Don’t Be “Flipped” to a Lease

One of the most popular weapons in car dealers’ arsenals is the infamous “lease flip”. This is car dealer jargon for switching a customer who originally intended to buy a car to leasing the car.

Of course the motivation to do this is more profit for the dealer and a bigger commission to the salesman. That’s not to say that leasing a car is always more costly than buying one, but it can be if you’re not careful. And not being careful is exactly what happens when a purchase intender becomes a lessee.

Here’s how it happens. You come into the dealership to buy a car. You may have seen the dealer’s advertisement in the newspaper or TV for a particular model. More than likely you are prepared to make a down payment and/or trade in your old vehicle. You have a monthly payment in mind because almost everybody has a budget and we usually translate most purchases into whether or not we can fit them into our monthly budgets. You negotiate the best price you can to buy the car, or maybe the sale price is good enough.

Now the salesman or more often the F&I manager/business manager tells you what your monthly payment will be. Let’s say that you have a trade-in worth $15,000 and aren’t going to put any cash down. The F&I [Finance and Insurance] manager tells you your monthly payment will be $427 per month. But that’s way more than you can afford and you tell him you can’t buy the car because you can’t afford that big a payment. He asks you how much you can afford and you tell him it must be under $350 per month. Now he has you set up perfectly for the “lease flip”.

“Mrs. Smith, I think I have just the right thing for you. What would you say if I told you that you can drive that new car home today for just $349 per month?” You say, “With glee, you say we have a deal!” Guess what? You’ve just been flipped. If you had bought the car at the advertised price or negotiated a very good price, the dealer probably would have made about $1,000 profit. and the salesman would have made about a $200 commission. Not that you’ve let yourself be flipped to lease, the dealer could be making $15,000 and the salesman could be making a $3,000 commission!

I’m not exaggerating. I get calls weekly from victims of lease flips. Many of the callers are elderly and many of them are widows who never bought a car before, but had relied on their husbands. There’s no law that limits the profit that a dealer can make when he sells or leases a car. $10,000, $15,000, and even $20,000 profits are made and usually on leases. The dealers can do this by using the trade-in as a capital cost reduction on the lease but allowing less for the trade than it is actually worth. In the example above, your trade-in may be worth $15,000 but you were allowed only $5,000 to reduce the capitalized costs of the lease. Also, the dealer could have raised the price of the car you negotiated or the sale price to MSRP or even 110% of MSRP which is allowable by the leasing companies.

By manipulating the number of months of the lease and the down payment [capitalized cost reduction], a dealer can give you as low a payment as you ask for and still make an exorbitant profit. Most buyers are so focused on monthly payments that they don’t carefully analyze what they are agreeing to and signing. The shorter the number of months of a lease, the greater impact the down payment has on the monthly payment. A $5,000 down payment reduces the monthly payment on a 36 month lease by $139 per month, $208 on a 24 month lease, and $417 on 12 month lease.

Incredibly many victims of the lease flip, never thought about the fact that after the 12, 24, or 36 month term of the lease, they own nothing. After 36 months, a car with a good resale value should be worth about half of what you paid for it. Many people who have never leased before think they can bring their lease car back early if they want. Leasing is not renting and you can bring your car back early only if you make all of the remaining lease payments. If you had bought the car for $30,000 and financed it for 36 months, you would have about $15,000 in equity at the end of 36 months and no monthly payments. You were building equity with every monthly payment in the purchase but you were building zero equity with your 36 lease payments.

As I said before, don’t let this frighten you from ever leasing a car. Leasing can be a good choice and sometimes the best choice. You can find six articles I’ve written for Hometown News: “Lease a New Car before You Buy It”, “Car Leasing Booby Traps”, “Be Very Careful When Leasing a Car”, “The Lease Acquisition Fee…the Bank’s Gotcha”, “Buy or Lease Your Car at the Right Time of Year”, and “Should I Buy or Lease My Next Car?”

Earl Stewart: Consumerist or Capitalist?

“I’ve chosen to run the article below as my column this week. My dealership was honored to have
this article published in Toyota Today, which is the nationally circulated magazine for all Toyota employees and Toyota dealers in the USA.”

