On-the-Point

Convention and Super Bowl Hangovers

March 7, 2017

It’s almost more than my heart can stand. As I sit here late at night in my darkened office, the Super Bowl is over and I am emotionally drained and stressed. A week before the big game, Debbie and I returned home from the NADA Convention in New Orleans, optimistic but concerned. I’m still trying to digest all the things we saw and heard at the convention. There’s a lot on my mind.

I love pro football, but I didn’t watch for the majority of the season — that is, until I found out my Atlanta Falcons were favored in the NFC championship. When they beat Green Bay, I was gobsmacked with awe and amazement. If I had bet on the game, I’d have taken the Pack. But the Dirty Birds were flying high and it was game on!

The Super Bowl was an exhilarating experience for Falcons fans, at least for the first half. How do you blow a 25-point lead? The answer is simple: You get overconfident and lay down in the second half.

The most crucial nail in the coffin was when New England linebacker Dont’a Hightower breezed by Atlanta running back Devonta Freeman and sacked our QB, Matt Ryan, forcing the fumble that took the game away from the Falcons. Until that point, a field goal would have put the game out of reach for the Patriots.

That is the perfect analogy for the “old dog” sales guy or gal who suddenly discovers they’re in a slump. You thought you were bulletproof and now you’re losing the game. You’ve become too smart to work the process and build the sale. You caught the disease they call “expertise.” You’ll dazzle the customer with brilliance and take shortcuts at every opportunity.

Lesson learned: You can never stop doing the basics. You can’t stop blocking and tackling, the crucial steps to closing the deal, just because you think the game is in the bag.

A Packed House

This year’s National Automobile Dealers Association (NADA) convention was the biggest in years. If you’ve never attended, it is unlike anything else in the industry. When it’s in New Orleans, it’s all in one big building, a quarter of a mile from end to end with thousands of exhibitors and attendees crowding the aisles.

Unfortunately, I am still suffering with a back injury that has been with me since late December. I told the doctors to give me something to get me through the weekend. I’m still awaiting the procedure that will fix my disc. Even though I was in great pain, I managed to do eight speeches and interviews, dine at three upscale New Orleans restaurants, and walk the convention floor.

I had the opportunity to talk to a lot of dealers and manufacturer executives. There’s a lot going on right now and the pace of changes is accelerating. Assuming the mindset that not all change for the sake of change is good, these are the things I picked up and read about that I think are worth commenting on.

Fiat Chrysler Is Stepping in It … Again

New Orleans' Ernest N. Morial Convention Center was the site of the NADA 2017 convention. Ziegler believes the show was a hit, but developments in nearby Kenner, La., have raised concerns for Fiat Chrysler's dealer network. 
New Orleans' Ernest N. Morial Convention Center was the site of the NADA 2017 convention. Ziegler believes the show was a hit, but developments in nearby Kenner, La., have raised concerns for Fiat Chrysler's dealer network. 

I still have trouble saying “FCA.” After 41 years in the car business, I still want to call it Chrysler. But then again, I still think of Ram as a Dodge truck.

While I was at NADA, I had a conversation with my friend, Denis Bergeron, a longtime Louisiana dealer. There was an article in one of the industry publications talking about FCA’s project to increase their dealer body to what I am hearing is as many as 400 additional dealerships. Many dealers I talked to feel it is the manufacturer leveraging intimidation to edge them out.

The article specifically mentioned Bergeron. One of the hotspots of contention is the proposed multifranchise FCA dealership the factory wants to install in Kenner, La., less than five miles in a straight line from Bergeron’s dealership and within 10 miles of two other Fiat Chrysler dealerships.

Is it just me, or does anyone else remember the same factory singing a completely different tune back in 2009? During Chrysler’s bankruptcy hearings, executives stressed the need to disenfranchise nearly 1,000 dealerships because they were so “overdealered” it was hurting the profitability of the company and the dealer body. It seems to me they even produced research to prove it.

This time the threats are neither veiled nor subtle. It has been alleged that FCA has issued a formal threat in legal form. The gist of the letter, commonly called a forbearance agreement, typically indicates the manufacturer has found the dealer is in default on one of more articles of their franchise agreement.

Remember, market penetration goals set by the manufacturer are part of this agreement. So if your sales volume minimum responsibility and market penetration do not meet the goals the factory set for you, you are technically not in compliance with your franchise agreement. They also leverage CSI scores, working capital and, if it applies, your floorplan.

