On-the-Point

Objects in the Rearview Mirror

November 8, 2016

Photo by EGGHEAD06
Photo by EGGHEAD06

If you’ve never seen Meat Loaf perform live, there is a small vacuum in your life. He is one of the greatest recording artists of all time. His music, lyrics, and powerful message have been a huge influence on my life since the ’70s. His stage presence is unmatched.

All his songs evoke powerful emotions and memories, but “Objects in the Rearview Mirror” is the one that totally envelops me every time I hear it. If we are the result of everything we’ve ever experienced, then it’s fair to say we all look to the past to chart our way forward.

Meat Loaf says objects in the mirror are closer than they appear, and for the most part, that’s true. But in today’s world, old paradigms are being shredded at the speed of technology. We can no longer count on what has worked in the past as a predictor of future results.

Failure to Adapt

In September, I spoke at two conferences and a 20 Group. The title of my presentation was “20 Things I Would Do Immediately If I Bought Your Dealership.” My point was that selling cars today requires an entirely new and different skillset and mindset, and most dealers are lacking both.

And with new processes and technologies comes an equal need for measurement and accountability. There’s a lot of snake oil being sold as progress. You have to do business with outside vendors that provide service, sales, efficiency, and profitability, as well as measurable results. You need a full-service advertising agency, a CRM company, lead providers, and F&I product providers.

I realize some of these services can be handled in-house. You can and should hire employees who are experts in their fields. But if they can’t deliver, and it’s not cost-effective, find a vendor. And please check their references. Don’t rely on the vendor to provide statistics to prove their performance and value. I don’t care if the factory co-ops the expense. That’s a good way to get all the crap for half the price.

So the theme of “20 Things” is twofold: the products and services you need to adopt and the measurements and accountability you have to set up. I gave the dealers in the audience the full list and told them exactly how I would measure, analyze, and hold the vendors accountable.

Over the past month, I have sent my PowerPoint deck to anyone who asked for it and some who didn’t — 40,000 and counting! If you want your own copy, send me an email.

Ziegler says small-volume Cadillac dealers, some of whom are reportedly being offered low-six-figure buyouts, are the first victims of a series of baffling decisions made by division president Johan de Nysschen. Courtesy of General Motors Co.
Ziegler says small-volume Cadillac dealers, some of whom are reportedly being offered low-six-figure buyouts, are the first victims of a series of baffling decisions made by division president Johan de Nysschen. Courtesy of General Motors Co.

How to Lose a Luxury Brand

As those of you who follow my columns are aware, I’ve been ranting and raving about Cadillac’s war on small-town America and my perceived abuse of their lowest-volume dealers. I just read an editorial in the same vein written by the publisher of another industry publication. Either he picked up my ball and ran with it or Cadillac really has lost its way and everyone knows it.

The target of our criticism is Johan de Nysschen, president of the division and, in my opinion, the enemy of any low-volume Cadillac dealer who can’t afford to meet oppressive facility demands. (Larger dealers will suffer through the second wave of attacks.) Now, de Nysschen claims his dealer council is fully onboard and endorsing his program. Personally, I can’t believe anyone on the council has sold out.

I’m sure you have heard General Motors is offering small-market dealers $180,000 to give up their franchises. What a criminal slap in the face that is! We’re talking about multigenerational family businesses that have spent decades investing in facilities and putting it all on the line for decades to further the Cadillac brand.

The message from the factory seems to be that they don’t need to sell Cadillacs in Mayberry. Let the rural peasants and hillbillies drive Chevys. We’re going for the Park Avenue crowd.

Message to Mary, Alan and Johan: It’s not going to turn out the way you think it is. It’s going to fall apart, and the metro dealers will dig in and refuse to make any further facility investments or advertising commitments. Nobody is going to want to play for the weak and risky return on investment you’re offering.

And nobody wants to cash out for $180,000, but I bet plenty of dealers will elect to abandon the Cadillac marque and put their personnel and facilities to work for other, more dealer-friendly products. Look for a massive exodus from the brand as dealers take down their signs and walk away.

I assume some dealers will lawyer up and file legal actions. I wonder whether the dealer associations will march onto this battlefield. I know several of the state associations have written protest letters to GM. It’s possible NADA is working on a plan, but their recent track record for dealing with manufacturer abuses has been less than stellar.

