere else. And it’s a dog-friendly hotel, so we don’t have to leave Sadie at home. It’s a unique experience that really sets the stage for the holidays.

And let me tell you, the holidays couldn’t come fast enough. I had been burning the candle at both ends all year. I hit five million Delta miles. I traveled to more dealerships, association meetings, seminars and conferences in 2015 than in any year since the downturn. All the while, I’m following the industry news and keeping up with my network of dealers, executives, experts and insiders to stay informed and share the good, the bad and the ugly with you, my faithful readers, on a monthly basis.

It’s not getting any easier. Our industry is going through some rapid-fire changes. The car business is evolving and there’s something new coming at us almost every day. Sometimes it changes for the better, sometimes it’s worse, and sometimes you just can’t tell.

Ding-Dong! The Witch Is Dead! … or at Least Injured

Rep. Frank Guinta (R.-N.H.) sponsored a bill that would revoke the CFPB’s much-maligned guidance on automotive finance. H.R. 1737 was approved by the House of Representatives but faces an uphill battle in the Senate and the White House. 
Rep. Frank Guinta (R.-N.H.) sponsored a bill that would revoke the CFPB’s much-maligned guidance on automotive finance. H.R. 1737 was approved by the House of Representatives but faces an uphill battle in the Senate and the White House. 

There’s been a lot of buzz about a bill that would revoke the Consumer Financial Protection Bureau (CFPB)’s authority over auto dealer indirect lending practices and participation in finance markup profits. “Reforming CFPB Indirect Auto Financing Act” (H.R. 1737), sponsored by Rep. Frank Guinta (R-N.H.), passed in the House of Representatives on Nov. 18 and now awaits a vote in the Senate.

Unwinding the CFPB’s guidance on auto lending would come as a huge relief to dealers, but we’re not out of the woods yet. The bill would have to draw an unlikely amount of bipartisan support to pass the Senate, and if it did, President Barack Obama would almost certainly veto it. A White House statement issued after the House vote read, in part, “The legislation would revoke guidance issued in 2013 by the Consumer Financial Protection Bureau (CFPB) that protects customers in certain minority classifications from being charged disproportionately higher prices for auto loans because of their race, color, religion or other characteristics that should have no bearing on loan decisions.”

In theory, that’s true. In actuality, dealers and lending executives tell me the CFPB has made it more difficult for many customers to get financing, and those who do are paying more. They see a negative impact for the very customers they claimed to have been helping. H.R. 1737 calls for further study on these effects.

Understand that the CFPB has been on the auto finance warpath. They’re taking on dealers and lenders in an all-out effort to end dealer discounts and rate spread markup profits on dealer-arranged financing. The agency’s directors used the highly dubious theory of disparate impact to prove rate participation profit practices were inherently discriminatory. Unburdened by Congressional oversight, they have yet to disclose how they arrived at their conclusions or by what standards or criteria they made numerous rulings. If you ask me, they’re making it up as they go. 

In my opinion, the CFPB has far overstepped its authority. They are now a rogue agency on an outlaw mission created to right a perceived wrong. Thanks to the efforts of a charge led by the National Automobile Dealers Association (NADA), they were denied jurisdiction over dealers. But nobody can stop them from investigating banks and finance companies and forcing them to change their lending practices or, in the case of Ally Bank, pay a steep, ongoing price for refusing to do so.

Speaking of government interference negatively affecting the car business, it appears Michigan is getting aggressive with placing liens on cars owned by divorced parents who are delinquent in their child support. Similar laws have been on the books in New York and probably other states for some time now. But I am only recently hearing of it being enforced, at least to the extent we’re seeing right now.

I have no sympathy for deadbeat dads (or moms), but enforcing these laws could make a bad problem worse. From what I gather, it kicks in when the debtor is four months in arrears. They can’t sell their vehicle (or even their house) until the lien is settled. If the car has a balance owed to a lender, it becomes a second lien on the title and is added to the payoff before they can sell it or trade it. So if they were trying to trade down to get out of debt, they’re really screwed.

Here in Georgia, delinquent child support results in mandatory suspension of your driver’s license. Of course, if you have no other way to get to work, you’ll lose your job as well — or risk getting caught driving without a license. Carless, jobless or in jail, your child support will continue to go unpaid.

This is your tax dollars at work, folks. Have you called your senators lately?

A competitive market means good showroom talent can be hard to find. The author advises dealers to make sure their HR departments are processing and screening applicants in a timely manner. 
A competitive market means good showroom talent can be hard to find. The author advises dealers to make sure their HR departments are processing and screening applicants in a timely manner. 

Is HR Killing Your Sales Force?

I recently attended a conference in Savannah, Ga., where I served as the keynote speaker. One of the other speakers was my friend Craig Lockerd from AutoMax Recruiting and Training. He delivered one of the most interesting and thought-provoking presentations I’ve heard recently. The title of his speech was, “Did You Hire Them Dead or Kill Them After You Got Them?”