Outspoken Owner is ‘Complex’ Mix of Both

By Dan Miller /toyota today november/december2009

In the South Florida realm where he presides over the Toyota dealership that bears his name, Earl Stewart is a full-blown consumer advocate celebrity. He stars in the store’s television advertising. He posts a blog. He writes a newspaper column. He works the local speakers’ circuit. He even hosts a radio show, greeting his listeners with, “Good morning, my name is Earl and I’m a recovering car dealer.” “I’ve become a symbol,” he says of Earl Stewart Toyota of North Palm Beach. “Everyone wants to meet me. I don’t get any work done.”

Actually, if pressed, Stewart will admit that portraying the straight-talking grandfatherly car salesman who helps customers “get a fair shake” is his work. His three sons, Stu and Jason as co-general managers and Josh as Internet manager, mind the day-to-day store operations. That frees up Stewart, with the support of his wife Nancy, vice president of special projects, to spread his gospel of goodness, even if he ain’t no saint.

“It’s a complex thing,” says Stewart of his customer-centered philosophy. “If I did all of this and it hurt my business, I’d stop doing it. I’m no masochist. I want everyone involved to feel better about buying and selling cars. But it has to work. I have to be honest about that.”

Stewart’s career in car sales has almost always worked. His father, the original Earl Stewart, founded a Pontiac dealership in West Palm Beach in 1937. Stewart joined the family business in 1968 and the Toyota franchise came on stream in 1975. Back then, Stewart enjoyed success by selling cars the old-fashioned way, with high-pressure haggling. He raised his three sons, lived in a nice house, fished from the deck of a 60-foot sport boat and invested in other businesses.

But over the last decade, Stewart has systematically reengineered his approach. The book, “Customers for Life,” by Lexus dealer Carl Sewell was a primary influence. So was the University of Toyota’s Total Quality Executive Management course. But the real wake-up call came four years ago when Stewart was diagnosed with colon cancer.

“I thought I was going to die,” he says. “I now see things in a different light. I realized I wanted to pass along a business to my sons they can be proud of. And perhaps one day they can pass it along to their children.”

As such, unorthodoxy abounds. Advertising that once pushed price now promises fairness, courtesy and integrity. Red hotline handsets programmed to ring Stewart’s cell phone are strategically placed throughout the store, inviting customers to call if they’re not completely satisfied. Stewart’s business card divulges his cell and home phone numbers. Dealer fees, boosting the customers’ cost with little or no increase in value, have been eliminated.

The results? Among Toyota dealers, Earl Stewart Toyota ranks No.1 in volume in Palm Beach County, No. 5 in Southeast Toyota and No. 38 nationally— though located in a town of just 8,000. Monthly sales jumped from about 100 units 10 years ago to more than 350 in 2007, pulling back to the 200-plus level amid the current economic downturn.

“Did I change to sell more cars and make more money? Yeah, that’s part of it,” says Stewart. “But I also feel good about myself and sleep better at night. And my sons definitely feel better about the business, too.”

Reflections on Scott Rothstein, Greed, Courage and Karma

We have an alleged “mini Bernie Madoff” in South Florida and his name is Scott Rothstein. As I write this article, you will see the word “alleged” used a lot because, if I miss it once, Scott Rothstein will probably sue me. Let the record reflect that I intended to use the word “alleged” in front of every bad thing I say about “Scottie”.

First, let’s talk about greed. Guys like Bernie Madoff can scam people so easily because of the greed of the “scamees” [I hesitate to use the word sucker, for fear of being sued]. Most of Bernie’s victims were educated, wealthy, and sophisticated individuals. This raises the question of how such a person could believe that they could continuously earn higher returns on their investments than everybody else and never have a loss year. Add to that that they were refused any information about “how” Bernie was investing their money. Wouldn’t this make you nervous? I can come up with only one emotion that can overcome the common sense that would tell most people that this was a scam and that is pure, unadulterated greed.

The parallels between Bernie’s capers and those allegations against Scottie are many. The investors were educated, wealthy, and sophisticated. Also, Bernie didn’t draw the line at scamming business associates and investors unknown to him. Allegedly, one of Scottie’s biggest scores was from Ted Morse and his family and auto dealerships. Scottie was quoted as saying Ted Morse was his best friend. News reports say Ted was cheated out of $25-$60 million and his own lawyer admitted that it was in the “tens of millions”.

