Friday, August 24, 2007

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 39 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

6 comments:

  1. I care about my customersAugust 25, 2007 9:34 AM

    This letter is obviously self serving. Who are you to tell the dealerships how to run their business? You are not aware of their situation. Why not just put out a blog to your customers saying that you don't have dealer fees and everyone else does instead of telling dealers what it right and wrong. You can not determine what is right and wrong for other dealers. What you need to worry about is your business and your customers. Dealers don't want you to preach to them. You are the competition. You have the right to run your business any way you see fit and so do the other dealerships. You offer no dealer fees. Other dealers offer other items. In the long run you may or may not be cheaper than anyone else. I am sure that you make the same money on a car without dealer fees than other dealers do with it. I think the biggest reason why dealers get so mad at you is not because of your business procedures but because you keep preaching to them and always tell the people that read your blog that the other dealers around you are not doing the right thing. Write your blogs and let the customers make their choices on who is the better dealer to do business with, just quit trying to play like you are the only dealer that cares about their customers because you are not. I am sure you are smart enough to know that dealerships in general have come a long way. Most dealerships go way above and beyond to take care of customers. This is a different trend than years ago, but in todays world dealerships are a million times better than they have been. You were around in the good and bad times so you know. Now I am not saying this applies to ALL dealerships, but I am saying this applies to most. I think the car business would be much better if the dealerships work together and get along instead of this constant fighting. I don't believe this is good for business. I believe in competition I am not promoting price fixing, but having dealerships fighting among each other is not a good picture to paint to the customers. Do what you feel is right, educate your customers but putting other dealers down is not a class act. It is not being a good business man. It seems like you are trying to use slimmy tactics to help your situation or your bottom line. You don't have to do business this way. There is enough business out there for everyone. Tell your customers you are better, prove it to them. All that is fine but don't knock the other guys. This doesn't show good. You may be a good dealer and I am sure you have a honest care for your customers but so do a lot of guys out there. Not everyone goes to work with a plan to screw the customer out of money every day. Everyone needs to make a profit and your way may be different than the next guy but that is America. That is life. It doesn't make the other dealers wrong. At the end of the day everyone gets the best price they ask for. At the end of the day your profit per car is probally the same as the next guy. At the end of the day it all works out the same. Profit margins are very tight. No one can run away with a profit unless the customer allows it. Customers are very educated these days and very aware of most profit margins. The bottom line is that dealers make profits on volume sales and of course the service department. You knocking the guys around you is not going to make you any more money it just creates alot of tension. Go on the radio, talk to the customers, give them your home phone, give them advise, but keep it about you and not everyone else. Don't put someone else down to try and get ahead. I don't think your mother brought you up that way. Anyway that is how I feel.

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  2. Dear "I care about my customers",

    Thanks for your comments. They seem sincere and you sound like an intelligent person. In fact, you sound like a car dealer or dealership manager. In fact you sound like someone who used to work for me with the initials B.B. Let me address your comments item, by item within your posting:

    I care about my customers said...
    This letter is obviously self serving.


    I admit my opposition to the dealer fee is self-serving and I so stated in my column. But that doesn’t necessarily make my position wrong. I admit that I’m in business to make a profit. I think I can make a larger profit if I’m honest and forthright with my customers and not charge a dealer fee, among other things. If that is being self-serving, I plead guilty!

    Who are you to tell the dealerships how to run their business?

    I am the senior car dealer in Palm Beach County and probably South Florida. If I don’t stand up for what’s right then who will? The state and local regulators haven’t.

    You are not aware of their situation. Why not just put out a blog to your customers saying that you don't have dealer fees and everyone else does instead of telling dealers what it right and wrong. You can not determine what is right and wrong for other dealers.

    I am aware of other dealers’ situations. I know many dealers and have been a car dealer for over 40 years. As I said above, who better than the oldest, most experienced, and one of the most successful dealers in South Florida to judge what is right and wrong with the sales practices of other dealers?

    What you need to worry about is your business and your customers. Dealers don't want you to preach to them.

    You are telling me "what I need to worry about" but you don’t think I have the right to do the same with other dealers. I know dealers don’t want me to preach to them. Most sinners don’t want to be preached to, but that does not mean that preaching is wrong.

    You are the competition. You have the right to run your business any way you see fit and so do the other dealerships. You offer no dealer fees. Other dealers offer other items.

    I don’t dispute the fact that dealers have the right to charge dealer fees. I do not think they have the right to break the law and advertise prices without the dealer fee included. Just check the ads in the PB Post and see how many are breaking the law. Having the “right” to do something doesn’t make it right. There are lots of things that are legal that are also wrong. I’m not sure what you mean when you say that some dealers offer “other items”.

    In the long run you may or may not be cheaper than anyone else. I am sure that you make the same money on a car without dealer fees than other dealers do with it.

    If you really believe that I make as much on a car without a dealer fee, why do you and the other dealers charge a dealer fee?

