On-the-Point

You Can’t Handle the Truth

The Alpha Dawg says dealers need to be smarter to compete through the next downcycle, and manufacturers need to stop making boneheaded moves if they hope to stay in business at all.

July 11, 2016

Courtesy Columbia Pictures
Courtesy Columbia Pictures

You’d have to have been in a coma since 1991 if you haven’t seen that clip from “A Few Good Men.” Tom Cruise is grilling Jack Nicholson in court. “I want the truth!” says Cruise, in the role of the smarmy lawyer. Nicholson, playing a battle-hardened Marine colonel, explodes. “You can’t handle the truth!” Classic.

No matter what you think about Jim Ziegler, you’ll seldom find anyone who is neutral about me. … Although even my staunchest detractors will agree that my industry forecasts and predictions about the car business have, for the most part, been extremely accurate. I have often made the right call when every other expert and authority in our industry was saying the opposite. History has always seemed to vindicate me when something I predicted rubbed people the wrong way.

We’ve had some recordbreaking years in the retail car business. The market has been exceptional, and virtually every manufacturer has seen record profits and sales. Let’s face it, you don’t have to be a great retailer to make money in the car business right now. You don’t even have to be all that smart.

Stumbling Upward

To be extremely blunt, many dealers have made great money and sold a lot of cars in spite of being really bad at it. In my travels, interacting with hundreds, if not thousands of dealerships and people in the business, I can tell you firsthand that there are some real dumbasses running dealerships and selling cars. Don’t get me wrong: There are some great dealers, managers, and sales professionals out there. But our industry has more than its fair share of morons who think they’re brilliant.

I’m predicting a dramatic slowdown in sales starting almost immediately. Don’t get me wrong: I’m not saying the business is going to crash; I’m just saying we’re about to enter another downcycle. That is measurable and predictable. There are a number of factors contributing to the inevitable deceleration of sales, but most of the blame points directly at the manufacturers collectively screwing up the market again, repeating the cycles of stupidity they’re known for.

Regardless of the reason, however, it’s about to get tougher — not impossible, but certainly more difficult — and you’re going to have to be better and certainly smarter to defend your position. If you are going to survive and thrive in this increasingly cutthroat market, you’re going to have to get ready to go to war. The Internet is the battlefield and your websites, your Internet sales departments and your Google results are the weapons. You are under attack on several fronts, and not just from your competitors. An army of vendors is stealing your customers and selling them back to you at a premium.

Even your own manufacturers are shuffling your customers away and stealing your valuable data as they prepare for the dealer apocalypse. Oh, I forgot to mention, that didn’t I?

Right now, your manufacturers — virtually all of them — are working on virtual showrooms to transact sales and make dealerships obsolete. Remember, there are more than a few vendors trying to turn your dealerships into their personal warehouses to store their inventory. The dealer apocalypse is on more than one planning board.

In a recent webinar on the 2016 Global Automotive Outlook, a person with presumably extensive retail automobile sales experience and qualifications, Lisa Whalen, says manufacturers are probably set to launch more than 100 online digital car stores for their products globally in 2016. (Whalen is with Frost & Sullivan, a major consulting firm that specializes in “disrupting” industries.)

So, Mr. and Ms. Dealer, the manufacturers and vendors are planning a new party and you’re not invited. The vision is to get the dealer count down to a more manageable number. If you’ll recall, that’s the same daring plan they executed during the bankruptcy purge of 2009. If you were to ask them, privately, they would probably tell you they still have too many dealers.

The good news is that the factories are the most incompetent retailers on the planet. Every attempt they’ve made at getting into retail has been a disaster. Then a few years go by and we get an entirely new generation of arrogant know-it-alls replacing the previous generation of arrogant know-it-alls.

Maybe the dealer apocalypse isn’t actually going to take place, or maybe not in the way they see it happening. But what is the alternative outcome? What if dealers actually started to win the battles and changed the way we do business?

It’s time for you to be totally committed to technology-generated sales and marketing. Note that I said “be totally committed,” not “put one toe in the water.” You are on the Information Superhighway, whether you like it or not, and it’s better to drive than to be roadkill.