Further parallels are that investors with Scottie were told that they would get a guaranteed 10-15% annual return on their investments…strikingly similar to what Bernie promised his investors. Scottie’s investors were told that no details of the investments could be revealed to them because they were based on confidential settlement agreements. Scottie allegedly told some of his “scamees” that several of the settlements he was asking them to finance were to victims of the infamous Jeffrey Epstein, the Billionaire Palm Beach investor, convicted of paying children for sex. One story that Scottie told was that Epstein flew Bill Clinton down on his private jet to Palm Beach after setting a up a “date’ for Bill with an under aged girl. Of course, Bill wanted to settle this thing confidentially with the young girl who was a client of Scott Rothstein’s. Now, you can’t make this stuff up! Would you believe such an outrageous story?

Now let’s talk about courage. Every day that passes reveals more people who claim they knew Bernie Madoff was a crook all along. If that’s the case, why didn’t they speak up a long time ago? To be fair, there was one man, Alex Dalmady, who did speak out but the SEC ignored him. If Scott Rothstein stole $500 million in such an obvious Ponzi scheme based on such an outrageous premise, why didn’t lots of people speak out? I know local lawyers who, off the record, will say they knew all along that there was no way Scott Rothstein could earn the money to support his decadent life style from the proceeds of his law firms’ legal activities. Why didn’t they speak out before? I can tell you why…they were afraid they would be sued. The operative word here is “afraid”.

Almost every time I write this column, I wave a red flag at somebody [usually a car dealer] who must think about suing me and sometimes do. Abraham Lincoln said, "To sin by silence when they should protest makes cowards of men." He was referring to those who, in their hearts, knew slavery was wrong but were afraid to speak out against the status quo. I could also quote Ray Eberle who wrote “Fools rush in where angels fear to tread”. You can make the call as to whether I’m a brave man or a fool, but I believe in speaking my mind when it comes to those that do wrong.

Finally, let’s talk about Karma. You may never have watched the TV sitcom, “My Name Is Earl”. It’s kind of silly and not everybody’s cup of tea. Of course, I watched it when it first came out because of the name. There aren’t many of “us Earls” around. When I learned that the premise was about a character, Earl Hickey, who changed overnight from being a common crook to an honest person who devoted the rest of his life to redeeming his past sins, I was hooked. After all, that’s the story of my life too. I went from an average car dealer who would do almost anything to sell a car to a consumer advocate for the car buyers of Florida. The word Karma comes into play in “My Name Is Earl” because Earl’s hit by a car and then the wind blows away his million dollar lottery ticket. He interprets this as Karma punishing him for his past sins. He begins a quest to make whole all those he swindled and Karma causes the wind to blow the winning lottery ticket right back to him! You can watch reruns on Fox Channel 29, WFLX, week nights at 7 PM.

Here’s what Karma [or whatever you want to call it] has done for me. As of last month, my Toyota dealership in Lake Park, FL [population 9000] has sold more cars in this year than any other car dealer in Florida except two. We are the 4th largest volume Toyota dealer in the Southeast USA and the 34th largest in the USA. I alluded earlier to my being sued because of what I wrote in this column [which I also blog]. Guess who sued me! It was Ted Morse and his lawyers from Scott Rothstein’s law firm. Not only did Scottie’s law firm sue me on behalf of Ted Morse but they also sued me themselves. They alleged that I had defamed them as well as Ted. Of course, Rothstein’s law firm was dissolved because the FBI is investigating the owner for a $500 million Ponzi scheme and he took all of the law firms money to boot. There isn’t enough money to pay the law firm’s employees or the law firm’s clients and escrow monies. I’m waiting to see if they can scrape together enough money to continue their suit against me and defend my suit my suit against them. Stay tuned for further developments.

Always get an “Out the Door” Price

Many states have laws prohibiting car dealers from adding “fees” onto the prices they quote you. Unfortunately, Florida is not one of these states. The state law in Florida requires only that the dealers disclose on the buyers’ order that this additional charge is not a local, state, or federal fee, but is actually just profit to the dealer.

Almost every car dealership in Florida has this extra profit printed on their buyer’s order, under an assortment of labels like “Dealer Fee”, “Doc Fee”, and Dealer Prep”. You will not see it on the car’s price sticker you will probably not hear any verbal disclosure by the sales person or manager, unless you ask. If you ask, you will be told that “all other dealers charge this” and this is “almost” true.

