From the Palm Beach Post Opinion Zone Blog: Should ‘bad drivers’ be told who accused them?

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Should ‘bad drivers’ be told who accused them?

Coming soon to your town… The Sam Walton of Car Dealers?

Sam Walton reinvented the retail business for just about every product except automobiles. Wal-Marts are now global and they’re both praised and vilified. They’re vilified by the small businesses and/or inefficient businesses they drove out of the market and they’re praised by consumers for their low prices. Sam accomplished what he did by building a retail machine that was more efficient than his competitors. He mastered the science and art of purchasing quality merchandise in volume domestically or abroad and tight inventory control which allowed him to charge the lowest prices. He built a reputation for quality, low price and integrity that is unmatched by any other retailer.

The reason Wal-Mart sells every other product except new cars is because of state franchise laws which protect car dealers from competition like Wal-Mart. In all 50 states, car dealers have been able to lobby their legislators over the years to pass state laws which give them an exclusive market territory. In Florida, for example, a manufacturer may not add another dealer of the same make within a 9 mile radius of the existing dealer. If they attempt to do this, the dealer can appeal this to the Florida Department of Motor Vehicles where a hearing judge makes the decision. The franchise laws also tell the manufacturers who can retail cars. A manufacturer is prohibited from doing so. A car retailer must have a factory franchise agreement. The results of all these archaic laws put a real damper on competition in the retail car business. It allows inefficient car dealers to remain in business and allows the haggling, horse-trading system of purchasing cars that dates back to the 19^th century to perpetuate.

Polls of consumers regularly rank their car buying and servicing experiences as among the worst of any other product or service. Car dealers are a consistently ranked in the bottom three of all professions along with lawyers and politicians. If we learned anything from the explosive growth of Wal-Mart, it is that consumers what the best price and a pleasant buying experience. A consumer doesn’t want to go into a retail store, buy a product, and find out the next day that his next door neighbor bought the same car for hundreds or thousands of dollars less from the same store. Yet, this is standard operating procedure for car dealers. The shrewd, educated, sophisticated negotiator can buy a car very close to dealer cost.  The very young, very old, uneducated, naive, or those not schooled at speaking English are likely to pay a lot more for the exact same car from that same dealer.

I have a hunch that Neanderthal car dealers are nearing extinction. The American consumer is getting smarter and more sophisticated every day. This new enlightened consumer won’t put up much longer with the old way of buying cars. If a customer walked into Macy’s and asked the salesman for the price of a Samsung big screen TV and the salesman responded, “How much are you willing to pay?” or “I can’t give you a price unless your willing to buy today.”, that consumer would “scream bloody murder”. But this exact thing happens as standard operating procedure in most car dealerships today.

The American consumer is also the American voter and I have a feeling that we are about to see some new pro-consumer legislation with respect to how cars are sold in America. State franchise laws that help to preserve the status quo will be examined closely. An example of these laws surfaced recently when a startup company, TrueCar.com, offered a new and refreshing way for car buyers to actually find out what the lowest price in their market was. This lasted about a year and TrueCar.com was growing like wildfire.

I wrote two columns about TrueCar.com. The first was entitled “Will TrueCar.com Change the Way You Buy a Car in The 21^st Century?” I wrote this before the intense pressure from car dealers, manufacturers, and state legislators caused TrueCar.com to “cave in” and redesign their unique, consumer-friendly lowest price system. My next article was entitled “Online Car Buying Service, TrueCar.com Caves in to Pressure by Auto Industry”.

Somewhere out there is another Sam Walton biding his time and waiting for the tolerance level of the American car buyer to “redline” when it comes to the old way she must buy a car today. I think the founder of TrueCar.com, Scott Painter, could have been that automobile Sam Walton, but he lacked the courage and folded under pressure. The American car buyer is waiting for you, Sam, and just like they did with Wal-Mart, the world will beat a path to your door. 

Never Having to Say You’re Sorry If You Are the Palm Beach Post

Can you remember when newspapers were the best and most prevalent sources of news? Unless you’re a baby boomer or even older, you probably can’t. Newspapers were the “only game in town” a long time ago. They were virtually the only way to advertise. Newspapers had a monopoly and most of them made tons of money. If a newspaper endorsed a political candidate, he got elected. They had huge influence over legislation. Their editorials strongly influenced social behavior. If you were the publisher or an editor of a newspaper you were very powerful and had to apologize to no man.

