A Call To Arms
The following is a commentary in response to, and an expansion on, the subject of last issue's "Dealer Undercover" segment on factory intrusion into retailing.To respond or to recommend a future "Dealer Undercover" segment, write to mroscoe@dealeronline.com.
The last "Dealer Undercover" segment, "Factory Intrusion into F&I," is timely. Unfortunately, most dealers do not understand the various franchise laws, how they came into place and how easily they can be modified, if not repealed.
You must have recently seen the pathetic performance of the NADA representative on the recent "20/20" television program. The slanted program showed that the dealer system is preventing the public from buying or leasing a car for less. What was sad to me and readily apparent is that the spokesperson for the dealer body was not articulate, had no grasp of the problem, had no message to convey and had no answers. This program was seen by millions. It did not harm the factory, but it did harm the dealer network system. What a shame that dealers have not, at this time, come together and pooled their money and resources and started to take up the public relations battle. If they do not do it soon, the war will be over before they even had a chance.
Quite frankly, legislators are not statesman, they are businessmen. They want to remain successful. Legislators remain successful by staying in office. Legislators stay in office by pleasing the segment of the public that has the voting numbers. Dealers do not have voting numbers compared to society at large.
I am not a dealer. I am a 65-year old lawyer that has the pleasure to represent some of the finest people I know. Yes, I have been counsel for several dealers.
The point brought out in the last "Dealer Undercover" article can be expanded.
Right now factories are, in fact, demanding upgraded superstores that cost lots of money to display their product. They insist on establishing the nomenclature and the standards of each retail dealer. They insist on making them all look like a McDonald's store. They insist by their advertising and Web sites to cause the public to believe the independent franchised dealer is merely an employee of the factory. They come up with business studies such as, "You Should Have More Parts Employees" based on some asinine formula. No effort is made to contact and discuss these things with the people in the trenches. The dealer council is not staffed and is disjointed, and seldom has a plan or logical remarks. What happens is they merely become a conduit for conveying the false message. What hurts is that the factory/distributor gets the benefit of suggesting that their promulgated procedures have the approval of the dealer council. There is, in fact, little dialogue.
Dealers have allowed their power to be eroded through the years. At this point they still lack the understanding and necessity to join together as one, to put up the money to pay for the lobbyists both in the federal government and the numerous state governments. The factories, in fact, do not have the moral or financial reserves to battle successfully against the dealers. If only the dealers would engage in the battle as a unified force.
Numerous points were made in the previous "Dealer Undercover" article about fairness and equity. There are numerous legal theories to put an end to the factory interfering in the economical viability of a dealer. You are right about the reduced margins, which are allowing factories to establish one-price. Once the public accepts one-price, they will stand in line like sheep, much like buying a refrigerator or a stove. It is a small skip to buying directly from the factory. You can bet your sweet ___ there will be no publishing of the cost of manufacturing a vehicle by the factory. So the consumer will not see an invoice price, the only invoice price the consumer will see is the price the factory gives the customer on the direct sale.
In California, the law requires a facility to have a new car dealer license. This is not written in stone. The public is clamoring for the right to buy the car through the web site and the Internet. The recent "20/20" "news" program mentioned is proof of that status today.
The coming of the Internet, e-commerce and the Web site is in conjunction with over 10 years of a healthy economy. There are some real questions to be addressed about what happens when the cycle slows and ends up in the other direction. There are also questions about how you move the cars that the public does not want.
The previous "Dealer Undercover" piece is absolutely right on the financing issue. Years ago, in a beginning economics class at age 19, I recall the professor saying, "Gentleman, car dealers do not sell cars, they sell finance contracts. If you buy the finance contract, they give you a car." Of course, this meant nothing to me then, but now I understand.
Right now the profit margin on high-line imports is very low. I suspect the same with domestic, however, my legal experience has been with imports, not domestic. The German factories give back a portion, provided you meet certain CSI levels and site facility requirements, and have all the signs, you name it on hand, and that you operate the store in a certain manner. They are loaded with statistics and no dealer has taken the time or effort to counter and fight the statistics or seek a class action lawsuit to put an end to it. The CSI level can be reached provided you learn how to skip, hop, jump, twist, turn, crawl, beg, stoop, cry and do whatever it takes to get the rolling quarter CSI score. Of course, it will be like a Russian five-year program. I am convinced once a dealer gets too good at getting the CSI score, they will raise it.
I also believe the factories work either in concert or "monkey see, monkey do." You must be aware of Ford's so-called BLUE OVAL program, just a variation of the current BMW of NA added bonus value program. What is pathetic is that the CSI score is weighted heavily on service and, of course, warranty service. So X buys his car somewhere else ... he just paid over $40,000 or some high lease payment and in less than 1,000 miles it breaks down. He takes it to the nearest dealer, but not necessarily the one he bought it from. He is pissed, he does not know the dealer, he has never dealt with them. The national advertising, including the BMW NA Web site, suggests that each dealer is an appendage of the factory. He is really taking his umbrage and frustration out on the poor dealer who gets him. Of course, the dealer has available a new loaner car and he promises him the moon. He not only fixes the car, he has to explain why the part is not readily available and it will take two weeks to get it and so on. Poor dealer, of course, he gets the ax. Then when the customer gets on the Web site to voice his displeasure with the dealer, the factory comes to the rescue, looks good and takes the credit. It is outrageous ... the dealer body gets the blame and the factory gets the credit. Dealers have been timid, weak and sheep-like. They are this way because they cannot, will not and do not have a national agenda. They do not have a plan, nor do they take the time to visualize the future.