Florida law also requires that when a dealer has this additional profit printed on his buyer’s order, he must not delete it for some customers and charge it to others. The only way he can effectively eliminate this extra profit is by reducing the quoted selling price of the car by this amount, but keep the dealer fee amount that is printed on the buyer’s order. This is rarely done because dealers do not pay their salesmen or managers a commission on the dealer fee. If you demand the price be reduced to compensate for the dealer fee, it cuts the salesman’s commission. Dealer fees range from $500 to $900 and a typical salesman’s commission is 25%, costing the salesman $125 to $225.

Florida law requires that a dealer include the dealer fee in the price of an advertised car. This is often ignored by dealers advertising on the Internet and in direct mail because it is below the “radar screen” of the Attorney General’s office. In newspaper, TV, and radio ads one car is advertised at a low price with a seemingly innocuous designation like “#1234B” (the stock # of the car) all there is to tell the buyer that only one car is available at this price. Another common tactic is a fine print disclosure at the bottom of the ad reading “price good on date of publication only”. The odds of being able to buy one of these cars at the advertised price are not good. Not only is there only one car with the price good for just one day, but the salesman receives no commission or a much smaller commission if he sells you this car.

My advice is not to pay much attention to advertised car prices. Do your shopping on the Internet or by telephone. Insist on an “out the door” price including everything except sales tax and license tag. If buying a new car, get several “out the door” prices quoted on the exact same year, make, model, and accessorized car. Two very good free Web sites to get information on dealer costs and fair retail prices are www.kbb.com and www.edmunds.com. Consumer Reports is also an excellent source of product information and pricing information, but there is a fee for their Web site.

Open Letter to Florida Car Dealers V

Ethical Car Dealers Attract the Best Customers

Dear Florida Car Dealer:

In past columns I have “confessed” to advertising and employing sales tactics in years past that I am not proud of today. I hasten to say that I never did anything illegal, but 20 to 40 years ago my ethical standards were a lot lower than they are today. I evolved and my customers evolved. Consumers today are far better educated, informed, and demanding than those of three decades back. As I my business practices, sales tactics, and advertising improved, I noticed a very interesting, positive parallel improvement in the kind of customers my company was attracting. It was a sort of a “push-pull” phenomenon. I needed to get better to meet the expectations of my customers and, as I improved, I attracted a better kind of customer.

Today, my customers are smarter, more affluent, better educated, and “nicer”. There’s a good reason for this. For one thing, my advertising is totally ethical and honest. I don’t advertise used cars for $99, I don’t advertise that, if you buy vehicle you can get a second one free, and I don’t advertise a car below cost knowing that there is only one available which is next to impossible for the customer to buy. When you advertise like this, you attract people who are uneducated, gullible, naive or expecting “something for nothing”. The smart, fair dealing customers who know that “there is no such thing as a free lunch” buy their cars from me. I don’t surprise my customers with a dealer fee/doc fee ranging up to $1,000 which is nothing more than profit to you. In fact, many of my customers were almost yours, until you tried to “slip in” your dealer fee. A lot of my service customers used to be your service customers until they discovered that you charge an extra 5% or 10% on their service bill and tried to justify it by calling it “sundry supplies”, “shop supplies” or “environmental impact fee”.

So, you ask, what’s so great about having smart, educated, affluent, and nice customers? Well, for one thing, I don’t get sued like you do and I don’t get nasty letters from the BBB, County Office of Consumer Affairs, and Florida Attorney General’s Office. The last time I was sued was about 7 years ago. Ironically, my customer’s lawyer sued me because I settled a dispute with his client (my customer). After he wrote me a letter saying he was suing me I called his customer on the phone, drove out to her home, sat down with her and her husband at her kitchen table and settled our differences over a cup of coffee. This lawyer sued me because I had deprived him of the fee he would have charged her if he could have sued me. It’s an ongoing saga after all these years. It’s too long a story to tell here, but I will write a column about it one day. I’m guessing that the car dealers who read this column (and I know you do) have at least a half dozen lawsuits going on all of the time.