That’s the way it was, but no longer. Many newspapers have gone out of business and those that haven’t are struggling for survival. I personally believe that good newspapers with smart management will survive albeit in a different form than we used to think of them. Newspapers will have to think of themselves just like any small business that wants to succeed.  First and foremost, they must not only understand that “the customer is king” but they must act on it…walk the talk. The first rule of treating a customer like a “king” is that when you make a mistake and make the “king” unhappy you acknowledge the mistake, sincerely apologize, and then make it right. That’s how I run my small business and my great success is proof that this works.

About three weeks ago, a reporter for the Palm Beach Post, Mary Thurwatcher, interviewed my service manager, Wendy Smith, for a news story. The story was to be printed in the business section of the Palm Beach Post in a regular weekly feature entitled “Moving Up” which appears every Monday. Part of the regular format to “Moving up” is to ask the interviewee, what their favorite quotation is. It appears at the beginning of the article, just under the headline. Right under the quotation is the source, the name of the person credited with this quote. Wendy Smith, prior to becoming the service manager at Earl Stewart Toyota, worked twenty years for Southeast Toyota. For most of that time, Jim Moran was the owner and CEO of Southeast Toyota, her boss and mentor. In answer to the reporter’s question, “what is your favorite quotation?”, Wendy answered, “The future belongs to he who prepares for it”. Wendy told her that Jim Moran was the source of that quotation.

The Palm Beach Post reporter wrote a fine story about Wendy including the quotation. It was to run on the following Monday. Friday night, before that Monday, I checked with the Palm Beach Post’s website and found the story online. I was shocked to discover that the source of this quotation at the top of the article had been changed. Instead of Jim Moran being listed, the source of “The future belongs to he who prepares for it” was Malcolm X, the infamous racist hate monger and anti-Semite. It couldn’t have angered and frightened me much more if the article had listed Adolph Hitler.

My customer demographic is largely white, older, above average education and a significant percentage of my customers are Jewish. Virtually every customer I have was reading online that my service manager’s hero and mentor was Malcolm X! On Monday, those that missed the online article would see it in the newspaper. I don’t know if you’ve ever tried to reach anybody in authority at a newspaper on the weekend, typically you can’t even find anybody to report  that your newspaper wasn’t delivered until the following Monday. It was a miracle that a woman that works for me was able to get through to someone that was able to change the article’s quote. This effort took until late afternoon on Saturday before I was assured.

The reporter, Mary Thurwatcher, told us that she had written and submitted the quote just as given her by Wendy with Jim Moran listed as the source. She told us that the copy editor had never told her that there had been any change to the article whatsoever. I sent an email to the Publisher of the Palm Beach Post telling him what happened. I asked him to investigate and take the necessary action to fix the problem he has with his staff.  I told him that whoever made the change was either grossly uniformed as to who Malcolm X was or had made the change maliciously. In other words the act was either grossly incompetent or malicious. I had two reasons to send him the mail. One was to inform him so that he could fix the problem and the second was to elicit a sincere apology.

I received no apology and the emails I did receive from Tim Burke, the publisher and Nick Moschella, the senior editor were platitudinous. Tim Burke told me that he stood by the only email I got from Nick Moschella and felt it was sufficient.

Mr. Stewart:

  Thanks for following-up. I have talked to all parties involved. Of course, the editing change was well-intentioned – we do encourage our copy editors to question and challenge our reporters but there was a breakdown in this process.

  Glad you enjoyed the quite interesting story.

Sincerely,

  Nick Moschella

I guess Tim Burke thinks that just like in the old days he’s an 800 pound newspaper mogul who apologizes to no one. This attitude is not just plain thoughtless and rude, it’s bad business. I was responsible for saving the Palm Beach Post a lot of money. Had that article showing Malcolm X as the source of the quote run in Monday’s newspaper, I would have had no choice but to file a lawsuit against Cox Enterprises/Palm Beach Post. My damages would have been huge and so would have been the cost to the Palm Beach Post. Tim Burke dodged a bullet thanks to my catching his huge mistake before it was too late.  “Tim, it’s still not too late. How about telling me you’re sorry?

