Dealer Sounds Off
Mr. Roscoe:
There is a call from every factory to its dealers to change the way in which they (the dealers) sell cars. The proposed changes run the gamut: excessive computerization, new signs, elimination of co-op advertising, unreasonable requirement of alleged tools and equipment and so on. They have no track record and they will be at huge expense to the dealers. What is the rationale for the factory demands and what are the consequences for the dealers?
The retail car business, like human nature, has not really changed in the last seventy-five years. Nothing happens, or matters, until a car is sold. The basics of the car business, from meet and greet to giving the best possible service before and after the sale, remain fundamentally unaltered.
Why, then, is there a clamor to force change? What is the change expected to achieve that is not being achieved now? One must justify the need for change: analyze the forces involved and measure the pace of change. It seems that four major factors are guiding the proposed changes: pell-mell proliferation of computer technology, huge cost shifts from the factory to the dealer, factory desire to control dealer operations and a lack of debate about the wisdom of the changes.
The proliferation of computer technology has succeeded in creating a media hype and hysteria about its essentiality in selling cars. Doubtless, computers and technology are important in properly servicing the technologically advanced automobile of today and the future. But selling cars is essentially a relationship business, not subject to irrational emphasis on the computer. Lately, dealers are much too busy attending to the demands of computerization to have much time left to "mind their stores."
Computer technology, especially the Internet, is forcing a change in dealerships for its own gain, instead of responding to a need. It designs the changes first and then asks the dealers to accept them even though it has a limited effectiveness in selling cars. Thus, a factory-technology complex has emerged, reminiscent of President Eisenhower's reference to the military-industrial complex. This complex, awash with the bounty of recent strength in economy, is asking dealers to assume huge expenditures in order to meet the proposed changes. An analysis of the factory profits and the collective dealer profits suggests that some of the proposed changes have direct economic rewards for the factory. If that is the case, the short-term profits for the factory could have long-term adverse effects for everyone concerned.
The proposed changes could pile on unprecedented and as yet unforeseen expenses upon dealers, which could be very difficult to reverse when economic downturn occurs. Thus, these expenses amount to borrowing from the profitability of future dealer generations. Have we not learned a lesson about the risks of deficit financing? It would be prudent to heed a time-honored admonition: Do not over-commit in the times of plenty.
It is most unfortunate that the trade organizations and the media in general, but trade media in particular, have been conspicuously silent about these changes. They seem to have a love affair with the factory-technology complex. The proposed changes have not been subjected to media scrutiny or impartial analysis of their cost-effectiveness. It seems dealers are being asked to bear most of the expenses inherent in the proposed changes, while the factory is not assuming its fair share; instead, the factory may well be making money off the changes. It is imperative that dealers know the future impact of these changes upon their profitability, even survival, before committing to related exorbitant expenses. The bonanza of the Fed policies, and the dollars of the baby boomers, will not last forever.
Let us pause and subject any proposed change to a thorough, deliberate and critical analysis before it is implemented. It is high time that the trade organizations and publications come to the aid of the dealers in slowing down this runaway train.
A concerned dealer As the dealer advocate publication, we will continue to champion America's dealers and publish articles and letters other publications are afraid of ed.
Kudos
Mike Roscoe:
Just a quick note of appreciation for publishing the "Business Development Center" articles written by Mr. Forrest Scott of Dynamic Marketing Strategies, Inc.
I thoroughly enjoyed reading them and agree with most of his thoughts with respect to the future of the automotive retail business and how a well-planned BDC can provide a significant competitive advantage.
GREAT ARTICLES! Thanks again.Vince Trasatti, Jr., VP/Owner East West Lincoln Mercury New Carrollton, MD 20784 (301) 459-1750 eastwestlm@worldnet.att.net
Dealer Advocate The Frog And The Scorpion There is an old legend often told by various tribes of Native Americans about the Frog and the Scorpion. The scorpion wanted to cross the river but he was unable to swim and there was the frog, sitting in shallow water, afraid to approach the scorpion because he knew the scorpion could kill him with his poison sting.
