On-the-Point

Alpha Dawg Down

A rigorous travel schedule, 108-month financing and more mischief at the manufacturer level can’t stop the Alpha Dawg, but a bout with pneumonia was enough to slow him down.

May 3, 2016

I have visited five cities in three weeks, traveling to the North, South, East and West through some of the worst and most erratic weather of the year. I went from warm weather with pollen raining down everywhere to the snow, cold temperatures and wet, windy weather of the Northern reaches and then back down South again.

I’m happy to be back home in Atlanta, but for more reasons than one. Don’t ever take your health for granted, my friends. Sudden illnesses can deliver a knockout punch.

Struck Down in My Prime

I didn’t think much about the sniffles, chest congestion and coughing when it started. I blew it off as pollen allergies or maybe a head cold. In any case, I was busy. I was in Lake Charles, La., working with a dealer and dealership I hold in the highest regard, Billy Navarre Chevrolet. Picture this: There are 50 sales representatives and managers in my class. I’m in front of the room sniffling and occasionally coughing and sneezing, all loaded up on over-the-counter meds.

Toward the end of the second day, the symptoms were intensifying. I finished up, collected the check, got in my car and pulled out in the direction of the hotel. I didn’t get far. I stopped, picked up my phone and searched for the nearest hospital.

The next thing I knew, I had IVs in both arms and an oxygen mask on my face. They took a lot of bloodwork and samples of other bodily fluids. Diagnosis: severe viral pneumonia. Several more days of tests and observation lay ahead, so I did the only reasonable thing one can do in these situations: I ducked out of the hospital with enough drugs to get me home and made a run for the airport.

I made it back safe and visited my own doctor the next day. (Strangely, he was not impressed with my tale of daring escape.) He straightened me out, but, unfortunately, I had to cancel onsite F&I training I had scheduled at the Island Group in New York City. The dealer, Marcello, understood and was gracious about it, but that hurt. I don’t ever miss a commitment. I even had to skip the NADA convention. Debbie and I hadn’t missed one since 1987.

Now here we are in the second week of April and I just returned from a two-day, in-dealership session in Kansas City. I leave tomorrow for another two-day session at the Route 4 Group in Paramus, N.J.; then I am off to Staten Island to make up for my missed appointment at Island Group, followed by Brandon Hyundai and the Profit Masters Seminar at Dealer Summit in Tampa the week after that.

Debbie is understandably worried. All I can say is this is what I do. My intention is to take extremely good care of myself, dress warm and take my meds and vitamins. After all, the Dawg don’t do sick!

Sales to young car buyers are up nationwide and, in California, Millennials have outpaced Baby Boomers in new-vehicle sales for the first time. The numbers suggest the need to own a personal vehicle is catching up to a generation known for car-sharing and low licensing rates. 
Sales to young car buyers are up nationwide and, in California, Millennials have outpaced Baby Boomers in new-vehicle sales for the first time. The numbers suggest the need to own a personal vehicle is catching up to a generation known for car-sharing and low licensing rates. 

It’s Cool Being Right

I have caught hell from all directions over the last few years about the things I said and wrote about Millennials. Virtually all of the alleged automotive industry experts, gurus and prognosticators fell into a trance beginning somewhere around 2008, predicting the demise of the car business as we know it. “My God, Maude!” they screamed. “The Millennials are coming! We’re doomed! They are the generation that is going to Uber everywhere. They don’t buy cars. They don’t even have driver’s licenses!”

Naturally, that means we have to develop special Millennial pricing and Millennial cars and Millennial-friendly websites. They’re different, the experts said. No, they’re not, I say in response, just as I’ve been saying all along. They’re just like everyone else. They just use different modalities of communication and getting information. If it takes them longer to get in the market, just be patient, I said.

And now? Sure enough, they’re buying cars, getting credit cards, buying houses in the ’burbs, getting hitched and having babies who will grow up to confuse and confound them like they did to us.

As recently reported by the AP, Millennials in the United States bought four million cars last year. The only demographic who bought more was the Baby Boomers. I’m chuckling out loud because that’s exactly what I’ve been saying all along. How many times have I chastised the marketing divisions of major manufacturers for ignoring Baby Boomers? I’m talking about the people who are buying most of the cars, including the most expensive models, have the best credit and buy more frequently. The stats have always been there.

Even though I love Ford Motor Co., the stupidest thing they ever did was throw away the seniors when they discontinued certain Lincoln and Mercury models. They were chasing phantom generational marketing that obviously didn’t work. It appears now that a breath of sanity has awakened somebody at Ford as they once more are building and marketing cars for the customers they threw away.

Even Toyota had to begrudgingly discontinue their failed Millennial brand that Millennials didn’t buy, with Millennial marketing programs that didn’t generate Millennial leads. Scion was a dismal failure and I said so from the time the first one hit the showrooms. In true manufacturer fashion, however, they declared it was a monumental success, then closed the division. Does anybody besides me think that sounds a little absurd?

Now that Millennials are turning into their parents — as every rebellious generation in history has before them — they are buying nearly one-third of all of the cars sold last year and this year to date. J.D. Power says that, in California, Millennials actually bought more vehicles than the Baby Boomers. That’s impressive.