The letter offers the dealer two alternatives: Sign an agreement to allow the new dealer to be installed in what previously was your market area without objection, complaint or legal action, or they will find you out of compliance or out of trust and threaten to revoke your franchise.

I remember when Ford Motor Co. took a similar tack back in the late ’90s and early 2000s. They were trying to get dealers to sell their franchises back to the manufacturer in certain cities. It was the first salvo in the failed Auto Collection campaign. I was (allegedly) heavily involved in organizing the dealer resistance movement that brought that fiasco crashing down. This appears to be the same blueprint, different architect.

Reportedly, they are moving quickly, and there are a number of dealer complaints and in-progress legal actions in relationship to state franchise laws. I’d guess that at least half of all privately or family-owned dealerships could not meet all of the requirements of their franchise agreements if the manufacturer wanted to audit and flex their muscles. The deck was stacked when you signed it.

However they choose to justify their perceived pseudo-legitimate stair-step performance goals, any manufacturers that choose to beat up their dealer network should be ashamed of themselves. All of this is just my opinion based on the fact I was raised by a decent family.

The Honda CR-V is one of Kelley Blue Book’s Top 12 family cars for the 2017-MY, a list that includes eight SUVs and four minivans. The author says the shift away from sedans could cost the Toyota Camry and Honda Accord their spots atop the list of bestselling cars.
The Honda CR-V is one of Kelley Blue Book’s Top 12 family cars for the 2017-MY, a list that includes eight SUVs and four minivans. The author says the shift away from sedans could cost the Toyota Camry and Honda Accord their spots atop the list of bestselling cars.

Shifting Paradigms … Again

It seems all sources are saying the same thing: The full-size family sedan is dead. When I research these articles, I read at least three industry news sources and I talk to literally hundreds of dealership people every month. All sources, formal and otherwise, are saying the same thing. Most people would rather buy a RAV4 than a Camry.

This might be the year this shift displaces the Camry as the top-selling car in the U.S. market. Not just the Camry, but the Accord and every model built by every manufacturer in that category is predictably going to see sales fall harder than Humpty Dumpty.

Talking with people on the front lines, I have to agree. There are only three categories of non-truck passenger vehicles consumers are buying: crossovers, SUVs and small, entry-level vehicles in both categories. Sedans, which used to be the center of the equation, are becoming extinct as consumer wants and needs change.

With gasoline at $2.10 at the pumps, fuel-economy doesn’t currently seem to be affecting the market, and the only people screaming for more electric vehicles seem to be the manufacturers building them.

Check out a pre-owned Nissan Leaf in Kelley Blue Book. Anybody you know clamoring to buy one? I didn’t think so.

Subscription Cars

Here we go again. Speaking in New Orleans, Alain Visser, senior vice president of Lynk & Co., said, in part, “The franchise dealer model has remained stagnant for too long.” Without quoting his lengthy, buzzword-filled presentation verbatim, I’ll just say he was building up to his conclusion that dealerships are obsolete and direct-to-consumer sales is the way of the future.

Now, to be clear here, Visser is a Belgium-born former marketing guru of Opel, and is currently employed by Volvo and the Chinese company, Geely, of which it is a wholly owned subsidiary. Excuse me, did you say Opel, Geely and Volvo in the same sentence? This guy’s credentials, in my mind, are suspect and squishy. I put Visser in the same category as Johan de Nysschen at Cadillac. I will keep my inner feelings and opinions of their abilities, talent and relevance private and silent, but you can take a guess.

Lynk & Co. is the new-age subscription model, a new brand built by Volvo. They’ve developed a new car line, totally unique, and I have to admit it actually looks pretty good. The key to Lynk’s marketing is their core concept of direct-to-consumer distribution that entirely eliminates dealerships. Their website is replete with pictures of millennial types and one-liners like, “Buy, lease, subscribe — or just borrow one. We’re a company that isn’t trying to sell you a car. Imagine that.”

They promise to deliver the car right to wherever you are. They’ll even pick it up and return it when it needs service. They describe their cars as smartphones with wheels. They even envision an app store. The concept uses open APIs, like Android, so independent developers can customize applications for the car. All this is centered around an interactive web interface with published services and pricing. In other words, the virtual, web-based, non-dealership of Visser’s fantasy vision.

