Saturday, November 25, 2006

OPEN LETTER TO FLORIDA CAR DEALERS IV

SUBJECT: DON’T UNDERESTIMATE YOUR CUSTOMER’S IQ

Dear Florida car dealer, this is the 4th letter I’ve written to you. The first asked you to stop charging your “dealer fee” on top of the price you quote your customers. The second asked you to advertise cars at a price you were willing to sell the car for and have an ample supply of. The 3rd asked you to accept the responsibility, and not blame others, for the fact that car dealers have a terrible reputation comparable to politicians and lawyers.

I’m looking at a used car ad about a special one-day sale in the PB Post that, by the time you read this column, will have taken place.

Here are some of the claims in this car ad. (1) Claim: The dealer is forced to sell used cars for $9 because he is overstocked. Fact: If a car dealer was overstocked with used cars he would not sell them below his cost and no used car costs as little as $9. A car dealer can sell a junk car that won’t even run for $150 just for the scrap metal. (2) Claim: We can afford to sell used cars for $9 because we are a large volume dealer. Fact: No matter how large a dealer is, he cannot afford to sell his product below its cost. (3) Claim: You are asked to pick out the used car you want and then “sit behind the wheel”. Only then will you be given the discounted price. Fact: This is a tactic invented by a promoter who charges dealers to put on these sales. This tactic is meant to instill irrational excitement in the mind of the potential buyers. The promoter will have a fast-talking pitchman with a bull horn trying to whip everybody into a buying frenzy. He goes from car to car “ripping” the old price sticker off and showing the new price. One thing that keeps people sitting behind the wheel of their chosen car is the hope that it is a $9 car. (4) Claim: The General Manager of this dealership states, “I mean, a quality used car for as low as $9? That’s irrresistable!” Fact: There is no such thing as a quality used car for $9. You would be lucky to find one for as little as $5,000. (5) Claim: “After 1PM Saturday, all cars will return to their usual prices. Fact: You can buy any used car from that dealer (except the two $9 cars) for the same price that they were advertised for in that sale.

You know that all the claims in this car ad are false and so does virtually everybody that reads this column. Unfortunately there is a minority of car buyers who are unable to pick up on this deception. These are the buyers who will flock to this kind of a sale. I know what I’m talking about because I put on this very kind of sale many years ago. I’m not proud of this. We had overflow crowds, people actually arguing over who could sit behind the wheel of the car to find out what the discount would be. We would sometimes sell 50 or more used cars during the one day of this type of sale...More than we would normally sell in 2 weeks. The people who flock to these sales are the very young, the uneducated, minorities who have difficulty with English, widows or others who have never bought a car before, and generally those most vulnerable member of our society.

So, you say. If these sales are so successful, why do you warn me not to “underestimate the IQ of my customers”? Here’s why. Far more people read your ad than the poor souls who succumb to your deception. For every person who fell for your ad, there are probably ten people who read your ad and understood how misleading it was. How many of those will you ever sell a car to? What does an ad like that do for the image of car dealers in our community? Ads like these and the sales practices encountered by those who are fooled by these ads make a car salesman the butt of as many jokes as you hear about lawyers and politicians.

I don’t ask you to stop running these kinds of ads out of the “goodness of your heart”. I am asking you because it’s simply good business. Your image is important and the only reason you are doing OK now is that most other car dealers don’t offer a better alternative. But, as Bob Dylan said, “The Times, They Are A Changin’”.

Sincerely,

Earl Stewart

Saturday, November 18, 2006

OPEN LETTER TO FLORIDA CAR DEALERS III

SUBJECT: WE HAVE MET THE ENEMY & HE IS US!

Dear Florida car dealer, even if you weren’t a good history student in school, you probably remember the quote from Commodore Perry from the War of 1812, “We have met the enemy and they are ours”. The satirical comic strip, Pogo, has a memorable quote satirizing Commodore Perry, “We have met the enemy and he is us”. This fits the image problem we car dealers have today. We brought it on ourselves through our devious advertising and sales practices. However, we blame everybody but us…our customers, lawyers, the media, and car dealers like me who dare to speak the truth.

This is the 3rd letter I have written to Florida car dealers in my weekly column. The first asked you to stop charging your “dealer fee” on top of the price you quote your customers. The second asked you to advertise cars at a price you were willing to sell the car for and have an ample supply of. In both letters I made the point that there is a minority of car dealers like me who do not charge dealer fees or resort to “bait and switch” ads. I also confessed that I used to be one of those dealers that I am writing about today. I did charge a dealer fee once and I did advertise cars that I hoped the customer would not buy. At the end of each letter, I asked that you call or email me to discuss my letter. So far, I have received no phone calls and the only emails blame me and others like me, for the negative image that car dealers have in our society. Here is an example of the emails I have received from dealers: “I read your sanctimonious babble in today’s Post and you are correct in assuming your comments will garner the attention of other dealers. It is comments like the ones you made that keep public opinion of our chosen profession in the doldrums. Like it or not we’re together in this battle and your “holier than thou” claim will only fuel the fire. Want to show the world your true compassion? Donate 20% or more of you net profit to charity then you’ll truly be the “great guy” you aspire to be.”