I have always said they were going to change as life’s challenges confronted them, and they did, both individually and as a generation. I knew that was coming because I can still recall my own rebellious years when people that knew me might have said I was a “hippie.” Times change, and everyone needs a reliable vehicle eventually.

Shrapnel from an airbag inflator is being blamed for the death of a Texas girl. As regulators consider adding tens of millions of vehicles to the Takata recall list, Ziegler wonders how a wider recall would affect dealers.  
Shrapnel from an airbag inflator is being blamed for the death of a Texas girl. As regulators consider adding tens of millions of vehicles to the Takata recall list, Ziegler wonders how a wider recall would affect dealers.  

Hot Airbags

What if I told you there might be as many as 90 million additional Takata airbags that could be recalled in the U.S. market?

If you follow my rantings, then you know I have repeatedly said it’s about to get worse. In my opinion, what Takata has done is criminal, and individuals should be prosecuted — not only Takata executives, but also any manufacturer executives who knew about the defects and continued to use this manufacturer and their products anyway.

This goes back to what I wrote about the GM ignition recalls. When any manufacturer knowingly continues to manufacture and sell a product that is killing their customers, isn’t that criminal? Reportedly, there are a number of memos from Takata engineers to management expressing concern over safety in the exact conditions that caused the recalls. These supposedly go back at least a decade. If that’s the case, they deserve every misery they endure as a result.

Stateside, regulators are considering ordering anywhere from 70 to 90 million additional Takata airbag recalls. Currently, there are 29 million vehicles affected. If they pull the trigger — which is highly probable — the impact would be huge. What is really mind-boggling is the possibility that 90 million might not even be the end of it. Between 2000 and 2015, Takata made more than 285 million airbag inflators; more than half of those are installed in U.S. vehicles.

And the hits just keep on coming. The most recent Takata-related death happened just a few weeks ago in Texas, when a teenage girl died after metal shrapnel severed her jugular vein and carotid artery during a low-impact crash she should have easily survived. Investigators have already confirmed the shrapnel was from the inflator. She was driving a 2002 Honda Civic. Her family says she never received a recall notice.

I’m not the least bit surprised. How many times has the average teenager’s 14-year-old Civic changed owners? I still receive recall notices and maintenance requests for cars I barely remember driving. The manufacturers can’t keep up.

So the heat is on and it’s going to be turned up even more as new deaths occur while dealers are waiting for parts and trying to handle the overload. Another 70 to 90 million recalls would send this crisis beyond sensibility. I can’t even imagine what that would do to our industry.

The author says excess units tend to become a problem for dealers, rather than manufacturers, and unsold program cars and off-lease units could soon become a major nuisance.
The author says excess units tend to become a problem for dealers, rather than manufacturers, and unsold program cars and off-lease units could soon become a major nuisance.

Manufacturers Glut the Market

I’ve been all over General Motors’ direct-to-consumer fiasco. Earlier this year, they corralled all of what they used to call “program cars” and rolled them into the “Shop Click Drive” lanes. That entire program has become another monument to manufacturer arrogance, incompetence and audacity. Consumers aren’t going for it, dealers aren’t on board and I don’t expect that to change anytime soon. In fact, the dealers I’ve consulted overwhelmingly consider it one big joke.

Remember, fleet sales have traditionally been the overflow valve where manufacturers dumped excess inventory, usually at a high projected future loss when the units come home. Fleet sales send a false reading into the market that those cars were actually sold and it moves their numbers up so they look good to uninformed investors.

The truth of the matter is that GM over-residualized their fleet and leases, and now they’re stuck with those puppies. The manufacturer is underwater in inventory they can’t unload legitimately at auction. So they hijack the program, hold their retail network hostage with forced pricing and expect the dealers to eat their losses. That’s the way I see it, based on the fact I have enough common sense to come in out of the rain. I might be wrong. (But I doubt it.)

February was the highest month for fleet sales since 2010, if that tells you anything. March figures are expected to come in about the same. We’re talking about most of the manufacturers here. The bad news is that Fiat Chrysler’s fleet sales just went up 39%, Ford fleet just increased 42%, and (get this) Nissan fleet sales went through the stratosphere, up 54%. Is Nissan just getting to the party late? That’s just their way of showing record sales when there really weren’t record sales, since they still have to dispose of those units later.

If you don’t think other manufacturers will follow GM’s lead and dump losses on their dealers when all those over-residualized, high-priced units come home to roost, think again.

I know some of you are asking, “What about GM’s fleet percentages?” I’m glad you asked. GM’s numbers came in at a 24% drop in fleet sales during the same period. I theorize the reason GM’s fleet sales numbers dropped is because they are so far underwater already in off-lease and fleet returns that they can’t shove any more at their already pissed-off dealers. Now, does this mean Ford, FCA and Nissan are going to have a flood of excess overpriced program cars? Stay tuned.