Of course, fixed, no-haggle, no-negotiation pricing is another cornerstone that (dare I say it?) improves the customer experience and appeals to younger car buyers. His rambling presentation included a lavish showering of millennial references. He also took every opportunity to put down dealers and the way we do business.

What did we not learn from Saturn, Scion, the Honda Element, the Nissan Cube, and the Kia hamsters? As cute as they were, they couldn’t force millennials into buying significant numbers of Souls.

This concept is going to crash and burn. It sounds good on paper, but it will have limited appeal to an extremely limited audience. Will ride-sharing and subscription cars have some level of success? Absolutely. Even with limited appeal, it will become another way to deliver cars. Will it be mainstream and produce huge numbers? Nope! It’s just going to be another niche marketing tool in our toolbox. As soon as the pretenders leave the stage, we’ll handle it.

One thing all of these experiments in millennialism have in common is that, as each of these programs has reached its inevitable and often premature end, some poor factory executive has had to stick their neck out and claim it was a huge success. The truth of the matter is that not one — it bears repeating, not one — manufacturer marketing experiment aimed at millennials has ever worked. By the time they hit their target, the target has grown up and joined the mainstream.

Even though Scion was the bust I predicted, Toyota executives are still high-fiving themselves over the “learning experience” their dealers were forced to participate in. Privately, I do know they learned from it. They learned not to do that that crap again. … Well, at least not until the next generation of executives takes charge and does it all over again.

One price, no-haggle does not work in a competitive market. I said the same to Ross Roberts, a legendary general manager of Ford. We were standing outside the Indiana State Capitol circa 1998. I had just delivered the keynote speech for the state auto dealer convention, where Ross was also a speaker.

At the time, Roberts was heading up the ill-fated Auto Collection, which was Ford’s experiment in buying dealerships in key markets and managing them, selling directly to the public in competition with their dealers.

Privately, Roberts and I had a great relationship, even though I was actively working with the dealers to bring Auto Collection down. In his position, he couldn’t agree with me about anything publicly. Auto Collection was centered on a one-price, no-haggle model, which was the downfall of the entire program.

Two years later, when Auto Collection was disbanded and sold back to private dealers, Roberts had an interview with an industry publication where he repeated what I said to him in Indianapolis: “One price, no-haggle does not work in a competitive market.”

Penske’s Out

The words jumped out of my computer screen last month when I read, “Penske Automotive Group Inc. has backed off a no-haggle pricing experiment.”

Penske is one of the sharpest knives in the drawer. I consider Penske to be among the best operators in the business. You certainly don’t become the second largest dealership group in the country if you’re incompetent. I have always admired Penske and his business model, which is a well-oiled machine with great processes.

Now, I am reading that, after a good faith trial of the pure no-haggle process, they’ve gone back to traditional sales and a traditional commission structure, and sales and profits are increasing again. Roger Penske was quoted as saying, “We failed from the standpoint of being able to grow that business.”

I spoke with some Penske employees to see if there was a backstory behind the news. Honestly, it went down exactly as described. Apparently, they made an honest effort, gave it their best shot, and it just didn’t work for them.

Penske chose a brand-new point with no history or culture to change, a Toyota dealership in Surprise, Ariz. They hired salaried, noncommissioned sales people from nonautomotive retailers such as coffee shops and department store sales backgrounds. The entire sales force attended two full months of training on no-haggle, customer-friendly, no-pressure sales processes. They instituted all the new-age fluffy processes, including training salespeople to handle the entire transaction from start to finish, from the sale to financing and F&I products. Everything was one-price, including products, rates, used cars and trade-ins.

Tony Pordon, executive vice president of investor relations and corporate development for Penske, was quoted as saying they were losing a lot of business to competitors that undercut their no-haggle price. He also pointed out the higher employee turnover they experienced. The telling part of the entire equation was when Roger Penske said that the no-haggle process did not increase sales or profits. Instead he was quoted as saying, “We didn’t see the benefit of lower costs by having one person do the whole transaction.”

That last quote speaks volumes. Evidently, even Roger Penske, one of the sharpest operators in our industry, fell for the snake oil these one-price consultants are selling.