Another great thing about having nicer, smarter, more affluent customers is that they treat my employees and me with courtesy and respect, just like we treat them. I love to walk into my dealership because customers smile and wave and even stop me to tell me how well they were treated. Customers, who don’t see me in person, know that all they have to do is pick up one of four red phones located in the showroom, service drive, next to the service cashier, and in the body shop to be in immediate personal contact with me. I even give my customers my business card with my home phone number and my cell phone number. Most of the calls that I get are complimentary, just like my personal encounters. You wouldn’t do what I do because you couldn’t. Your secretary screens your phone calls and you wouldn’t dare give your home or cell phone number to a customer. By the way, if you aren’t familiar with my dealership, I probably sell a lot more cars than you do…I average about 475 a month. I have a lot more customers than you, so it’s not like I’m a little rural car dealer who can get away with what I do because I have so few customers.

Here’s another benefit of having such nice, intelligent customers. They don’t have unrealistic expectations like your customers. Remember that you probably tricked your customer into coming in with your advertising. If it worked and your customer bought a car from you thinking that you really could give him $10,000 minimum trade allowance on his car which was really worth only $500, you have reinforced his unrealistically high expectations. In his future dealings with you, he will continue to believe that he can get “something for nothing”. When you finally have to tell him “no”, he’s going to be mad, maybe even sue you.

There are other benefits, too numerous to mention, of having such happy, nice customers. Wouldn’t you like to come to work in that environment? Just think, no more law suits, no more nasty letters from governmental agencies, no more threats from the factory about your customer satisfaction index, and you could walk right through your service department or through your showroom without fear of being accosted by an irate customer. If you would like to give this a try, I would love to discuss it with you personally at any time. This is my 5th open letter to car dealers and I have yet to receive the first phone call… just a few nasty, anonymous emails. Maybe you will be the first to call.

Holdback or Holdup?

Back in 1968 when I first went into the retail car business with my father, I can remember asking him, “What is holdback?” I was learning the business and had been studying the invoices on new Pontiacs that General Motors sent us when they shipped a new car that we had ordered. We had to pay the invoice immediately when it was issued, sometimes even before the car arrived at our dealership. Actually, in most cases, it was our bank or GMAC who paid GM and we borrowed the money from them to pay for the car.

My father’s answer to my question about holdback was that it was an increase in the amount of the invoice that we paid General Motors which was not really part of the price of the car. It was just an extra amount added to the real price of the car and included in the invoice. At that time it was 2% of the MSRP [suggested retail], so if a new Pontiac Bonneville had an MSRP of $10,000 and a true cost of $9,000, the factory invoice would be $9,200. I asked my father, “When do we get the $200 back?” He said, “At the end of the year”. I asked him if they paid us interest on our money and I can remember him laughing loudly and saying no.

Of course my next question was why they do that. He told me that the reason they gave him was to be help dealers sell their cars for more money so that they didn’t go broke. He said that because they didn’t get their holdback money for such a long period of time, they began to think of their invoice as being the actual cost of the car. General Motors felt that many dealers were such poor businessmen that they might sell their cars so cheaply that they would go out of business. Now, because GM was kind enough to hold back hundreds of thousands of dollars of the dealers’ money [and pay them no interest on it] but return the money to them once a year, they could help the dealers make a bigger profit and maintain adequate working capital.

At that time I thought this was the biggest bunch of boloney I had ever heard and I was sure that this was a scheme by the manufacturers to keep a free float of millions of dollars of their dealers’ money under the guise of helping the dealers. I asked my father why the dealers didn’t strongly object to this and he said that most dealers actually “liked” the idea of holdback. When I heard that, I thought that maybe GM and the manufacturers were right about the dealers not being smart enough to sell their cars for a reasonable profit.

It took me a few more years in the business before I understood what was really going on with holdback. It was a “no brainer” as to why the manufacturers liked it but at last I understood its attraction to us dealers. Because we had to pay an extra amount over the true price of the car and not see that money for up to a year, we began to think of the invoice as the true price, even though it was actually inflated by hundreds of dollars. Because all manufacturers added holdback to all dealers invoices, the net effect was to raise the price of all cars to all buyers by the amount of this holdback. I know this is a dirty word, but it is price fixing on the grandest of scales. This might have been something that Henry Ford, Alfred Sloan, and Walter Chrysler concocted while playing golf at Bloomfield Hills Country Club outside of Detroit.