Craig’s company recruits, screens and trains managers and sales professionals for auto dealers. A lightbulb went off in my head when he talked about the fact that, when a new sales pro is recruited, it is not unusual for the dealer’s human resources department to take upwards of two weeks to screen the applicant. According to Lockerd, they lose upwards of one-third of the better applicants in that time.

I sat there stunned. I thought about it and realized I’ve seen it myself in dozens of dealerships: A hot commodity submits their application, HR drags their feet and poof! They’re gone, hired by another dealership with a better, more streamlined hiring process. In a competitive market, this is totally unacceptable.

Hyundai and Kia’s Luxury Lines

I wrote about this last month so I won’t dwell on it in this issue. As you may remember, I’ve been predicting for years that Hyundai and Kia would both spin off luxury lines similar to what Honda, Nissan and Toyota did with Acura, Infiniti and Lexus, following a model established by Volkswagen when it acquired Audi in the ’60s.

Half my predictions have already come true. Hyundai announced that Genesis will become its own marque and add four additional upscale premium models by 2020. That includes the Equus sedan, soon to be known as the G90, along with the upcoming G70, G80 and two models to be named later. I also predicted they would separate the franchises and ultimately require dealers to build facilities for standalone luxury lines in Hyundai and Kia.

Here’s where it gets kinky: The Koreans are also redesigning and putting renewed emphasis on the Kia Cadenza. Hyundai dealers are vocally pissed off that car even exists, much less that they are continuing with a new generation of the luxury Kia. You see, Hyundai dealers were more than just given the impression that Kia would not be getting Genesis- or Equus-equivalent models. Now, it seems that Kia has elevated to almost favored status and the Hyundai brand is getting that neglected-stepchild feeling.

I’m still betting that Kia will eventually spin off Cadenza as its own luxury brand, and I’ll go double or nothing Genesis and Cadenza will eventually require dedicated stores. That’s not the official plan as of this writing, but if I were a Hyundai or Kia dealer, I wouldn’t bet against it.

Batting a Thousand

Ziegler fears the push toward driverless and connected cars by Google and other developers could create a fleet of vehicles that could be targeted by hackers and cyberterrorists. 
Ziegler fears the push toward driverless and connected cars by Google and other developers could create a fleet of vehicles that could be targeted by hackers and cyberterrorists. 

I have been writing, blogging and speaking about this ever since July, when hackers demonstrated their ability to remotely control a Jeep Cherokee. Now it seems our trusted leaders on Capitol Hill are finally waking up to the real dangers of vehicles connected to the Internet. I wrote an article in our sister publication, F&I and Showroom, about a fictitious 500-car pileup after terrorist hackers pushed the button (September 2015, Page 34).

Well, it seems that U.S. Rep. John Mica (R.-Fla.), who is the chairman of the House Oversight and Government Reform Subcommittee on Transportation, expressed grave concerns about this issue at a recent meeting. He said, in part, that “Onboard technology in today’s cars could allow hackers to grab control of vehicles and use them as weapons.” They are seriously studying what federal legislation might be necessary to protect the public.

Let’s face it: We are on the verge of self-driving cars that communicate with each other and can affect performance and operation from external forces and controllers.

First up is Volvo, which just announced a joint project with Microsoft to produce autonomous driverless cars complete with some form of artificial intelligence capable of learning. You may recall that Volvo is now owned by Zhejiang Geely Holding Group, which is a Chinese company. You may also recall that China is a communist country that has been accused of hacking into computers owned by the U.S. government.

Excuse me, but I own Microsoft products now, and there isn’t a day goes by that my virus scans and firewalls aren’t tested. There are hackers and cyberterrorists all over the world who will have nothing better to do than test the security of every connected vehicle that comes to market.

Meanwhile, LG Corp., the South Korean electronics giant, is teaming up with GM to provide high-tech components for the new Chevy Bolt. Google is known to be developing a driverless car of its own and “Faraday Future,” widely suspected to be a front for Apple, is likely to announce the development of a Tesla rival sometime this year.

Get the picture? All these companies are working on technology with the same goal in mind, all using different and diverse technologies to get there, all backed by deep pockets.

Connected cars are going to be a nightmare to regulate and monitor. The government is going to have to enact strict cybersecurity protocols. In the course of defining the laws and safeguards necessary, there is also going to have to be data- and information-sharing between all the platforms and technologies now being developed by a diverse assortment of technology companies.

Buckle up, boys and girls. It’s going to be a bumpy ride.

The author believes Lincoln may be getting back on track with the planned launches of a new Continental (above), Navigator and Aviator after a series of alphanumeric model names depleted the luxury marque’s brand identity. 
The author believes Lincoln may be getting back on track with the planned launches of a new Continental (above), Navigator and Aviator after a series of alphanumeric model names depleted the luxury marque’s brand identity. 

Lincoln’s Back!