Of course, some dealers have figured out devious ways to skew the CSI scores. The factory has an interest in not penalizing these cheaters because they use the CSI scores and results in their national advertising. One factory has only three or four ways to rate: "Excellent," "Very Good," "Good" or "Fair". However, only "Excellent" gives you a passing score.
Not only is the franchise system under attack, but the English language as well. Can you imagine what it takes to got an "Excellent" from someone who reserves that word as it is intended? I reserve the label "Excellent" for outstanding and above the call of duty performance. Can you visualize what the poor service writers must say to each service customer to get the "Excellent"? When did "Very Good" or "Good" mean poor or failing? Has anyone done anything to stop this? No. Is it proper? No. Who is on the treadmill? Not the factory.
By small bites over the last 10 years the factories have eroded the old franchise system and shaped it to their needs for profit. The interjection of the new technologies may very well be the crowning death knell of selling cars for a profit by independent franchised dealers. It may be too late to retain the independent franchised dealer as a source of selling the product.
At 65 there is a chance I will not see the eventual outcome of this battle. My intellect tells me that unless the dealer network (and I mean each independent franchised dealer) gets his ____ in gear now and starts to convene as one body and raise the money and acquire the information to support their necessary messages, I see a poor future.
Once the cars are sold directly, it will be a small jump for the factories to start selling parts directly. In fact, online part sales might even come first. This is also a good profit center for a dealership, but if people are ready to wait to buy or lease a car to save money, then why not wait to get the part? In this day and age you could easily go to any central factory warehouse or merely wait for UPS to bring it to you the next day.
What is left is the service of a car. Yes, warranty is growing, not only on the new car warranty but also on the so-called pre-owned certified vehicles wherein the factories are basically extending the new car warranty another two years and adding on another 50,000 miles. All this extended warranty is processed under warranty repair rates. California has legislation that requires fairness and equity in setting the warranty rate, but as mentioned above, it can be modified if not repealed. You certainly do not need to spend millions of dollars on pretty state-of-the-art sales facilities to end up only making money on conducting the warranty repair on factory-direct sales. And what is going to stop the factories from opening their own central factory warranty repair stations? In California, the factories have a duty to have on hand, reasonable warranty repair facilities. Once the factories put so much strain on making a profit, the dealers will not have the money to provide for adequate warranty facilities, then yes, the factory, even in California, can come into your market area, even across the street and start a factory warranty repair and/or give out franchises to people who only do repair work. This may sound outrageous, but someone better start putting these outrageous things on the table and start discussing them and figuring out a plan to avoid them.
The point I am trying to make, is no one, no one in the dealer network is working today on any plan to protect the current franchise system. They need to know what they can reasonably hold on to, they need to know what they can't hold on to, they need to know what is rational and logical and justifiable in defending their current franchise system. There is absolutely no cohesive force in place. Your "Dealer Mail," "Dealer Undercover," and Zeigler's articles are great, but totally incapable of doing anything more than sounding the alarm. You are Paul Revere, but nobody is heeding your call.
To independent franchised dealers I say, unite, unite, unite -raise a large financial amount-spend this money on fighting each and every little erosion or little bit of factory intrusion. Spend money on national advertising about the nature of the car business. Hell, everyone knows the invoice price now, so why not start telling them the cost of doing business, the numerous environmental laws that cost each dealer to comply, the outrageous zoning laws, the hours of operation laws, the duty to catch all water on your premises, clean it and then discharge it, the family leave laws, the medical leave laws, the fact that numerous cities are now passing legislation of minimum wages that are sometimes 100% more than the federal and state levels and the cost of the countless items the factory makes you buy. Tell the public how much it costs to find out the cause of why a little fuse keeps blowing and their AC does not work. Tell them the cost of the software programs and the diagnosis machines. Tell them, in California, you cannot work on the emission system of a car unless you have a smog license and a licensed technician. In essence, if you change a spark plug you are working on the emission system. Yes, BMW of NA just made every dealer purchase and install a system at a minimum cost of $40,000 by reading the law as I just mentioned it.
Again, I am not a dealer, just an old lawyer. If I can come up with the foregoing comments, you must wonder what would happen if an experienced and sophisticated dealer started to give some real thought. A network should be set up-a network to receive all the outrageous things imposed on dealers each day and start sharing them and then start considering what they can and should do immediately to protect their lifetime investments.
My father was a butcher. My father told me and I saw how cattle lived and died. Cattle live a great life; they are well-fed and they are well-cared for. I am sure that during their respective lives they must have thought they had it made. Right up to the end. The end was swift and painless, but nevertheless it was the end. I see in many respects a very good analogy here. Do you?
As a lawyer for a few dealers, I cannot publish my name as my thoughts have not been addressed to my clients and I do not want my interjection as an outsider to cause them any potential embarrassment. Please understand, my desire not to publish my name is not out of fear for myself but for my beloved and hardworking dealer clients.
