Saturday, November 18, 2006

OPEN LETTER TO FLORIDA CAR DEALERS II

SUBJECT: STOP BAIT & SWITCH ADVERTISING

Dear fellow car dealer, in case you missed my last letter to you on “dealer fees”, you can find it on the Hometown News Web site archives at http://www.hometownnewsol.com/. Or, you can click on my Blog, http://www.earlstewartoncars.com/.

The subject of this letter is the ads most car dealers run which are designed to motivate prospective car buyers to come into their dealerships believing that they can buy or lease a vehicle for less than they really can. Most of these ads appear in newspaper, but there are also quite a few in direct-mail, TV, radio, and the Internet. If you are one of the few car dealers who do not do this, I know you will enjoy reading this column and agree with me.

One of the most common lures is advertising the new vehicle below your cost. You spend thousands of dollars advertising monthly and consider losing a little money on one or two cars as part of your advertising budget. The problem is that you deliberately limit the number of cars you will sell at this price and you do this in a deceptive manner.

One way this is done is to show a stock number next to the price of the car. This translates into there being only one car available at that price. Another technique is to use the phrase “other cars available at similar savings”. First of all, how do you define “similar”? Secondly, Florida law requires that you include “dealer fees” in all advertised prices, but not in cars that are sold for “similar savings”. Adding back that dealer fee can turn a “loss leader” back into a profit.

Another trick is to show huge discounts from “list” when list is defined in the fine print as including “dealer installed” options. By simply marking up whatever options you choose to install on an advertised car, you can generate as much markup as you like.

Bait and switch is also aimed at monthly payments. By disclosing in the fine print that a very, very high credit score is required to qualify for an advertised low payment, lease or purchase, you limit the possible buyers that can qualify to a very small percentage of the population. The vast majority who cannot qualify, end up with a much higher payment and higher profit to you.

A favorite deception is to advertise very large “minimum trade-in allowances”. I have seen trade-in “minimums” as high as $15,000. These ads are clearly aimed at prospects from the lower economic strata who are currently driving older cars and are prone to be less sophisticated and informed buyers. A smart buyer knows that you cannot possibly allow someone $15,000 on a trade-in worth $250 unless you make back that deficit in additional markup on the car you are selling.

Another deception aimed at the lower economic, less educated portion of our society is the “no credit, no problem” ad. Having bad credit or no credit most definitely is a problem. It might not be a problem for you but it is for the person with the bad credit and it is for the bank that will refuse to finance that person. Another version of this trick is “no credit application refused”. A sophisticated buyer knows that all you are saying is that you will allow anyone to fill out a credit application and you might even agree to submit it to a lender. But you are not telling him that her credit application will be refused if her credit is too bad or not sufficient.

There are other examples that I could cite and there will be new ways that many dealers will come up with to lure buyers into their dealerships. As I said in my last letter, I am asking you to voluntarily stop this form of advertising before the regulators make you stop. I am not suggesting what you are doing is illegal, but I am saying that it is not right. I am also saying that it is bad business. If I can’t get your attention by asking you to treat your customers with respect and consideration, how about if I tell you that you can sell more cars and make more money if you do?

You are successful in luring lots and lots of people into your dealership, but you sell only a small portion of these people cars. Those you don’t sell are probably angry at you when they learn they cannot buy the car for the price they believed. Even the ones you do sell may be angry because they had to pay you more money than they wanted. Unhappy customers don’t come back and they tell their friends. You have to spend more and more on advertising because your repeat and referral business is so bad. This is not good for your bottom line and your manufacturer is probably “on your back” because your customer satisfaction rating is so low.

As I said in my last letter, I look back on the sixties, seventies, and eighties and recall a lot of advertising that I wish I hadn’t done. But I learned better, and I “got the message” from my customers. I’m not trying to flaunt my success as a reason for you to change the way you do business. But, in a very recent JD Power Survey of all Toyota dealerships’ customers, including mine, we were found to have the highest customer satisfaction rating of any other Toyota dealership in the Southeast USA except for one. If that doesn’t get your attention, we also had the 2nd highest customer closing ratio out of every Toyota dealership in the USA (about 1,300). Selling a higher percentage of Toyota buyers than virtually anybody else and satisfying those customers better than virtually anybody (even the very few who did not buy from us) translate into high volume and high profits. Try it; you’ll like it.

If you would like to discuss this with me, please call me or email me. My numbers and addresses are below.

Sincerely,

Earl Stewart

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