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Friday, August 31, 2007

OPEN LETTER TO CAR MANUFACTURERS

Customer satisfaction trumps sales volume

Dear car manufacturer,

Today all of the car manufacturers can’t stop talking about customer satisfaction, especially when it comes to satisfying the car buyer. They are aware, just as everyone is, that customers visiting car dealerships rank their treatment worse than just about any other retailer. The manufacturers have been aware of this problem for about 30 years. As a Pontiac dealer, I can still remember the first “CSI” surveys that were sent out. The surveys have changed quite a bit and the methodology has changed quite a bit, but essentially it’s the same. When somebody buys a car from a dealer, she is mailed a questionnaire, sometimes it’s emailed, and sometimes the customer is surveyed by phone. The same system is used for service customers. These surveys are scored for customer satisfaction and the dealerships are measured against each other. Typically a dealership is ranked numerically within his local market (about a 100 mile radius), region (geographic section of the USA like the Southeast) and the entire USA.

The problem has been that these surveys haven’t worked very well. Realizing this, the manufacturers have steadily increased the penalties to dealers with bad scores and rewards to dealers with good scores. The penalties can be quite severe, including a dealer’s franchise being terminated, putting him out of business. The rewards sometimes include cash, vacations trips, prestigious honor clubs and societies, and even priority consideration for another dealership location. Guess what? It’s still not working! The scores are getting higher and higher, but the customers are not getting happier and happier. How can that be, you say??!!

The dealers are finding ways to manipulate the survey scores to their advantage. The stakes are so high for a good customer satisfaction score, that “fixing the game” has become pretty much S.O.P. with many car dealerships. This is especially egregious because the honest dealers, who go about improving their scores “the old fashioned way”…treating his customer better, are made to look bad relative to those who are cheating on their scores. In fact, sometimes you actually see dealers who don’t treat their customers very nicely getting higher scores than those who do! As if this wasn’t bad enough, manufacturers sometimes “look the other way” when a large volume dealers has a “CSI problem”. In awards, contests, and honorary societies, the manufacturers sometimes award “discretionary” points to bring a large volume dealer’s percentage score up to an acceptable level. I don’t have to tell you how demoralizing this is to those honest dealers who earn their points fairly. This sends a dangerous message to all of the dealers when they see sales volume trumping customer satisfaction in the priorities of the manufacturers.

The fact is that the manufacturer’s focus on customer satisfaction surveys has intensified to the point where most manufacturers’ executives care more about the numbers than the customers. They tell the dealers to “get those numbers up” which doesn’t necessarily correlate with “treat your customers better”. In a recent Automotive News article, an independent survey company found that 36% of car buyers said the salesperson asked for a perfect score and were asked to allow the dealership to address problems and complaints internally, rather than report them to the automaker. There are also instances of offering a free tank of gas or other perk for a good survey or bringing the blank survey into the dealership for the salesman to fill out. One manufacture recently caught a lot of dealers who had furnished phony email addresses for their customers so that the customer satisfaction survey would come to the dealership instead of the customer’s home.

Here is my recommendation to the car manufacturers. You can keep the surveys, but let them be used only as an information tool for improving the way the dealers treat their customers…no penalties or rewards. Replace the surveys with the “proof of the pudding” for customer satisfaction which is how many customers who buy a car from this dealer come back to buy another from the same dealer? Also, what percentage of the customers return to that dealer for service after they buy their car? What more do you need to know? Customer loyalty is the bottom line, plain and simple. If you must use a survey, use an independent survey company who surveys the dealers’ customers when he doesn’t know who is being surveyed or when it’s being done. The hardest thing for a manufacturer to do is to make customer satisfaction to trump sales volume, not the other way around. The manufacturers will find, if they have the courage to do that, the will “have their cake and eat it too”.