Online Car Shopping Service, TrueCar.com Caves in to Pressure by Auto Industry

You, the car buyer, just lost a big battle that you never even knew was going on! Regular readers of this blog and my Hometown News column, and listeners to my radio show know that I praised TrueCar.com for “Changing the Way Cars Will Be Bought in the 21^st Century”.  TrueCar was started by a young entrepreneur, Scott Painter, in 2008 and has grown remarkably up until now. Last year about 235,000 cars were bought through TrueCar, 2% of total USA car sales. Private investors have poured $275 million into the company. Why was it such a good company? For the first time ever, a car buyer was guaranteed the absolute lowest price in the market for any make and model. Once car buyers heard about TrueCar and understood what they did, it was a “no-brainer”. To buy a car any other way was insane. TrueCar was the best thing that ever happened to car buyers.

Now, it’s just like every other online car buying service, back under the control and manipulation of the car dealers. Last week TrueCar knelt down and surrendered to “The Man”, the power establishment of large car dealer groups like AutoNation, manufacturers like Honda, and politicians and regulators in the pockets of dealers in states like Colorado. As the pressure mounted, TrueCar was forced to stop doing business in 14 states. Their dealership members plunged from 5,200 last year to 4,200 this year. TrueCar makes their money, not from the car buyer, but from the dealer. The dealer pays TrueCar $299 for each car they sell on their program. The politicians, manufacturers, and large dealer groups caused many dealers to drop out of the program costing TrueCar millions of dollars.

Last week TrueCar stopped posting the lowest price in the market for you to choose. Instead, they offer a “target price”. A target price is higher than the lowest price in the market. To get the “lowest” price, you now have to contact the dealer. You’re not much better off than you are with no buying service. The MSRP on every new car window sticker is a “target price”, but you have to contact the dealer to get the lower price. I’ll agree that the MSRP is probably higher than the target price, but the principal is the same. If you have to negotiate with each dealer to get the real lowest price, how is the target price any better than sticker price?

Now, when you go to www.TrueCar.com and try to find the lowest price, you will find all of the dealers listed have the same “target price”. If a dealer submits a price above the target price, he is not listed. Before this capitulation to the power brokers, you had the price that each dealer in your market had submitted to TrueCar as his absolute lowest price. Now that price is hidden from you, the car buyer, only the car dealer who submitted the price and TrueCar know the lowest price.  In fact, other dealers don’t know the lowest prices submitted by their competition. They know only their own lowest price. This removes the very essence of what formerly made TrueCar, the car buyers’ best friend…COMPETITION between car dealers.

Now a TrueCar customer is right back to the old way of buying a car which is to call, email, or personally visit a dealer and ask him what his best price is. This invites the same old run around that you’ve probably experienced hundreds of times. “Are you prepared to buy today? That car is no longer available but I have another one just like it. When you’re ready to buy, come back and I’ll beat any price you get. That $999 is our “dealer fee”. All dealers charge this and we’re prohibited by law from removing it. The pinstripes, nitrogen in the tires, paint sealant, and fabric coat are an extra $1,799.”

I’m not a lawyer, but this whole thing sounds like price-fixing to me. A free market place is supposed to allow and encourage sellers of the same product to offer their lowest price to the buyers. Buyers are supposed to be enabled to easily choose the lowest price from among those offering those products. When sellers and manufacturers conspire to thwart this process, it’s called price fixing. Right now you can go on the Internet, click on www.Amazon.com  and dozens of other online retailers and select most any product (except a car) and find out the names of the sellers and the prices sorted from the lowest to the highest. Of course, you can also read customer reviews and determine shipping costs before you make your final decision. What makes cars exempt from that free market place process?

I’m especially disappointed in Scott Painter, founder and CEO of TrueCar because he had a really great concept, an “out-of-the box”, genius idea.  He could have been the Steve Jobs of online car buying services and changed the way cars were bought all over the world, just like Steve Jobs changed the world with the Macintosh, iPod, iPhone, and IPad.  But unlike Steve Jobs who stood up to enormous pressure from the establishment and most everyone telling him this can’t succeed, Scott Painter threw in the towel to make the fast, sure buck and avoid the conflict that lay ahead.

