On-the-Point

Strangers in the Mall

The Alpha Dawg makes new friends, stands up for Cadillac dealers, charts the rise of the independent lots, and reconsiders free trade agreements.

August 2, 2016

I was sitting in a big comfortable chair in the mall just outside the second-level entrance to Macy’s department store. I was extremely lucky to have secured one of the big comfortable chairs, because every last one of them was occupied. There was a family of five sitting on the sofa, an old man taking a nap, and, in the chair next to me, a well-dressed, middle-aged man playing with his smartphone.

This is the place wives park their husbands while they shop. Most of us have that bored look on our faces that says there’s some place we’d rather be. I played with my own phone for a while until I had seen every post on Facebook and LinkedIn, cleaned up my emails, messaged a few people and even took a selfie. By that point, I was completely bored and out of options to entertain myself. The guy next to me appeared to have reached the same point as he put his phone in his pocket. I said, “I guess your wife dumped you here, too.” He laughed and the conversation began.

He was an African-American guy who I learned was 51 years old and a corporate executive. The conversation ranged from our respective industries to Donald vs. Hillary to the NBA Finals. Out of nowhere, the old man came out of his coma and joined the conversation. He asked us about our smartphones and if we knew how to use them. He was quick to add he didn’t know how to use a mobile device and relied on landlines. I told him, “Yes, I even teach Internet marketing classes to young people in the car business.” He nodded and dozed off.

It was another 45 minutes before the old man’s wife and daughter came out and rounded him up. Five minutes later, my new buddy stood up as his wife approached. Of course, my own wife, the professional shopper, had not yet emerged. Another guy, mid-30s, jeans and T-shirt, with a 2- or 3-year old boy, sat down next to me. I said, “I guess your wife dumped you here, too.” He laughed and it started all over again.

What’s the point of this story, you ask? The point is that we are a generation completely out of touch, disconnected, ships passing in the night. We’re losing our social skills, empathy and ability to connect and communicate without a keyboard. Our kids talk with their thumbs on a handheld with abbreviated codes for showing emotion.

I learned my interpersonal skills from my mom. That woman could start a conversation with strangers in an elevator and make a lifelong friend before they reached the fifth floor. I think that’s why I have had whatever levels of success I’ve achieved. That’s why I am so good at prospecting for business. And that’s why finding great salespeople is becoming increasingly difficult. We’ve entered an era where salespeople throw out a figure $2,000 below invoice and throw in a free bedliner and think they sold a truck. More and more, I am discovering the ability to persuade others and perform a great product presentation is a rare characteristic in today’s workforce.

Ziegler fears General Motors’ plan to sell Cadillacs from “virtual showrooms” is a veiled attempt to trim its 925-store U.S. dealer network.

 
Ziegler fears General Motors’ plan to sell Cadillacs from “virtual showrooms” is a veiled attempt to trim its 925-store U.S. dealer network. 

Overpriced and Overdealered

Just when you think it can’t get any wackier, those zany jesters at General Motors once again offer incontrovertible proof they are holding back higher levels of stupidity in reserve.

Last week, in The Wall Street Journal and several industry publications, there was a flurry of articles about GM’s plan to offer virtual showrooms as part of a plan to eliminate half their Cadillac dealers and replace them with virtual dealerships with no inventory. The plan is to replace demonstration drives, vehicle selection and product walkarounds with virtual-reality headsets that the consumer would put on to experience the “virtual Cadillac” and then, presumably, buy it sight unseen and wait for the package to arrive. Or something like that.

There are a number of reasons as to why that ain’t ever gonna happen — not now and not when George Jetson flies his self-driving car to Spacely Space Sprockets — and I will tell you why. 

The first reason is obvious: It’s General Motors. Of all of the companies that would boldly announce this, GM is the poster child for digital marketing ineptitude. They are bad at it. Everything they’ve touched has turned to failure.

The second reason is that Cadillac’s division president, Johan de Nysschen, appears to be clueless and naive as he steers the Titanic toward the iceberg. De Nysschen is the Donald Trump to my John Oliver. I keep talking about him and he keeps giving me new material.

Talk about denial! Does anyone at General Motors realize what a joke their Internet sales really are? Look at their monumental failures like Shop-Click-Drive and, most recently, the Factory Pre-Owned Collection, both of which are major embarrassments.

Now they’re going to go virtual with some sort of Xbox headset to sell $80,000 cars sight unseen? We’re not sitting in Mom’s basement wearing a headset while we shoot lasers at zombies. Vehicle purchases require a lot of time and thoughtful consideration in the real, hands-on, physical reality most of us live in.

The truth of the matter is that it’s a slick way to get rid of 500 dealers without getting sued and breaking franchise laws. But rest assured, there will be lawsuits. I can already picture Lenny Bellavia warming up for the next class action against the manufacturer.