Another neat thing about holdback for us dealers is being able to tell our customers that we are only charging them “X dollars” over invoice. Or, we can tell them that we will sell them this car at invoice with no profit to us at all! [There’s a sucker born every minute] Dealers often have “invoice sales” with copies of the invoice pasted on the car windows. Who doesn’t believe that an invoice is the cost of the car? The truth is in the semantic skullduggery …”Mr. Customer, I solemnly swear to you that this the exact price that I paid the factory for this car. In fact, here’s a copy of the invoice.” That’s what the dealer “paid” the factory all right, but it’s not what the he paid the factory after he got his holdback check in the mail.

You might be thinking, so we’re talking about $200 more or less on a $10,000 car. Who cares? Don’t forget, that was over 40 years ago. Holdbacks have expanded considerably and now instead of several hundred dollars we’re talking several thousand. Also, dealers no longer have to wait a year to get their hold back money back. Now they get it back monthly. Manufacturers even changed the names of these monies they hold back. These are innocuous names so that, if you see them on the invoice, you will have no suspicion…names like floorplan assistance, advertising, PDI, Administrative or DAP. Of course there are also cash rebates to dealers that don’t even show on the invoice. I estimate the average car invoice today includes $3,000 to $4,000 in hidden holdbacks to the dealer. Holdbacks are also applied to factory or distributor accessories like “protection packages” [wax, undercoat, window etch, roadside assistance], floor mats, window tint, etc.

The bottom line is that you don’t rely on the dealer’s factory invoice to determine the price you are willing to pay for a car. And be especially suspicions when the dealer quotes you a price of “X dollars over invoice” or actually shows you the invoice. You’ve heard the old joke, “How can you tell when a politician is lying?” Answer: When his lips are moving. “How can you tell when a car dealer is lying?” Answer: When he shows you the invoice.

BUYERS ARE LIARS!

I’m always amazed by the way car dealers who use deceptive advertising and unethical sales tactics rationalize their behavior by actually blaming you, their customer. The following is a direct quote from an anonymous car dealer’s email I received this morning in response to one of my recent columns in this newspaper: “I don't think you would make any of these comments if you sold fords in a non-metro market. How do you expect dealers to change when consumers think they should pay less than dealer cost for a car and then walk into any other form of retail store and pay what they are asking?? Your ideas are noble but there are other dealers who have tried 'your' methods who are no longer in business.” This dealer is saying that his customers are so ruthless and cunning that they won’t buy a car unless they can buy it below his cost and his only solution is to trick them into thinking that they are buying it below his cost, like tacking on a “dealer fee” to the price they quoted the customer. He also goes on to say that my “ideas are noble” but I can’t possibly be successful and I will go broke trying. I truly appreciate his concern and I want to assure him, if he is reading this article, that my business is doing very nicely.

This attitude is actually a prevailing part of the culture in many car dealerships. Many dealers, dealer managers, and sales people don’t trust their customers (how paradoxical!). They don’t even like their customers. A very common expression among car dealers and their sales staff is “Buyers are liars”. This means that a prospective customer will not tell you the truth about the condition of his trade-in, he will lie to you about the price he got from your competitor, and he is likely to remove those new tires that were on his trade-in when the dealer appraised it when he comes in to pick up his new car.

There are also a lot of dealerships where used car buyers and people with bad credit are held in especially low esteem. They have nicknames for people with bad credit like “slugs” and “roaches”. Apparently dehumanizing these unfortunate members of our society with derogatory labels makes it easier to treat them so shabbily. People with bad credit are targeted with direct mail and newspaper ads making absurd promises that convince prospective customers that they can finance a car no matter how bad their credit. In some dealerships applicants are coached on how to falsify credit application and pay records. In some cases the applicant may not even know he is signing a false credit application which is federal offence. In most cases the credit is refused and the applicants are not even given the courtesy of a return phone call to tell them this.

I don’t claim to be a psychologist (and I don’t even play one on TV), but I have read articles explaining how humans will stereotype other people in a fashion that falsely justifies their negative behavior toward those same people. We see this with racism and even in wars. If you make yourself believe that car buyers are out to take advantage of you, “buyers are liars”, you can’t feel guilty about tricking them into paying a dealer fee. If you trick a “roach” or a “slug” into coming in to buy a car on credit when they probably can’t, why should you feel guilty? After all, roaches and slugs don’t have feelings.