Leasing Is Soaring at Record Numbers

With the average carryback financed on a new-car loan approaching $30,000 and retail loans averaging 67 months, leasing is hitting record numbers. Leases now represent more than a third of all retail sales. With low payments, shorter term obligations, a comprehensive factory warranty, a current body style and all the latest technology, leasing is more attractive than ever to a large segment of retail shoppers.

The problem is — and always has been — that leasing seldom works out for the lessor. Throughout the last 40 years I’ve been in the retail car business, leasing has come and gone in cycles. There’s a good reason why it hasn’t steadily increased as perpetually predicted at the beginning of each cycle.

It always starts out well for the lender and is usually subsidized and guaranteed by the manufacturer. Sometimes the residuals are insured. Still, in the heat of competition, they always tend to jack up the residuals to higher and higher numbers. Residuals spiral upward into the clouds until, abruptly, everybody gets out of that game for a while and the cycle starts again.

I also don’t know where the manufacturers are going to stuff all these excess units, because they do come back quickly. Some dealers already have enough program cars on hand to open a second location. Any more units and they’re going to have to start stacking them. 

Just a few more payments to go: Ziegler fears the trend toward finance terms of nine years and beyond will cost gullible consumers thousands and keep them out of the new-car market for the life of their loans and beyond.
Just a few more payments to go: Ziegler fears the trend toward finance terms of nine years and beyond will cost gullible consumers thousands and keep them out of the new-car market for the life of their loans and beyond.

Financing Gone Wild

Did you hear the one about the credit union that offered its members 108-month auto financing? There’s no punchline because this is no joke. When I first heard the rumor, I went on Google and searched for “nine-year auto loans.” I was amazed to find a huge number of CUs and finance companies offering these terms. I also found numerous worrisome articles on CNBC, USA Today and others, all fretting over the growing 108-month epidemic.

Then I wondered if anyone is offering a 10-year car loan. Bingo! I found several 10-year loans available, and there was even one lender offering 144-month financing on highline luxury cars. Can you imagine submitting the paperwork for a 12-year deal? One of these lenders even had a chart showing that your interest payback on a 108-month loan would be $23,000 on a $20,000 loan.

Coming down to Earth, I have been desking deals and doing F&I in a lot of dealerships recently, and I’ve yet to see any dealership hooked up with a lender doing 108-month loans. But I am in a lot of dealerships that are doing 84-month loans quite frequently.

It’s official: We are killing our business. In a related story, I just read that the FDIC reported that “repossessions and uncollectable car loans” are up 15% from just one year ago. Even more alarming is that uncollectable car loans are at $1.1 billion this year. Consumers aren’t going to keep these cars on these loans at these terms. They’re going to walk away in increasing numbers.

The Other Shoe

When the Volkswagen scandal first broke and we learned that engineers had deliberately installed deceptive technology in their diesel cars to fool regulators, I wondered who else might be up to something similar. The initial news reports took VW’s executives to task for their arrogance. But that’s not a VW thing. That’s a German thing.

Sure enough, it seems some owners of Mercedes-Benz vehicles equipped with BlueTEC diesel engines are alleging that our friends in Stuttgart engineered a similar deception. Lawyers at Hagens-Berman have already filed a class-action lawsuit claiming they have conclusive controlled lab testing proving their claim. Of course, Daimler denies their claims are true. Let’s see where this one goes.

Speaking of the other shoe, last month, I outlined alleged abuses Nissan is inflicting on their dealers, and I talked about how a number of Nissan dealers I spoke with felt the manufacturer had “gerrymandered” their market areas, setting them up to fail to meet their dictated sales performance objectives.

One name that kept popping up in all of my conversations was a Detroit-based company, Urban Science. It seems a lot of the manufacturers have used Urban Science for decades. They rely on the company to help set performance goals for their dealers, supposedly based on market reality, demographics and true market potential in their assigned areas.

Whether it’s called retail sales effectiveness or any other label, Urban Science supposedly assists the manufacturers in knowing what the correct primary market area is for each dealer, how many units they should sell and which competitors they should show conquest sales against, all supposedly based on scientific analysis.

Sounds good. But is Urban Science just a bogus shill for the factory execs to beat dealers over the head? Frankly, some people think so.

One article I read talked about a Kia dealer in Ohio whom the manufacturer is pressuring to get out because he isn’t meeting a mandatory number of cross-brand sales against Honda. Of course, the fact that Honda has a plant there with thousands of employees and their relatives isn’t taken into consideration. At least that’s the way I read it.

Dealers I’ve talked to over a number of different brands point to Urban Science and claim the standards they set are unrealistic and in no way reflect their market or performance capability. Rather, it seems to some they are simply the enforcers for the numbers the manufacturers would like to see. Amazingly, their scientific research aligns with those numbers exactly. I would never say that Urban Science is a “bogus company” that just stooges for their manufacturer clients. I do not know that to be factual. But I’m sure many people could see where dealers might feel that way when their franchise investment is threatened and Urban Science’s research is the justification.

As for me personally, I just don’t know. Something certainly stinks, but I can’t pinpoint where the stench is coming from yet. I will keep you posted. Meanwhile, keep those phone calls, emails and friend requests coming, and stay healthy. You will need to be at the top of your game in the months ahead.  

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