The question should be, “Does Cadillac need 925 franchised dealers?” How can you justify the existence of GM dealerships that sell multiple marques and only move three or four Caddies a month? In other words, we have Chevy salespeople selling Cadillacs out of the same showroom. It is expensive for the manufacturer and a very real problem. The other problem is they’ve required these dealers to invest and they’ve made commitments. And then there are those pesky franchise laws.

Cadillac doesn’t have the image of an Audi, a BMW or a Mercedes-Benz. De Nysschen wants his marque to carry the cachet of a brand name like Rolex. Excuse me, when people think of Cadillac, they don’t picture doctors, lawyers and Fortune 500 executives. They picture blue-haired seniors peering over the steering wheels of oversize sedans and wannabe rappers cruising around in Escalades with 28-inch rims. They’re the only reliable markets for an overpriced near-luxury product.

I believe the virtual reality thing is more of a smokescreen to get rid of small-yield dealers and pump up the remaining dealers in metro markets. With new, lopsided incentive programs, I feel it’s a certainty that the bigger dealers will annihilate the smaller dealers. They will have a huge edge over those who can’t afford to meet the new standards.

The new program is called “Project Pinnacle” and it has many facets. We’re talking about requiring dealers to have dedicated certified sales teams with uniform dress codes. Dealers must offer roadside assistance, offsite delivery and, presumably, spend big money on showroom modifications. De Nysschen claims the incentives will be greater, but I imagine the little Tier 5 dealers will get screwed, again. Of course, I might be wrong, and it’s all going to be great for everybody. If I was a volume metro dealer selling Cadillacs, I’d be all over this program. Wouldn’t you?

The fact is that Cadillac is greatly overdealered, which forces the manufacturer to overproduce inventory, which suppresses prices and resale. But just about every Cadillac dealer has invested and stuck in there when GM was on the ropes at least once. I would prefer to see GM buy these dealers out at a fair price than act out the charade of launching a virtual reality program and calling it a success.

Dealer Apocalypse Now

Last month, I wrote a prediction that sales were going to slow down (“You Can’t Handle the Truth,” July 2016). I quoted some industry analysts who said the manufacturers collectively were currently getting ready to launch more than 100 virtual showrooms this year. I called this the early stages of the “Dealer Apocalypse.”

In response, I’ve received a ton of feedback from readers, including a number of industry insiders and outsiders. Here’s the truth, which apparently you can handle: Nobody, and I mean nobody, has been successful with totally transactional virtual showrooms. AutoNation invested millions and millions, and they’re probably closer than anybody. Close but no cigar, that is. GM’s aforementioned technobombs, dropped in moments of extreme executive delusion, have been duplicated at other factories, including Toyota. (Talk about delusional. They still claim Scion was a success!)

Sonic has experimented with every new-age happy-sappy sales and marketing process failure as their stock continues to tank. Maybe I’m wrong about that. They might actually be successful. Opinions vary and you know mine. Remember the 45-minute sale, from handshake to taillights? How’s that working out? Check the profits. You’re embarrassing yourselves.

You want the truth? The truth is that consumers aren’t playing by the scripts. Here we have manufacturers and corporations trying to force them into a box they don’t want to be in. Oh, you can manufacture any amount of bogus research and even convince yourself it’s valid. Then reality slaps you on the ass and calls you Sally.

Most of the bogus mantras include some reference to the customer’s best interests. I am so sick of manufacturers sanctimoniously lecturing dealers on what your customers want and need. If the customer experience was so damn important, your manufacturers wouldn’t have continued to install deadly airbags 10 years after they knew the defects existed.

An airbag shooting red hot shrapnel in your face is a customer experience. I’ll grant you that. But it’s not the experience any dealer would have chosen.

The author believes access to new lease and finance options from Ally and BMW Financial could help independent dealers specializing in late-model luxury vehicles steal market share from their franchised competitors.
The author believes access to new lease and finance options from Ally and BMW Financial could help independent dealers specializing in late-model luxury vehicles steal market share from their franchised competitors.

Rise of the Independents

If you recall, I’ve also written repeatedly about the inventory glut we’re experiencing right now that is contributing to suppression of profitability. Fleet buybacks and lease returns are killing an already oversaturated retail market.

The headline read “Non-BMW Dealers Can Buy Off-Lease Vehicles From BMW Financial.” This is the beginning of a real market paradigm shift that will rock the world when the franchised dealers wake up to what’s happening to them.

I do business with many independent dealers on the high end of the spectrum. We’re not talking about buy-here, pay-here dirt lots selling $5,000 cars anymore. The modern independent dealers are operating in every aspect the same way franchised dealers always have. They have a huge marketing and Internet presence and sophisticated BDCs. Without naming the players, I’ll tell you I have independent dealer clients selling highlines in volume netting more than $1 million a month.