"If you will let me ride upon your back, I promise not to sting you," said the scorpion. "After all, if I were to sting you, I, too, would drown and die in the river."
After much persuading the frog agreed to allow the scorpion to ride upon his back as he swam across the river. Halfway to the far shore the scorpion stung the frog repeatedly.
With his dying breath the frog looked up and said, "Why, you know that when you stung me that you too would drown...why...why did you do it?"
The scorpion replied in a saddened voice, "I couldn't help myself. It's just my nature."
Of course the Indians knew that you couldn't change the nature of the scorpion. If you trust the scorpion, it will sting you anyway. In truth, I believe the scorpion was more than qualified to become the Marketing Czar of a major U.S. automobile manufacturer.
Ladies and Gentlemen, it's about to get ugly.
In recent months several domestic manufacturers have intensified their overtly hostile assault on their dealers. The gloves are off and the very existence of the franchised retail automobile dealer is in severe peril.
I believe that, based on strong evidence that I have seen, several manufacturers are planning to go into strong competition with their own dealers. You will see them mount an aggressive attack, market by market, based on two criteria: the size of the market and whether or not that market is "legislation-friendly" for factory-owned dealerships.
The major miscalculation is that they genuinely believe they can retail automobiles on the Internet and deliver them through valets and concierge services. I strongly believe, based on information that I believe to be reliable, that there is a conscious movement to put their dealers out of business by selling everything directly to the consumers.
Of course, it remains to be seen whether or not the Internet is going to actually develop into a major force in retailing automobiles. So far, despite all of the deliberate misinformation that is being spread, the results are not particularly impressive. Yes, there is such a thing as an Internet buyer. And yes, you do need to be involved in Internet sales and Business Development Centers. However, the majority of Internet buyers are the hardcore grinders and chiselers and assorted "propeller heads." To date, Internet sales of automobiles have become an exercise in turning our retail customers into fleet buyers. I believe that the Internet buyer will continue to be that small niche segment of the market, not your mainstream buyer, who will still be shopping directly with dealers.
The manufacturers and the public corporations are going to be very successful at creating a new breed of customer..."The E-Mooches."
You can't outspend the factory. They have all of the resources and all of the horsepower to win and, ultimately, to bury you. However, we can out-legislate them.
Most states' franchise laws are pitifully inadequate and vague. There are moral and legal issues that must be addressed and new, protective, legislation enacted immediately.
In the past twelve months more than seventeen states have passed new legislation to strengthen their franchise laws and prevent manufacturers from operating automobile dealerships in direct competition with their dealers. As a franchised automobile dealer you have made a financial commitment and taken substantial risks on behalf of the manufacturers. All of this was based on covenants and good faith commitments between you and your supplier, the factories. I submit to you that they are prepared to break with that "good faith commitment" to you and that they are looking for ways to defeat the legal obligations to you and your families.
If these factories can get away with operating Web-based retail locations and valet/concierge sales outlets that undermine the profitability of their dealer partners, then they have no incentive to even buy your dealerships once they have effectively put you out of business through direct sales and unfair trade practices. The conventional thinking seems to be that they would allow their remaining dealers the luxury of the low-profit servicing of the cars they sell to the public.
In recent months many of you have seen your partners, the manufacturers, openly making end runs around their dealer body. You've seen the factories trying to outmaneuver you, with both Ford and General Motors getting into the retail business in direct competition with dealers. The factories have demonstrated repeatedly that they are less than competent retail operators. Had you operated a franchise as poorly and incompetently as these factory-owned dealerships and collections, I believe that those same factories would have forcibly terminated your franchise.
Even so, we have seen Ford Motor Company purchase and attempt to operate dealerships in Tulsa, Oklahoma City, Salt Lake City, Rochester New York, and San Diego...in direct competition with those dealers who did not sell out to them under extreme pressure to do so. Although the results of these alleged "Auto Collections" have been a disaster, the factory hasn't the dignity to be embarrassed.
I recently fell onto a list of the bottom 50 dealers in CSI of all of the dealers in the Western Region of the U.S. for a certain manufacturer. Guess where the factory puppet dealer ranked...and guess where the publicly owned super dealer's dealerships were rated?