The good news is that someone will come along, take Scott Painter’s idea and have the courage and perseverance to make it work. That person will change the way cars are bought in the 21^st century. 

Car Dealers’ Bogus Lowest Price Guarantee

On my weekly radio show, I introduce myself as “the recovering car dealer”.  I say this because many years ago I employed many of the same unethical and deceptive advertising and sales practices as a lot of dealers do today. For a lot of reasons I won’t go into now, I finally “got it right” and in many ways, like a recovering addict, I’m preaching integrity like an addict preaches sobriety. At an AA meeting what lends credibility and authenticity to the message is that it’s coming from those who have “been there and done that”. Unless you've hit the bottom and struggled back to sobriety, you can’t really assure another addict that it can be done. An ex drunk or drug addict also knows all of the “tricks of the trade”. He knows how he deluded himself into believing he was not addicted. He knows how he rationalized his behavior as being acceptable and how he blamed his family and friends for not understanding him.

Years ago, I advertised a $500 lowest price guarantee. I did this for several years but I only paid the $500 out once. It wasn’t because nobody ever beat my price. It’s impossible for any retailer to always have the lowest price. I began to feel nervous because I never did pay out the guarantee. I was the first car dealer that I know of to come up with this idea. I wasn’t sure how the regulators would look upon a guarantee that was never paid out. The regulators know that car dealers are competitive and that no one dealer always sells his cars for less than his competition. If that were true, there would be only one car dealer of each make in a market. I instructed my sales managers to be sure and pay the $500 to anyone who bought a car from another car dealer because he beat our price. It was only after practically threatening my managers that we finally paid just one $500 guarantee.

What I learned from this experience is that it’s against “the nature of the beast” for a car salesman, manager, or dealer to admit that they lost a sale to a competitor. They will rationalize, ignore, or even lie to avoid confessing that they lost the sale. My lowest price guarantee was actually fair by today’s standards. We had a printed guarantee form that showed our price and left a blank for the other dealer’s price. We kept a copy and gave a copy to the prospective customer. Our conditions were that the customer return with a signed buyer’s order from the competitor and allow us the right of first refusal. This is what makes paying this guarantee virtually impossible. No competitor is going to give a prospective customer a final price knowing that the customer will take it back to the other dealer for a chance to beat his price.

Today, these dealers with the lowest price guarantees have raised the ante to as much as $3,000 or, if you can beat their price, will give you the car free! And they’ve added another condition which makes it totally impossible for you to ever earn their guarantee. In the fine print, this condition is “dealer reserves the right to purchase the exact vehicle the competitive dealer offers to sell for a lower price from that dealer”. What this means is that unless the dealer’s competitor agrees to help the customer “steal” the business from him by selling that same car to him, the dealer offering the guarantee is under no obligation to honor that guarantee. Take it from a guy who has been a car dealer for 44 year. If a competitor called me and said, “Earl, I’ve got Mr. and Mrs. Jones in my showroom. They’re the folks that you gave a price of $19,766 on this VIN number Camry. I can’t beat that price, so please sell me that same car for the same price so that I can sell it to Mr. and Mrs. Jones. If you don’t, they’ll buy the car from you and I’ll have to pay Mr. Jones my $3,000 lowest price guarantee. And I know you wouldn’t want that to happen to me, your competitor. What do you say, Earl?”

The real reason for the lowest price guarantee is to catch car shoppers off guard. They assume that the prices they are being quoted are the lowest in the market. Or else, how would that dealer dare to offer $3,000 if they beat his price or even pay for the car? By assuming that they are getting a good price they are less likely to shop and compare it. Repeat after me: “I SWEAR NEVER TO BUY A NEW CAR WITHOUT SHOPPING AND COMPARING THE PRICE WITH AT LEAST THREE CAR DEALERS”.