How did you hear about us? Ziegler urges dealers to focus on Google results and technology-driven sales to remain competitive during the next downcycle.
How did you hear about us? Ziegler urges dealers to focus on Google results and technology-driven sales to remain competitive during the next downcycle.

Your website has to be state-of-the-art, and it has to convert customers to sales. I am here to tell you that manufacturer-mandated websites are just a few degrees above worthless. As far as being competitive, how does anyone even say with a straight face that using the same Web provider as every other dealer in your network makes you competitive?

You also need to invest in social media marketing, and you would be wise to hire an external social media agency rather than try to handle it yourself. Your employees have better, more cost-effective things to do with their time. And don’t just hire the agency your OEM recommends. Do some research. Ask your 20 Group.

While you’re at it, start investigating SEO/SEM vendors to handle your Google accounts and online marketing. The more you can manage your own traffic, the less you have to count on your third-party retailers. Never trust the vendors to deliver stats about their own performance. Hold them accountable for the actual sales they claim to produce. Beware of doubletalk and smokescreens. Page views don’t sell cars. 

Another thing you need to do is get a data-mining program and assign some employees to stay on top of it. Personally, I believe you need a BDC with enough clout that the sales department doesn’t bully them into being ineffective. It happens every day.

The final piece is to educate yourself and your employees on technology-generated sales and marketing. If you are failing in this arena, don’t bother trying to blame your employees. You and your leadership team are the problem. I talk to so many staffers who are great with technology and tell me their boss, general manager or DP is holding the store back. You don’t have to know how to do all of these things. You just need to know what they are supposed to do and how they are supposed to perform.

Lastly, you need to refine and update your processes. It all centers on using the full potential of your CRM. It’s time to become an “edealership.” If you are too cheap to invest in change and training, you’re going to be dog meat. You need to invest in training and technology. That’s the truth. Can you handle it?

Manufacturers are Betting on Ridesharing

Ziegler predicts publicly traded auto groups could start offloading dealership properties as the buy/sell trend cools and car buyers’ preferences shift back toward SUVs and crossovers. Photo by Dipsey
Ziegler predicts publicly traded auto groups could start offloading dealership properties as the buy/sell trend cools and car buyers’ preferences shift back toward SUVs and crossovers. Photo by Dipsey

I have got to admit, even I never saw this one coming. Manufacturers are falling all over each other to get invested in the ridesharing business. It began last January, when General Motors invested $500 million in Lyft. Currently GM is leasing cars to Lyft drivers in selected cities with plans to roll it out to more. They are also spinning off other applications, such as “Maven,” which caters to clientele on college campuses.

Now we’re hearing Toyota is investing in Uber through their finance arm. They wouldn’t disclose how much, but let’s assume it’s substantial. The initial benefit to both companies is the logical progression to Toyota supplying the Uber fleet of cars. Right now, most banks won’t finance a car if they even smell the possibility it’s for an Uber driver. With Toyota invested, it stands to reason they’ll supply and finance those cars. Starting this year, Toyota will lease Uber cars and, in the future, put them on a fleet program like they do with rental companies.

Across the pond, Volkswagen invested $300 million in the European equivalent of Uber, an Israeli company called Gett, which is available in more than 60 cities worldwide.

Even BMW is rumored to be getting in the game, having reportedly invested in Scoop Technologies, which manufactures mobile carpooling apps. That news set off conjecture that maybe they’ll start their own company. BMW had previously invested in an Indian rideshare company called Summon. Finally, Ford also disclosed that they, too, are investing an undisclosed amount in Lyft.

Worldwide, it appears every manufacturer is pursuing the ridesharing business and throwing huge money at it. What really got my attention is that Apple just invested $1 billion in a Chinese rideshare company.

If you’ll recall, I have said this in multiple blogs, articles and speeches that there were entities out there banking on self-driving cars and the Uber generation as the nail in the dealership model’s coffin. What I didn’t see coming was the manufacturers jumping in. I thought they would be held hostage by the companies that owned the rideshare corporations. I never guessed the manufacturers themselves would get in the game.