Of course, this is all my opinion. I might be wrong. What do you think?

The expense and complexity of projects like SpaceX could persuade Tesla’s chief executive, Elon Musk, to exit the automotive manufacturing and retailing segment or give up his fight against the franchise model. Courtesy Space Exploration Technologies Corp.
The expense and complexity of projects like SpaceX could persuade Tesla’s chief executive, Elon Musk, to exit the automotive manufacturing and retailing segment or give up his fight against the franchise model. Courtesy Space Exploration Technologies Corp.

The Electric Kool-Aid Cash-Flow Problem

Here we go again. I’m going to step out on a limb and make several predictions expanding on what I’ve written previously about Tesla. To set the foundation for what I am about to say, I want to point out that many publications, including The Wall Street Journal, have recently written articles stating the electric-vehicle manufacturer is high on big ideas and low on cash. 

It’s becoming more apparent that the bloom is off of chief executive Elon Musk’s rose. His company missed another sales projection in the second quarter by an even wider gap than usual. It seems analysts are beginning to have reservations as he continually makes more ambitious claims and predictions and then falls short.

I’ve often said there is a thin line between “genius” and “crackpot.” I should know. I’ve been called both.

Among dealers, Musk went from genius to crackpot in a flash when he decided to take on state franchise laws and sell directly to consumers. He and his company have been engaged in constant legal battles in various states ever since, with limited success.

Taking down the franchise model is just one of many balls Musk is juggling at the moment. His front-burner projects are completing the multibillion-dollar acquisition of Solar City and launching the mass-market Model 3 sedan. At the same time, he’s building the “Gigafactory” battery plant in Nevada, which more than one Wall Street observer has noted is coming in way over budget and with higher estimated operating costs. He opened a $300 million credit line with Deutsche Bank to fund his leasing program.

Meanwhile, he has embarked on his most ambitious project to date: He wants to colonize Mars with a goal of a million residents by 2060. Of course, his most recent rocket blew up on the launch pad in a spectacular fireball while refueling during a routine test. Here’s where it gets cool: According to The Washington Post, Musk and others have hinted that a rogue employee at SpaceX’s main competitor, United Launch Alliance — a joint venture of Boeing and Lockheed — may have fired a laser that caused the explosion.

That’s a lot to think about. Would you blame Musk if he lost interest in the automobile business?

Where am I going with this? I’m glad you asked. I can see it playing out in one of three ways. Two of them involve Musk exiting the manufacturing business and one involves him getting out of the retail business.

Door No. 1: Musk sells Tesla to another manufacturer, injecting billions into his other projects, including the Gigafactory, which will continue to supply the batteries. Bidding for Tesla Cars would be open to anybody — even China!

Door No. 2: Musk sells Tesla to Google, Apple, Delphi, or any other well-heeled technology company that wants to get into the car business.

Door No. 3: Musk throws in the towel and franchises Tesla, allowing a network of skilled retailers to absorb some of his costs and frustrations.

That last one sounds like the right move to me. He can start by targeting former Cadillac dealers.

Volvo has announced it plans to put fully autonomous vehicles in dealer showrooms by 2021, outpacing timelines proposed by other OEMs and tech companies. Courtesy Volvo Car Corp.
Volvo has announced it plans to put fully autonomous vehicles in dealer showrooms by 2021, outpacing timelines proposed by other OEMs and tech companies. Courtesy Volvo Car Corp.

Coming Into the Stretch, It’s Volvo By a Nose

The race to develop driverless vehicles has drawn in virtually every manufacturer of note. I really didn’t want to write about this again, but the story keeps developing new twists and I can’t get away from it.

The latest bulletin comes from Volvo, which has always claimed to produce the safest cars on the road. The Swedes plan to put fully autonomous cars — no brake pedal, no steering wheel — in dealerships by 2021. As I predicted, they have teamed up with a ride-hailing company (Uber), and if the partnership and launch are successful, they will be way ahead of competing timelines.

Sounds good, but as I have written repeatedly, the car-buying public isn’t as gung-ho as the manufacturers and technology companies. According to numerous reports, studies, and surveys, most people are nervous about the technology taking control and concerned for their safety.