Do you agree with my premise that it’s impossible for any retailer to always have the lowest price? Then it would logically follow that dealers offering this guarantee will have paid out a few. I have a guarantee for those dealers. Mr. Dealer, prove that you’ve paid your cash guarantee to a customer who beat your price on a new car sale and bought the car from your competitor, and I’ll donate $500 to your favorite legitimate charity. To prove this, all of the paperwork will be submitted to an arbitration board of three CPA’s, one chosen by you, one by the customer, and one by me. To avoid you “setting me up” this offer is restricted to sales from the date of this column, 1-30-12,  back one year.

Ways Dealers and Manufacturers Deliberately Distort Selling Prices

Before 1958, there was no such thing as a manufacturer’s suggested price (MSRP) on cars. We can thank the late Senator Mike Monroney for changing this with what has become known as the Monroney Label. Congress passed this into law on July 7, 1958 with severe penalties for violating the law. A dealer or manufacturer found guilty of removal or alteration of the label can be fined up to $1,000 and/or imprisoned for up to one year. It may be removed only by the purchaser for the vehicle.

The purpose of the Monroney label was to give consumers the ability to compare prices between different dealerships on the same make, model and equipped car. If you were shopping for a new Chevy Impala with power steering, power brakes, AC and other specified options, you could compare “apples and apples” at several different Chevrolet dealerships and make your buying decision on which gave you the biggest discount from MSRP.

Unfortunately, like so many well intended consumer laws, this law is no longer enforced. I do a weekly mystery shopping investigation of competing car dealers in South Florida and I know of at least one dealer that removes his Monroney labels and replaces then with his own retail price. The regulators don’t know about this and they don’t seem to care. Virtually all of the dealers add their own label next to the Monroney label to artificially increase the suggested retail price by thousands of dollars. The dealer label is disguised to resemble the Monroney label and, being adjacent, many customers assume it’s the official MSRP. More often than not, customers never look at the Monroney label on the car they buy. This means that you probably can’t shop and compare the car you want by discounts from the retail asking price which is what the U.S. Congress intended with the Monroney label. 

But what about comparing the dealers’ profits by measuring his markup above cost? You can find out what the invoice is on the car you want to buy very easily. This information is available on the web and, strangely enough, many car dealers will gladly show you their car’s invoice. The reason the dealer will willingly show you his invoice is because it does not reflect his true cost. In fact, it reflects thousands of dollars in profit on the average. This is where the manufacturers join the conspiracy. The manufacturers add thousands of dollars to their dealers’ invoices which they subsequently “kick back” to the dealers monthly. You probably have heard the term “holdback” which was the original 1%, 2% or 3% that is added. There are many other additions now including advertising fees, dealer prep fees, interest fees, and extra holdbacks on port installed accessories. The biggest item that dealers get back monthly is “dealer cash” which is a secret rebate on different models that the consumer doesn’t know about. I’ve seen dealer cash rebates as high as $10,000. In fact, there’s a dealer cash rebate known as the “stair step incentive” which can pays the dealer as much as hundreds of thousands of dollars every month. He gets paid an amount per car retroactively on every car he sells in one month if he hits his sales objective. Theoretically, a dealer can sell one car, at or below his invoice, and make an effective profit of tens of thousands of dollars…even hundreds of thousands!

As if all of the above isn’t enough, I haven’t even mentioned dealer fees or dealer “packs”. If you read this column or know me you know that my war against the dealer fee has been going on for 14 years. The dealer fee is just more profit to the dealer that he surprises you with when you sign your paperwork to take delivery of the car. It varies from a low of around $500 to high of $2,500, but there is no legal cap in many states.

I normally wouldn’t mention the dealers “pack” because it’s not something that affects the MSRP or is kicked back from the manufacturer to the dealer. A caller to my radio show last Saturday brought this up and I’m covering it in an abundance of caution just in case others would like to understand it. However, it possibly could affect the price you pay for the car, but not in the same way distorting the sticker price and the invoice does. A “pack” is an amount the dealer subtracts from the profit a salesman makes on a car he sells. A typical pack would be $700. A salesman sells you a car on which the dealer makes a profit of $1,700 but before he pays his salesman the typical 25% commission, the dealer subtracts the pack. The salesman is paid 25% of $1,000, not $1,700 saving the dealer $175 in sales commission expense.  Years ago packs were used by dealers to trick their sales people into thinking they were earning a higher percent commission than they really were. Since then, federal wage laws have been passed that require full disclosure of packs so that sales people do know exactly what their percentage is. However, I’m sure that there are some dealers still ignoring the law and tricking their sales people just like their customers. But, packs continue to exist even though there is no good reason for them. One could argue that the salesman will sell the car for more with a pack than without one, but the dealer and the sales managers generally set the price, not the salesman.