The way they get dealers to agree to change their processes is by telling you that, even though you make less per sale, you don’t have to pay your people as much as you did previously. You can get rid of your commissioned salespeople and pay coffee shop wages to their replacements. You can fire your expensive (and highly trained) F&I managers and let your former baristas sell finance, which is your biggest legal liability exposure.

Are you dazzled yet?

Many of the dealerships that hire these bozos haven’t got the bounceback ability it takes to recover from the damage they cause. Not everybody has Penske’s deep pockets. The great news here is that Penske gave it the most honest shot, no excuses. They did everything asked of them, in the perfect test environment, with a good heart.

The lesson learned is that even if the best operator in the country gave it an honest effort and the process, not the dealer or his managers and employees, failed.

This Battle Has Been Brewing for a Long Time

For years, dealers and vendors have been fighting over data distribution. I’ve weighed in on this battle and started a couple skirmishes of my own. The question of who owns and has access to your customer data — and what they can use it for — is a question I’ve asked from the beginning.

I am not completely sure I disagree with Reynolds and Reynolds and CDK. I can see certain points where I am in agreement with their policies. Their refusal to arbitrarily release consumer data from the dealers’ DMS systems to vendors and third parties is a great example.

We’re seeing vendors lining up to pile on an antitrust lawsuit directed at these industry tech giants. Now we all get to sit back and watch the juggernauts do battle. This is in its infancy, but you can bet it will soon be the biggest ongoing news in our business.

The initial lawsuit brought by Motor Vehicle Software Co. alleges that CDK and Reynolds have a joint venture company, Computerized Vehicle Registration Inc., a company that competes directly with them. The suit alleges that Reynolds and CDK conspired to lock them out of DMS data.

I am sure the lawsuit allegations go deeper, but my main observation is this: The eyes of the industry will be all over this one because those companies’ reach is wide and their profiles are high. Truthfully, though, I predict we’ll see many more vendors jumping into this one before it’s over. I have no dog in this fight, but I know it’s time to break out the popcorn, because the show is about to start.

The End of an Era

It seems like yesterday when Dave Cox and his young daughter, Courtney, attended my management seminar in Providence, R.I. Through the years, I watched as Dave Cox handed the reins over to his daughters and Hare Chevrolet in Noblesville, Ind., just north of Indianapolis, became a juggernaut.

Courtney Cox Cole and her sister, Monica Peck, would become locally famous for their “Sisters of Savings” radio spots. They grew the company and acquired more stores and brands. They continued and built upon a family tradition that began six generations ago, in 1847, when Wesley Hare started selling carriages and wagons.

One of the oldest dynasties in automotive retail came to an end last week when they announced the sale of the company to the Asbury Group. After 170 years, the Hare family is out of the auto retail game.

Courtney, Monica, Dave and the family have been great friends and clients of mine since the early ’90s. Thanks for your friendship. The industry will miss you guys.

This article took a lot longer to write than it ordinarily does. I have more than 50 pages of notes on items I didn’t even touch on. There is so much good material here, and I have already gone far over my page limit. So, until next time, keep those emails and messages and phone calls coming.

Comments

  1. 1. Richie peak [ March 16, 2017 @ 12:15PM ]

    The only way no haggle pricing works is if everyone does it. When i was a child dealers werent open on weekends and kept bankers hours but then one dealer opened on a saturday now everyone is open on saturday and bell to bell is 8am to 8 or 9pm vs 9am to 6pm from years ago.

  2. 2. Carlos Torres [ March 16, 2017 @ 12:53PM ]

    In our market one price selling fails because of competition. In the large geographic Atlanta metro market customers will travel and shop to satisfy their buying needs. The sheer number of dealerships and access to all what is available on the internet here make it easy for consumers to price negotiate.
    One price shops that have poorly trained salespeople pushing F&I products do it ridiculously badly with low penetration percentages. As Jim Ziegler correctly stated the liability and dealer exposure is enough of an issue that a smart dealer will have take notice or spend a whole lot of money "fixing " the issue. What incentive does a salaried employee have to handle true hardened objections in selling back end product ??? The sales turnover ratio in these stores far exceeds of those that work with a leaner, competent supported staff that can set thier earning ceiling. This is not rocket science just plain common sense. Thanks, C Torres

  3. 3. james dollingee [ March 21, 2017 @ 03:33PM ]

    what about the snifter of Louis?

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