We can see this sort of “shoot the messenger” attitude with our politicians who blame the media for their negative image. It always amazes me to hear Republicans accuse the media of left wing bias and the Democrats blame the same media for a right wing bias. Sure there is bias in the media just like there is some bias in all of us. But, when your image in the eyes of the American public is as bad as that of politicians and car dealers, how can you not understand that there is a problem? The only profession I can think of that ranks as low in the public esteem is that of lawyers.

If you will call or email me to discuss my position in an open minded manner, I think you will be surprised and happy that you did. My business has grown steadily since I began to really understand that satisfying and respecting my customers was the most important single ingredient for my overall success. I’m certainly not making the claim that my way of doing business is the only path to success. I know a lot of car dealers who sell more cars and make more money than I do who do not take my approach with their customers. You can “fool some of the people all of the time”. However, that minority that can be fooled all of the time is shrinking daily as our customers become more educated and sophisticated. One day soon, there won’t be enough of them to go around and the majority of car buyers will be doing business with guys like me.

Sincerely,

Earl Stewart

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

OPEN LETTER TO FLORIDA CAR DEALERS

SUBJECT: ELIMINATE THE DEALER FEE

Dear fellow Florida car dealer, I started in the retail auto business in 1968, about 38 years ago, and I have seen a lot of changes in the way we dealers sell cars and the expectations of our customers. My remarks in this column are made sincerely and with a positive intent toward you and your customers. I am not trying to tell you how to run your business; I am suggesting a change that will reward both you and your customers.

Virtually every car dealer in Florida adds a charge to the price of the cars he sells, variously referred to as a “dealer fee”, “documentary fee”, “dealer prep fee”, etc. This extra charge is printed on your buyer’s orders and is programmed into your computers. It has been made illegal in many states including California. You charge this fee to every customer and it ranges from a few hundred dollars to nearly a thousand. Florida law requires that, if you charge a dealer fee to any customer, you must charge all customers. It also requires that you disclose in writing on the buyer’s order that this charge represents profit to the dealer. Florida law also requires that you include this fee in all advertised prices. You don’t always do this and you get around the law by limiting the number of advertised vehicles (as few as one).

The argument that I hear from most car dealers when I raise this issue is that the dealer fee is fully disclosed to the buyer on his buyer’s order. But, most car buyers are totally unaware that they are paying this. Who reads all of the voluminous paperwork associated with buying a car? The few who notice it assume it is an “official” fee like state sales tax or license and registration fee. Those few astute buyers who do question the fee are told that your dealership must charge this fee on very car, which would not be true if you were to make the decision to not charge the dealer fee to anyone. These astute buyers are also told that all other car dealers charge similar fees. This is almost true, but, as you know, my dealership does not.

The reason you charge this fee is simply to increase the cost of the car and your profit in such a manner that it is not noticed by your customer. This is just plain wrong. Dealers will admit this to me in private conversations and some will admit that they have considered eliminating the fee as I have, but are afraid of the drastic effect to their bottom line. By being able to count on an extra $895 in profit that the customer is not aware of or believes is an “official fee”, you can actually quote a price below cost and end up making a profit. Or, if the price you quote the customer does pay you a nice profit, you can increase that by several hundred dollars.

This “extra, unseen” profit is even better for you because you don’t pay your salesmen a commission on it. That’s being unfair to your employees as well as your customers. When the rare, astute buyer objects to the dealer fee, the law permits you to decrease the quoted price of the car by the amount of the dealer fee. This would have the same net effect of removing it. The salesman won’t permit this because he will lose his commission (typically 25%) on the decrease in his commissionable gross profit.

If you don’t know me, I should tell you that I don’t profess to be some “holier than thou” car dealer who was always perfect. Although, I never did anything illegal, when I look at some of my advertising and sales tactics 20+ years ago and more, I am not always proud. But, I have evolved as my customers have evolved. My customers’ expectations, level of education, and sophistication are much higher today. Your customers are no different. As I began treating my customers, and employees, better I discovered that they began treating me better. Yes, I used to charge a dealer fee ($495), and when I stopped charging it a few years ago, it was scary. But I did it because I could no longer, in good conscious, mislead my customers. Just because everybody else was doing the same thing did not make it right.

Now here is the good news. My profit per car did drop by about the amount of the dealer fee when I stopped charging it. But, when my customers realized that I was now giving them a fair shake and quoting the complete out-the-door price with no “surprises” the word spread. My volume began to rise rapidly. Sure, I was making a few hundred dollars less per car, but I was selling a lot more cars! I was, and am, selling a lot of your former customers. My bottom line is far better than it was when I was charging a dealer fee. You can do the same!

Why am I writing this letter? I’m not going to tell you that I think of myself as the new Marshall that has come to “clean up Dodge”. In fact, I am well aware that this letter is to some extent self-serving. Lots of people will read this letter to you and learn why they should buy a car from me, not you. And, I am also aware that most dealers who read this will either get angry and ignore it or not have the courage to follow my lead. But maybe you will be the exception. If you have any interest in following my lead, call me anytime. I don’t have a secretary and I don’t screen any of my phone calls. I would love to chat with you about this.

Sincerely, Earl Stewart