With this much serious money behind it, one thing you can believe is that the taxi business is doomed. I can also see the luxury limo business going to upscale premium Uber-type businesses. I don’t have the app myself, but I have been along for the ride on a couple Uber trips. It works.

The last figure I heard was that 60% of the cost of doing business was paying the driver in the Uber/Lyft rideshares. If we go to self-driving technology as rapidly as they’re predicting, by 2025, you’ll just call the car and it will appear without a driver. Where will that leave the dealers if the manufacturers own or control the fleets?

And since Apple dropped a billion, I’m going to say watch for Google to also get in the game. Both companies are definitely banking on self-driving cars as well, so the future is closing in faster than predicted.

While I’m Here …

To the author’s surprise, Ford and General Motors are both reported to have made investments in Lyft, joining BMW (Scoop Technologies), Volkswagen (Gett) and Toyota (Uber) as new players in the ridesharing industry. Photo by Another Believer
To the author’s surprise, Ford and General Motors are both reported to have made investments in Lyft, joining BMW (Scoop Technologies), Volkswagen (Gett) and Toyota (Uber) as new players in the ridesharing industry. Photo by Another Believer

Since I stepped out this far already, I might as well make another prediction. What if I were to say watch for some of the big public companies to start unloading some of their dealerships? The last few years have been a buying frenzy as the big players gobbled up dealerships. Last year set a record for dealership buy/sells.

Profits are relative. Many of the public dealerships are profitable only because they bought dealerships that were twice as profitable when they were owned privately.

A little more than a year ago, Mike Jackson at AutoNation announced that they were dropping their third-party lead providers, including Autotrader, Cars.com and TrueCar. They decided to invest $100 million to build their own supercharged, high-conversion websites capable of transacting with their own high-powered SEO/SEM traffic. The new Auto-Nation digital storefront was designed to speed up transaction time and “empower” customers (along with at least 25 other corporate buzzwords).

I’m not sure how that worked out for them, but I do know they’re back with TrueCar and I suspect they’ve gone back to the other lead providers as well.

Not only has the acquisitions frenzy cooled off dramatically, the demographics are changing. What was hot is now not, and the public is moving away from the luxury segment according to brokers and experts. With the market shifting back to SUVs and crossovers, I can foresee the publics unloading some of these liabilities as the values drop.

Truthfully, I believe the entire industry is bracing for a slowdown, although I may be the only one saying it out loud.

Of course the manufacturers are glutting the market (again) with fleet returns and off-lease vehicles. It never ceases to amaze me that manufacturers get so melodramatic about a dealership’s customer satisfaction surveys when they are so willing to get on the phone and tell dealers to manually enter vehicles into their sales reports at the end of every month.

General Motors has recalled more than 800,000 Buick Excelles as part of a recall affecting more than two million Buicks and Chevrolets that were built and sold in China. Courtesy General Motors
General Motors has recalled more than 800,000 Buick Excelles as part of a recall affecting more than two million Buicks and Chevrolets that were built and sold in China. Courtesy General Motors

Full of Hot Airbags

The Takata airbags story continues to be a cloud hanging over the industry and dealers are paying for it. Some dealers have lots filled with “stop sale” cars and trucks. And since the federal government has been slow to action, some of the states are now getting involved. Virginia and Maryland are among the first to pass bills requiring manufacturers to pay dealers ongoing compensation for cars on their lots that cannot be sold and repairs that are not available.

Stop sales on new vehicles are easy to quantify, but what about all the used cars that fall under the recalls? This is a dilemma. Off-brand dealers may have any number of these units on their lots, and there is no law to cover their liability.

Dealer associations in almost every state are lobbying for relief, and bills are being drawn in a number of states as I write this. I’ve spoken to several executives who they feel they’ve made great progress. The problem is, and will remain for an unforeseeable time, that the manufacturers can’t come up with a fix in any timely fashion. This thing is too huge and out of control.