A recent survey by Kelley Blue Book found that only 26% of respondents would even consider purchasing an autonomous car by 2020 — and that’s only if it included controls for a human operator. Only 13% of respondents said they were prepared to accept a totally autonomous car anytime in the near future. According to Forbes, 64% of consumers said they flat-out would not buy one.

The idea that autonomous cars will merge into traffic amongst vehicles operated by human beings is scary to say the least. There is certainly going to be an increased danger level, regardless of what we’re being told. Computer-guided vehicles will stop, turn, and avoid front-end collisions with a level of precision that could cause human drivers to plow right into them from every other direction.

That’s not the only problem. In today’s market, less than 3% of all cars on the road are fully electric, and each costs about $10,000 more than its gas- or diesel-powered counterpart. Driverless cars will have to be electric to accommodate all the required computerization. Their injection into the market could result in a massive scrappage campaign. So if the average registered vehicle is more than eight years old, and financing terms are approaching 84 months, it’s going to be a while before we can even start to totally replace the fleet of cars in use.

Of course, all this assumes widespread demand for driverless cars will materialize. What certainly will materialize is additional reasons not to buy them. Hackers have already proven how easy it is to hijack a connected car from any distance.

This is the story that keeps on giving, folks. And no matter how much I resist, it keeps knocking at my door and demanding attention every time I sit down to write a new article.

Surprise, Surprise, Surprise

By now you’ve probably heard that Millennials are growing up, starting families, moving to the suburbs, and buying cars. If you’ve been reading my articles, you heard it here first.

Recent stats show that 78% of Millennials now own at least one car, and another 12% are in the market. More than half of Millennial vehicle owners bought a car before they were 22 years old. In three major surveys, an average of 8% said they would not own a car. (They completed the survey from the backseat of an Uber.)

The other revelation is that they prefer to lease and keep their monthly cost to a minimum, even when they can afford to buy or pay more. In other words, they like cheap, new cars.

This is one more strike against the used-car market, which is already beset by overproducing manufacturers, fleet returns, and off-lease units. There is an accumulating glut of excess inventory stacking up. When it finally tips over, it will bury your store. If you are underwater in your preowned inventory, start bailing out now, even if you have to take the short loss.

No matter what your pre-owned manager says, you must maintain no more than a strict 60-day turn and watch the value of every unit weekly. Use the auction sites, vAuto, and your inventory control dashboard. I’m not saying you need to be paranoid, but you should be cautious.

If your dealership is going to lose money, it’s almost always going to be in wholesale losses on used units. So don’t let your managers load up your trade ACVs when they’re working a deal. And if they tell you not to worry, or that you can sell your way out of it, tell them Jim Ziegler said otherwise.

My fall schedule was packed with conferences, seminars, and dealership visits, and winter is shaping up the same way. People keep telling me to stop and smell the roses, but as I have often said, most of them can’t afford any damn roses. I’ll keep working and writing for as long as I have a voice. Until next time, keep those emails coming and don’t forget to find me on Facebook.

Comments

  1. 1. David Hanson [ November 09, 2016 @ 02:44PM ]

    I'd like a copy of your PowerPoint.
    Thanks

  2. 2. Sara Villarin [ November 09, 2016 @ 04:17PM ]

    May I have a copy of the PowerPoint? Please and Thank you in advance

  3. 3. Billy Kelley [ November 09, 2016 @ 08:17PM ]

    I would like a copy

  4. 4. Steve Whitener [ November 14, 2016 @ 12:16PM ]

    I would like a copy of your PowerPoint. Thank you.

  5. 5. Mark McDonald [ November 16, 2016 @ 05:34AM ]

    I would like a copy of your presentation please.

  6. 6. Rob Berman [ November 16, 2016 @ 05:24PM ]

    Kindly send me your latest power point. Keep up the great work. You see things that others don't and you then tell it like it is!!

  7. 7. Doug Sharp [ November 21, 2016 @ 12:10PM ]

    Love your articles and insight. If you have time, could you send me a copy of your power point on the top 20 things you would do if you bought my dealership? Greatly appreciated. Thanks. doug

  8. 8. Mike Buckingham [ November 30, 2016 @ 11:21AM ]

    Please forward a copy of your PowerPoint. Love your direct commentary!
    Thanks

  9. 9. Joey Holland [ November 30, 2016 @ 12:44PM ]

    Please send me a copy of your presentation! Thanks!

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