    I think the biggest reason why dealers get so mad at you is not because of your business procedures but because you keep preaching to them and always tell the people that read your blog that the other dealers around you are not doing the right thing. Write your blogs and let the customers make their choices on who is the better dealer to do business with,

    The problem is that customers cannot make a good choice of which dealer is offering them the best price when they don’t know about the dealer fee.

    just quit trying to play like you are the only dealer that cares about their customers because you are not. I am sure you are smart enough to know that dealerships in general have come a long way. Most dealerships go way above and beyond to take care of customers. This is a different trend than years ago, but in todays world dealerships are a million times better than they have been. You were around in the good and bad times so you know.

    My guess is that I have been in the car business a lot longer than you and I know better than you how business what conducted since 1968, when I started as a dealer. We didn’t charge a dealer fee then. You are absolutely wrong about dealers being “a million times better” than they were years ago. Most of them are taking advantage of customers in even more ways than they used to...they have just gotten smarter about how they do it.

    Now I am not saying this applies to ALL dealerships, but I am saying this applies to most. I think the car business would be much better if the dealerships work together and get along instead of this constant fighting. I don't believe this is good for business. I believe in competition I am not promoting price fixing, but having dealerships fighting among each other is not a good picture to paint to the customers.

    I think that our customers have an entirely different opinion about "us dealers sticking together". Customers like good, hard, honest competition. They like to be informed about what dealers are doing to take advantage of them, like charging the dealer fee. You would be amazed at the positive responses I get from my column, blog, and radio show.

    Do what you feel is right, educate your customers but putting other dealers down is not a class act. It is not being a good business man. It seems like you are trying to use slimmy tactics

    "Slimmy tactics!"...Talk about the pot calling the kettle black!

    to help your situation or your bottom line. You don't have to do business this way. There is enough business out there for everyone. Tell your customers you are better, prove it to them. All that is fine but don't knock the other guys. This doesn't show good. You may be a good dealer and I am sure you have a honest care for your customers but so do a lot of guys out there. Not everyone goes to work with a plan to screw the customer out of money every day. Everyone needs to make a profit and your way may be different than the next guy but that is America. That is life. It doesn't make the other dealers wrong. At the end of the day everyone gets the best price they ask for. At the end of the day your profit per car is probally the same as the next guy. At the end of the day it all works out the same. Profit margins are very tight. No one can run away with a profit unless the customer allows it.

    Not to be redundant, but the customer often doesn’t even know he is paying a dealer fee. How can she not allow something she is not aware of?

    Customers are very educated these days and very aware of most profit margins.

    You only have to read some of the ads in the paper to know that many customers are not educated enough to know that you can’t buy a used car for $4.00 or get $10,000 minimum trade allowance on any car they trade in.

    The bottom line is that dealers make profits on volume sales and of course the service department.

    I am also one of the only dealers who does not tack on a phony "miscellaneous supplies" charge of 5% or 10% on to every service bill.

    You knocking the guys around you is not going to make you any more money it just creates alot of tension. Go on the radio, talk to the customers, give them your home phone, give them advise, but keep it about you and not everyone else. Don't put someone else down to try and get ahead. I don't think your mother brought you up that way. Anyway that is how I feel.

    Do you think your mother would approve of the dealer fee?

    One last thing, why won’t you or most of my critics identify themselves? Who are you afraid of knowing your identity...your customers or me?

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  3. I care about my customersAugust 27, 2007 12:41 PM

    I agree with you in a lot of areas. I agree that being honest is always the way to go. Because another dealership charges a dealer fee does not mean they are not honest. There are many honest dealers out there. Now if they don't disclose the dealer fee I agree this is dishonest. That doesn't happen everywhere. You are not the senior dealer in South Florida. You are only 66 years old. You are ONE of the senior dealers in Palm Beach and South Florida. There are several Toyota dealers in your district that are older than you not counting the non Toyota dealers around you.

    What works at your dealership may not work at other dealerships and I as said before as long as the customer knows what they are getting there is not a problem. Not letting a customer know is. That is not COMMON practice. That is a practice that happens at some dealers not all. It is not fair to pile every other dealership in one pile and you in another. Dealer fees are not a problem. Not telling the customer about them or trying to sneak them in the price is. We need to make that clear. Not every dealership advertises $10,000.00 off a brand new car or buy a used car for only $100.00. A lot of honest dealers do not do that. Send the right message. If you are so intuned to educating the customers and you want such a huge responsibility then it is only fair that you give them the right information.

    I completely disagree that most dealerships are taking advantage of customers. I do agree some are and maybe even some in your area, but I don't feel it is most. There are plenty of dealerships in South Florida that truly want to take care of customers for years to come. I think were some of the problem comes in is in the big mega groups when owners are so far away from their business or a board governs the business that is where most of the problems are.