But don’t feel sorry for Takata, and don’t feel sorry for all of the manufacturers that continued to use their airbags. This situation was known internally and engineers warned them for years. It wasn’t like they just woke up one day and realized their product was killing customers.

In 2014, the National Highway Traffic Safety Administration (NHTSA) fined Takata $200 million. At the time, Transportation Secretary Anthony Foxx said, “For years, Takata has built and sold defective products, refused to acknowledge the defect, and failed to provide full information to NHTSA, its customers, or the public. The result of that delay and denial has harmed scores of consumers and caused the largest, most complex safety recall in history. Today’s actions represent aggressive use of NHTSA’s authority to clean up these problems and protect public safety.”

With more than 100 million airbags affected, the answers aren’t readily available, but the right people are on the case as the associations take it to the lawmakers. In truth, some of the manufacturers are already making every effort to keep the dealers financially compensated for downed units, but there needs to be a uniform federal law that covers new and used cars affected by the recalls.

Meanwhile, Takata is trying to sell the company. First, Japanese officials are asking the U.S. to lighten up because it would cause a hardship. Takata is facing billions of dollars in costs associated with the recalls, plus lawsuits and multiple governments coming after them.

A U.S.-based buyout fund, KKR, has reportedly offered to buy a 60% stake in Takata and offered to administrate a restructuring plan. Regardless, it’s not going to get better anytime soon.

Made in China

General Motors, in a joint venture with China’s SAIC Motor Corp., is recalling more than two million China-built Buicks and Chevrolets. I am laughing until tears roll down my face, and if you have been keeping up with my coverage of this story, you could probably use a tissue yourself. Poor quality has always plagued Chinese products and workmanship. A foreign corporation like GM cannot own a company in China without Chinese ownership; therefore, everything in China is basically a joint venture.

I warned last year that General Motors plans to build Buicks in China to be exported back to the U.S. I said it then and I’ll repeat it now: it is a stupid move born of greed. The Chinese-built Buicks and Chevys are being recalled because the engine crankcase valves can corrode.

Corroded valves? Are you kidding me? Who didn’t see that one coming? The answer: Alan Batey, that’s who. It’s no secret that I think Batey is a bumbling incompetent, but that’s my personal opinion of his ability to lead based on observation of his accomplishments, or lack thereof. Of course I could be wrong about him, although I sincerely doubt it.

Now we’ve got General Motors’ premier quality luxury brand scheduled to be built in China with low-grade metal components and shipped to U.S. consumers, and dealers are going to have to eat the headaches.

For years I’ve been labeled a voice in the wilderness. But my predictions still have an uncanny way of coming to pass. Positive or negative, I will always call it as I see it, regardless of who it offends. I called this Buick thing right but that was a no-brainer. Whoever at GM thought this was a great idea evidently had no brain.

Everyone says change is coming and I agree. The only problem is that I am not sure it’s going to be for the better.

Finally, I am greatly honored and humbled (if that is possible) to have won a third consecutive first-place Diamond award in the Sales Training category of the annual Dealers’ Choice Awards. Thank you to all the dealers, managers and sales professionals who took the time to vote for me. I want you to know I have a shelf above my desk that holds a lifetime of awards — starting with my Eagle Scout plaque — but my DCAs mean more to me than anything else.

Until next time, keep those emails and calls coming, even if you don’t agree with what I have to say. I can handle the truth.

Comments

  1. 1. Jim [ July 14, 2016 @ 12:01PM ]

    When times are good, everybody thinks it's what you do is easy - giving management a false sense of security

    When the marketplace tightens and times get tough all your weaknesses become magnified

    Mistakes become more costly and lack of leadership will bestow your business

    #WilkinsonSmooth

  2. 2. Steve Richards [ July 22, 2016 @ 12:25AM ]

    Thought provoking and more right than wrong. Thank you Jim.

  3. 3. fred [ August 10, 2016 @ 08:08PM ]

    I have been following you for a long long time and have loved your predictions. It always put me ahead of the competition. Thanks again Jim

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