What these kinds of dealerships don’t understand is that you must trust a person first before you can expect her to trust you. You have to treat a person with respect before you can expect that person to respect you. Somebody has got to go first. My experience over the past 40+ years as a car dealer is that 99.9% of my customers are good people who I can believe and trust. Those are pretty good odds and I just assume that every customer I am dealing with is part of that 99.9%. Once in a great while I get burned, but the loss from that one in a thousand that takes advantage is far out-weighted by the other 999 who respond positively to my trusting them and treating them with respect.

Are Car Manufacturers and Dealers “Grasping for Salvation?

Last week Akio Toyoda, the CEO of Toyota, apologized to his customers, employees, and stockholders. He said that Toyota had suffered from “hubris” [Overbearing pride or presumption; arrogance], “undisciplined pursuit of more” and “denial of risk and peril”. He said that Toyota now is “grasping for salvation”. Akio Toyoda who is also the grandson of Toyota’s founder then said “Toyota has become too big and distant from its customers”. His confession and apology is courageous, refreshing, and encouraging. If GM and Chrysler had had a leader like Akio Toyoda, they wouldn’t find themselves where they are today. Mistakes don’t cause failures; Denial of mistakes does.

I ordered Jim Collins’ book, How the Mighty Fall, on Amazon. The author postulates that big companies don’t die suddenly but rather through five stages: (1) Hubris born of success. (2) Undisciplined pursuit of more. (3) Denial of risk and peril. (4) Grasping for salvation. (5) Capitulation to irrelevance or death. I must say that these stages describe General Motors, Chrysler, Ford, and even Toyota to a T. In fact GM and Chrysler may be in, or too near, the final stage 5, “capitulation, irrelevance, or death.

I was a Pontiac dealer in West Palm Beach from 1968 to 1999. I have lots of memories of those times, good and bad. The good times were when Pontiac was the 4th largest selling brand in the world, behind Chevrolet, Ford, and Oldsmobile. Pontiac and GM thought that Japanese cars were inferior and no threat whatsoever. I still remember the day in 1970 when the Pontiac zone manager, Murph Martin, visited my dealership and told me to get that “Jap” car off his showroom floor. He was referring to a Mazda as I had just signed a franchise agreement with that Japanese auto manufacturer. Today Pontiac no longer exists but Mazda is still going strong.

My regular readers will sense where I’m going now. Nobody can argue that car manufacturers, including Toyota, the mightiest of them all, have fallen precipitously in the past 3 years. I want to believe and I do believe that the new CEO of Toyota, Akio Toyoda, “gets it”. For him to publically apologize and acknowledge that his company was one step away from “capitulation to irrelevance or death” took great self awareness and courage. On the other hand, Ed Whitacre, the Chairman of GM, is doing TV commercials comparing GM cars to Toyota and Lexus, saying “If you can find a better car, buy it”. I have to say, “Hey Ed! Be careful what you wish for!” I would also recommend that Ed check out Consumer Reports, 2009 Best and Worst Cars, the April issue, page 17. All 34 car brands sold in America are ranked by Reliability. There is not one GM brand listed in the top half. Buick is 18th. The top 10 brands are all Asian. The bottom 10 includes GMC truck, Pontiac, Cadillac, and Saturn. Chevrolet is #24, 11th from the bottom.

But what about car dealers? In my opinion, we car dealers also have succumbed to the same temptations as manufacturers. Great success brings on hubris/arrogance. Big is never big enough and so we strive for more in an undisciplined fashion. When you make a lot of money and get lots of recognition, you feel “bullet proof”. Can you say “Bernie Madoff”? How many of us find ourselves in stage 4 “grasping for salvation”, like Akio Toyoda now? In order to successfully manage stage 4, a business owner or CEO must be courageous, but more importantly, he must have self awareness. Mark Twain said “It ain’t what you don’t know that gets you in trouble; it’s what you know for sure that just ain’t so”. I have to confess, that occasionally I start to feel a little “full of myself”. I’ve grown to be the largest seller of automobiles in Palm Beach County, the 5th largest Toyota dealer in the southeast USA. When I go out to a restaurant or shopping, lots of people recognize me and shake my hand. Now, when I get that feeling that I’m a “big shot”, I simply remind myself who it was that “brung me to the dance”… my customers.