    I don't agree with you on a shop charge. This charge covers everything in the shop that is not itemized on a customers bill. If a dealer has a very high labor rate to off set these charges then that is a way to cover the cost. Or a dealer can charge an honest charge and show the customer what the are actually paying for.

    You and I will never see eye to eye on everything and it seems you want to battle every comment I make. I only wanted you to know that I feel you overall outlook on other car dealerships is not the way it really is. I wanted to applaud you on educating the customers but wanted you to know that by bashing other dealers is not a classy thing to do. I feel you should keep to your dealership and not bash the others. After all you have not been involved with all of them and you really don't know everything.

    Lastly I am not this BB person and I have not worked for you, but have worked in the car business for many years. You are right you are older and probally even wiser, but you are not the end all end all when it comes to the car business. I am very proud of how I take care of customers and very proud that we have and will continue to be here for years to come because of our reputation and the way we treat customers. Also I would like to add that me disclosing my name will only fuel your fire and not actually help any situation. Our paths will cross one day this I am sure and if I feel the timing is right maybe we will meet.

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  4. Dear "I care about my customers [S.C.]",

    Unless you can dig up the courage to identify yourself, I will take no more time conversing with an anonymous critic.

    I don't know the motive you have for hiding your identity, but it can't be a good one.

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  5. I care about my customersAugust 29, 2007 5:35 PM

    Mr. Stewart,

    I don't understand why knowing who I am is so important. I don't think I said anything harmful or hateful towards you or your business. I have only stated my personal feelings. Every comment will have positive and negative results. If you have a open forum for you to state your opinion than you should be able to allow the readers to read the opposing side. You have the ability not post certain comments. I don't agree with that. That means this blog can be one sided and you are only letting the customers hear your point of view. This can mislead customers greatly and that is not good business. I feel that if I call you on the phone, which anyone can, the conversation will again only be one sided and the fine folks reading this blog would not read anything that disagrees with you. Again this is misleading to a customer. I will say this again. Your dealership averages the same gross per car as the average dealership in the area. You are no different as far as profit per car. The way you make your profit may be. I will also say this again if a dealer does not charge a dealer fee it will only increase the profit margin in the car and the net result is the same. As long as the customer knows what they are paying for this is not an issue. Your sales are off from last year. You are not growing even with this new dealership and building more space. Your dealership is struggling with customer satisfaction surveys. You are no where near the top in your district or region for that matter. Because you still have to make a profit puts you in the same boat as everyone else. You are no better or worse. Dealerships have made improvements by leaps and bounds to satisfy customers and keep them coming back to them. You can paint a different picture if you want, but you get the reports you see the retention numbers and you are somewhere in the middle. All I have tried to say, in a very nice way, it's not a very classy thing to try and promote your business and increase your customer base by putting other dealerships down. Those are sleaze tactics used years ago that not many dealership resort to these days. All dealership under cut each other and all dealership say they are the best or better than the rest, but I can't recall the last time I saw a dealership say that every dealer around tries to rip you off or charge you hidden fees just to promote themselves until I started reading this blog. You don't have to respond. You can even block this from being posted, but I have got to say if you really want to pass yourself off as trying to be the lead then take the lead by showing all the good things you do or offer instead of pointing out what YOU feel the other dealers are doing wrong. Proof is in the pudding. By the way you are not the senior dealer. Jerry Bean Kendall Toyota. Older than you. Bill Lehman, Lehman Toyota. Older than you. AL Hendrickson, Al Hendrickson Toyota. Older than you. Ed Morse, Delray Toyota. Older than you. Roger Penske, Palm Beach Toyota. Older than you. Craig Zinn, Hollywood Toyota. Mike Maroone, Maroone Toyota. The late Mr. Liptons son and daughter from Lipton Toyota, Clay King, King Toyota are all about your age and some of them have been doing this as long as you have. You have cut your teeth with most of them. Don't mislead the people who read this blog. Don't try to tell the readers that they are not hands on. They are very aware of what is going on in their dealerships. None of them want to lose business to anyone, so they all try to handle customers. I did a little survey. I called every Toyota dealership around you. David Rich partner/owner Homestead Toyota took my call. Jeronimo Esteve from Headquarter Toyota. His partner/son called me back. Lipton Toyota is in a trust, but the controlling interest in that dealership Steve Jenson took my call. Al Hendrickson Sr. and Jr of Al Hendrickson Toyota both took my call when I called at differnt times. Clay King from King Toyota was in Orlando at his dealership there and he called me back. I found Ed Morse has a cooperate office. I called the cooperate office and his son in law who runs the day to day business took my call. So please let all your customers know that although they did have secretaries answer their phones once they found out a not so happy customer was on the phone, which I pretended to be, the owner or operator got on the phone or returned my call. So your readers can rest assure that if they have a concern an owner/operator will call them or take their call.

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  6. Dear "i care about my customers",

    When you feel comfortable enough to abandon your anonymity, I will be happy to continue this conversation.

    ReplyDelete

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