What does all this mean for you when you buy your next new car? Nothing more than what I’ve already warned you about in previous columns. Pay no attention to dealer advertised prices, window sticker prices, or dealer invoices. Never make a buying decision on the size of a discount from “retail” or markup over “invoice”. Make your buying decision by picking the lowest selling price from at least three different dealers on the exact same make, year, model, and accessorized vehicle. Separate your trade-in valuation and financing from the purchase transaction and get at least three bids on both of these too. 

Don’t Pay for Nitrogen In Your Tires

It’s bad enough that gas stations now make you pay to inflate your own tires with air. But at least you are getting what you paid for…air which does what it’s supposed to do and that is to keep your tires inflated.

Many car dealers are now charging customers to fill their tires with “pure” nitrogen. They tell you that nitrogen does not leak from your tires as quickly as air and this means that your tires will stay properly inflated longer before you have to add more nitrogen (and pay the dealer for this). What the dealers don’t tell you is that the air that is already in your tires is mostly nitrogen anyway. In fact, 78% of the air you breathe is nitrogen. Oxygen represents only 12% of the air. The rest of air includes carbon dioxide and other inert gases. I’m not sure what the purity of the nitrogen is that they pump into your tires for $199 (this is not a typo…one hundred and ninety-nine dollars for filling four tires full of mainly air). But, you can be assured that the purity of the nitrogen is not 100% and is probably closer to the 78% that regular air consists of.

Even knowing all of the above, I have to admit that I was curious about whether or not nitrogen could prolong tire live and improve fuel economy because I knew that NASCAR drivers used nitrogen filled tires and I heard that Volvo’s came from the factory with nitrogen in their tires.  I have a BS in Physics from the University of Florida and a Master of Science from Purdue and these kinds of things interest me. So, to find out for myself, my dealership conducted an experiment. We have a fleet of rental cars and we filled two tires of each car with pure nitrogen and 2 tires with regular air. Over the course of many weeks, we measured the pounds of inflation in the nitrogen and air filled tires. There was no difference in the inflations of the nitrogen v. s. the air filled tires. If there is no difference in the inflation, there can be no benefit from nitrogen of better gas mileage or fuel economy.

You may have read my column last week, “Beware the Phony Monroney”. In that column I warned you about car dealers that add a window sticker designed to look exactly like the federally mandated Monroney sticker. This is where you should look for dealer installed accessories and additional dealer markups over MSRP. Often these accessories have a high price but a very low cost. In the case of nitrogen in four tires selling for $199, this is exactly the case. Since air is already 78% nitrogen, it costs virtually nothing to extract nitrogen from the air. To be generous, let’s say the dealer’s cost is $10 including labor. That is a 2000% markup when he charges $199.

Just when I thought I’d seen it all, I actually saw window stickers on a car today from another dealer who had actually modified the Monroney label to show nitrogen filled tires. To do this, the dealer actually had to remove the real Monroney label, make the modification showing the nitrogen tires, and re-paste the Monroney label to the window. Federal law requires that a Monroney label not be removed until the vehicle is delivered to the customer. It also requires that it not be modified. This new vehicle was one we had traded for from another dealer and still had the counterfeit Monroney and the modified real Monroney attached to the window. The modified Monroney looked so authentic, that one of my technicians and my service manager inquired of Toyota about the necessity of our carrying nitrogen tanks so that we could refill these tires with Nitrogen. If this could fool a Toyota dealer’s technicians and service manager, it might fool you too.

This particular dealer also had another charge added to the counterfeit Monroney sticker, a $4,995.00 “Market Value Adjustment”. Most prospective customers think that this is part of the manufacturer’s recommended retail price. They either end up paying too much money for the vehicle or think they are getting more for their trade-in or a bigger discount than they really are. It’s easy to allow someone an extra $5,000 on their trade-in when you have already marked the car up an extra $5,000 over sticker price.