General Motors attempted to open and operate retail outlets in the state of Texas, but the Texas Legislature took strong measures to prevent factory ownership, forcing both Ford and General Motors to back off. Even so, I feel that it is obvious that these manufacturers are simply regrouping to go at it again. Maybe they will use their minority programs as a "Trojan Horse" to defeat the spirit of the law. Or maybe they will bring in some puppet dealer with a questionable, bogus contract. Believe me, they intend to sell automobiles directly to the public and further devalue and undermine the millions of dollars in risks and investments and lifetime commitments, sometimes for generations, that you and your family have made on their behalf to further and advance their business. You built General Motors and Ford and Chrysler. You, the dealers, built those companies-not Ron Zarella or Bob Rewey or Bob Eaton.
And don't think that because you are in a small or rural market that you will be spared. You are not immune. The alleged "Master Plan" is to penetrate virtually every market. In effect, you too will be "road kill" on the factory's information highway. The Internet reaches everywhere.
And those of you who have import franchises...don't be too confident about the goodwill of your manufacturer. Recent moves by Mercedes to restrict their dealers' margins and to interfere with the sales process should send a wakeup call to everyone. No franchised dealer is safe or isolated.
The bottom line is that you, the dealers, need to become legally active...immediately.
Kick your State Associations and the NADA squarely in the butt and get some new legislative initiatives in motion immediately. There is no more time to spare. Form your own PACs and put the pressure on the politicians to enforce laws that are on the books already. Recently, it made me sick to see weak bureaucrats in Florida and California bow to the end runs the factories made around the spirit of the law.
Remember this: The largest public company, AutoNation, is a business partner with Ford. I believe you will see them supporting the factory agenda and lobbying the states on the factories' behalf.
One cute little blurb I saw in the weekly Automotive Fish-wrap was an article about how wonderful it was that General Motors was writing "Mediation" into the 2000 dealer agreements. If I were a dealer, would I seriously get excited about signing away any of my rights to litigate vigorously?
You know, I am sitting here in the den of my home in Atlanta staring at this word processor. My son Zachary just dropped in and read part of this over my shoulder. He's only eleven. "Dad, why are those factories doing that to the car dealers?" His face was so innocent...I just looked at him and said, "They can't help it son, it's just their nature."
More Food For Thought
I appreciate the dozens of phone calls and emails I received last month regarding my previous article. Many dealers expressed concern. I will answer the question here in this column..."No, I did not stop drinking." It was that rascal, the editor and publisher Michael Roscoe, who edited my signature snifter of cognac out of the article. As I write these words I have a snifter of vintage Remy Martin next to the keyboard.
AutoNation
It is the last week of August as I lay these words to paper. There is a lot of speculation as to whom AutoNation will name as the replacement for Steve Berrard, who allegedly voluntarily resigned from AutoNation two months ago. Most of my reporter friends and even some AutoNation dealers have gotten hold of the short list of names although I personally believe there is some smokescreen here. I smell several rats. I wonder if AutoNation would ever be involved in distributing and leaking misleading information.
Car Dealer Insider newsletter last week named Robert Eaton as the frontrunner for the job, although I have also heard the names of Yale Giesel, Ross Roberts, Robert Rewey, and Michael Jackson mentioned in addition to Eaton. If it is Eaton, I don't believe that there is any name that will have enough horsepower with Wall Street to pull this Ox out of the ditch. Announcing Eaton ain't gonna move the stock more than a quarter of a click and it will dive again before noon.
Consider the track record of AutoNation on the national scale. If we were looking for a real leader who had a track record for running a large retail network of dealerships that were previously profitable...a track record for losing substantial market share while implementing goofy, new-age marketing concepts that obviously don't work...a person who could stand in front of an audience and make everyone hike up the pants legs...somebody who could blow through fifty-million dollars capitalization in less than a year...then maybe we shouldn't rule those Ford Guys out quite yet.
Jim Ziegler is President of Ziegler Supersystems, Inc. If you have specific questions or require more information about this subject, please check the appropriate box on the reader response form on page 3. jziegler@dealeronline.com