It was just two years ago that Lincoln was on life support and Ford Motor Co. was debating whether or not to pull the plug. As much as I love Ford, I’ll be the first to say they have mismanaged their upscale marques. In 2011, they built their last Mercury and discontinued the Lincoln Town Car.

I thought they made a mistake by failing to move some of the Mercury models, particularly the Grand Marquis, into the Lincoln family. And it was obvious somebody bumped their head when they decided to switch to alphanumeric names and abandoned any sense of brand identity.

First, nobody knew what the hell an MKX, MKZ, MKC, MKS or that God-awful MKT was. I have owned several Lincolns in my time, but I couldn’t be convinced to buy another one. That’s part of the reason I wound up in a 2016 Explorer (“Undercover Stealth Car Guy,” September 2015, Page 8). Second, the product lines were bland and unexciting. The styling wasn’t there and I personally found that ridiculous grille offensive.

Well, Lincoln lovers, it’s time to sound the trumpets. The 2016 product line is the dawn of a renaissance. The new Continental is the car the world has been waiting for. Some people say they stole the design and lines from Bentley. Do I care? The car is gorgeous and it gets back to what a Lincoln is supposed to be.

We also get a redesigned Navigator and — get this — there’s a hot chance they’ll reintroduce a mid-sized crossover and call it the Aviator. Now that’s a real car with real appeal and a real name. It might even be the Zieglers’ next purchase.

And what better time to introduce these new models and gather some momentum than while Cadillac is making foolish moves in design, marketing and model lines? Their new president, Johan de Nysschen, is leading the brand into the toilet with his hand wrapped firmly around the plunger. What absolutely kills me is that Mary Barra and all the General Motors board members are going along with it. I predict de Nysschen will eventually be fired and a decades-long campaign to restore the brand will begin the next day.

I’m accustomed to making predictions that fly in the face of the prevailing wisdom. But I don’t see a grain of wisdom in de Nysschen’s plan to build Cadillac’s profile by pricing out a significant number of loyal buyers. I have often said that the reason my predictions comes true so often is not because I am so smart but because so many factory executives are so stupid. Then again, as always, I might be wrong. What do you think?

First Shot in the Hydrogen Wars

Toyota’s new Mirai sedan runs on hydrogen fuel cells, a technology Ziegler predicts will supplant hybrid and pure-electric powerplants to become the alternative fuel of choice for manufacturers and car buyers. 
Toyota’s new Mirai sedan runs on hydrogen fuel cells, a technology Ziegler predicts will supplant hybrid and pure-electric powerplants to become the alternative fuel of choice for manufacturers and car buyers. 

Toyota is, as usual, ahead of the pack and outside the box. They just delivered 35 hydrogen fuel cell-powered cars and expect to deliver 100 more this year, all in California. That’s huge! Hydrogen is expected to prove highly superior to electric and hybrid technologies. Even though Toyota is the first, I think we’ll see Honda and Hyundai introducing their own hydros in short order.

The Toyota Mirai has a range of 312 miles on a single tank of hydrogen. (Compare that to a fully charged pure-electric Nissan Leaf, which you’ll be lucky to drive around the block three times.) Toyota expects to sell 30,000 of these fuel-cell units in various models by 2020. Right now they get a hefty tax credit in California and other special fast-lane perks.

Hydrogen is abundant, clean and easy to produce. This incredible renewable might actually be the real future of vehicle propulsion technology.

I Hate to Pile On, But …

Everybody’s talking about Volkswagen, and they deserve all the contempt they’re getting. The sad part of it all is that the dealers and the dealership employees don’t deserve any of it. And it’s going to get worse, because the Germans are going to continue to act like they’re smarter than the rest of us. Being of German heritage myself, I have the right to talk about German arrogance. It’s sort of like rappers calling each other names nobody else would dare to say.

OK, so they’re giving customers who bought their deceptively engineered cars $1,000 in cash and credit toward service. What a joke. How many dealers do you know would put money on a VW trade-in right now? Their perceived value is in the toilet. One grand per customer? Quit it! They drove the per-unit value down a lot further than that.

I guess we should be happy U.S. customers are getting anything at all. They’re basically telling customers in Europe and other markets to go pound sand.

The real losers are the dealers who have seen the blue-sky value of their franchises plummet toward an all-time low — and they weren’t all that high before the crisis. Six months ago, you’d be lucky to unload a location for a couple hundred thousand over your original cost. The best you can hope for now is to hang onto the real estate and become a landlord.

But I will say this: If I was shopping for a dealership and looking for a long-term investment, I’d buy a couple of VW stores right now. Yes, the OEM really screwed the pooch, but when the dust clears, Volkswagen — and certainly Audi — will still be standing.

It’s time to hit “Send” on this article, and that will just about wrap up my writing assignments until after Christmas. I hope your holiday season was a memorable one. We’ve got a big year ahead. I’ll be here to keep you informed and I hope you do the same. Keep those emails and phone calls coming and look for me on social media.

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