Now BMW and other manufacturers are opening up financing, auction credit and probably floorplan assistance to absorb their lease and fleet returns. So will car buyers be able to finance these pre-owned cars through manufacturer financing once reserved for franchised dealers? As I have repeatedly written, all of the manufacturers, without exception, have overproduced the market and over-residualized leases and fleet buybacks. This is the inevitable result of their need to dump these puppies on somebody.

Ally and BMW Financial are now offering used-car leases. Is this going to trend into the next generation of postponing losses and create an even bigger problem in a glutted and oversaturated market?

As independents gain increased respectability and a more positive public perception, I can see franchised dealers competing on a more even field. Personally, I will do well with more potential clients needing my help. But, once again, I see this as another double-cross perpetrated by the manufacturers against their loyal dealers.

Mitsubishi Motors will pay compensation of about $1,000 per customer after directors admitted they falsified fuel economy data on two models sold in Japan since 2006.
Mitsubishi Motors will pay compensation of about $1,000 per customer after directors admitted they falsified fuel economy data on two models sold in Japan since 2006.

Tell Me It Ain’t So?

Another manufacturer was caught falsifying mileage with bogus stats. This time it’s Mitsubishi. This one doesn’t affect the U.S. market, but it goes to show that any given manufacturer, at any given time, is capable of creating bogus data to swindle the customers they claim to love.

I think Mitsubishi only delivered 63 units total in North America last year. That figure might off a little since I just made it up. What’s the difference? This time they were forced to pay the equivalent of $480 million in compensation for falsifying mileage on cars sold in Japan over the past 10 years.

Why, all of a sudden, have all the manufacturers gone rogue? Have they always been this way and we’re just finding out about it? The breakdown in morals and ethics is epidemic. There have always been isolated scandals like the Ford Firestone tires under the command of Jacques Nasser, but it seems now they’re all self-destructing on a grand scale. Volkswagen, once the largest selling manufacturer in the world, might not survive their emissions scandal. They just announced they’re buying back 500,000 cars. And GM got off with a slap on the wrist for the ignition switch debacle.

Last but not least, the Takata airbags scandal just keeps heating up. Federal lawmakers were incensed as they grilled manufacturers in June and discovered four of them are still installing known-to-be-defective Takata airbags to replace deployed bags in late-model used cars. I guess the plan is to catch up and recall the defective replacement airbags before they kill somebody again. What a mess.

In the meantime, dealers are screaming because the manufacturers aren’t living up to the law by compensating them for grounded units under stop-sale orders. It’s going to get a lot uglier before it gets better.

Free trade agreements such as the Trans-Pacific Partnership, brokered by President Barack Obama and the leaders of 11 other nations, have come under attack by politicians on both sides of the aisle.
Free trade agreements such as the Trans-Pacific Partnership, brokered by President Barack Obama and the leaders of 11 other nations, have come under attack by politicians on both sides of the aisle.

Tariffs and Trade Agreements

Fasten your chinstraps, import dealers! Politicians on both sides of the aisle are making noise about dismantling free trade agreements, and I’m not just talking about Donald “35% Tariff” Trump. Hillary Clinton has begun making her own promises to dismantle the agreements we have in place and start over. Democrats and Republicans in both houses are saying it’s out of balance and there’s a lot of talk about it. They’re going to do something no matter who gets elected, and it will definitely affect international car brands sold in the United States.

Trump has already said he will dismantle NAFTA if elected. Now we are seeing pushback from Democrats and Republicans on President Obama’s Trans-Pacific Partnership, a legacy bill he’s trying hard to sell to Congress. It appears very few lawmakers are buying.

Regardless of who wins the election, Trump has stirred up enough dust that all politicians will probably be looking at tightening up our free trade agreements, if not totally dismantling them. Their efforts will certainly be aimed at China and Mexico and, to a lesser extent, Japan and South Korea. Trump’s brush with Mark Fields at Ford about building plants in Mexico and exporting jobs is just one example of a major mood shift in the political arena.

As I wind down another article, my thoughts return to sitting in the mall and talking to strangers. One leaves, another sits down and a fresh conversation breaks out. I will get another chance to perfect my conversation skills when I report for jury duty next week. I don’t know enough about the case to bet on a verdict, but if a factory executive takes the stand, I am fully prepared to completely disregard their testimony.

Until next time, I’m outta here. Keep those emails and calls coming, and if you see me at the mall, pull up a chair and let’s talk.

Comments

  1. 1. Wendell Jones [ August 03, 2016 @ 03:41PM ]

    Great article Jim. As always, you nailed it.

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