Sincerely,

Earl Stewart

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

Friday, August 17, 2007

HISPANIC TV AD CONTROVERSY CONTINUES

Readers of this column know that my main focus is on giving potential car buyers advice on how to buy the right car at the right price without being taken advantage of by a car dealer. I have deviated from this column format twice recently in response to the controversy associated with a TV advertisement I am running in which I speak Spanish, with English subtitles. Today’s column will vary again because the controversy continues. I am getting far more positive responses to my Spanish ad than negative, but the steady pace of negative calls and emails continues to surprise me. Many of the negative calls are anonymous which makes me suspect as to their motivation, sincerity, and integrity.

Whenever a caller or emailer identifies herself, I always respond. In the interest of getting my reasons out to others who may take issue with my Spanish-speaking TV ad, I am introducing three actual negative emails and my responses (spelling and grammatical errors intact):

(1) Dr. Mr. Stewart I could not believe seeing your commercial in Spanish with English subtitles. Why not move your business over there instead of here. I would not buy from you after seeing that commercial. Others agree with me. This is America, not some Third World Country. You are not doing them a favor either by catering to them. They need to conform to our customs, not us conforming to their thrid world culture. You should be ashamed of yourself

Dear Larry,

I sincerely apologize for having offended you with my Hispanic TV commercial. Please allow me to explain.

There seems to be a common thread within the comments objecting to my Spanish commercial on our local, English-speaking TV stations.

That thread, and common misunderstanding, is that I am targeting Spanish speaking people who, either understand no English, or understand it not very well. This simply is not correct. My market research found that the vast majority of Hispanics in Palm Beach County watch English speaking channels. These are the potential Toyota buyers I am targeting. It’s easy to understand why local Hispanics watch English speaking TV if you have ever watched the 6 Spanish channels (which all originate out of Miami). The programming is of inferior quality and there is very little variety. There may be a few Hispanics who watch English speaking TV to learn to speak English better. Do you really think my 60 second commercial is discouraging these few from learning English?

Virtually all Hispanics living in Palm Beach County are bilingual and fluent in both Spanish and English. They are also mostly American citizens like you and me, most are 2nd or 3rd generation Americans, have good paying jobs, and can afford to buy a new car. Those relatively few Hispanics who don’t speak English can’t afford to buy a car. Many are here illegally and don’t even have driver’s licenses.

The response from our local Hispanic community has been overwhelmingly positive. My commercial got their attention, where it may not have had I spoken in English. You can easily understand why it got their attention if you can imagine yourself living in another country watching TV in your 2nd language. Suddenly, “out of the blue” you are listening to a Toyota commercial in English. Virtually all Hispanics found this very positive and several have bought cars because of this ad and many more say they plan to.

I could understand why you would be angry with Channel 5 if they ran Hispanic programming at times when you wanted to watch TV, but why are you angry because I ran a 60 second commercial. I hate commercials (except my own, of course). I mute commercials, change the channel, or take the opportunity to run to the kitchen or bathroom. When I sometimes accidentally have to watch a commercial (can’t find my remote control fast enough). I see lots of really obnoxious commercials. Some are absolutely terrible! (There is one car commercial where a balding guy with a beard shouts at you). I see very deceptive commercials which are obviously designed to trick us into buying from them. How about the commercials for feminine hygiene products, hemorrhoid medications, or anti-flatulents? Why don’t these kinds of commercials upset you? Have you called or written any of these advertisers? If you did, I bet you didn’t get a response. In fact, I bet you can’t even talk to them like you can me.

Several critics have accused me of “being all about making money”. You folks that pride yourself on being better Americans than I should understand that America is the land of free enterprise and capitalism. With lots of hard work, every American has a shot at the “gold ring”. I won’t apologize to anybody for trying to make a profit in my business. Many of these Hispanics, who a lot of the anti-Hispanic commercial letter writers seem to resent, came to this country because they were fleeing the communist state of Cuba. Profits and making money are frowned upon by communists. In Cuba, it’s not “all about money”; it’s all about poverty except for the communist party leaders who live quite well.

F Scott Fitzgerald said that the true test of a great mind is being able to hold two opposing views in your mind at the same time. In past presidential elections, our country was virtually split down the middle. If you are a democrat do you really think that the half of the country that voted Republican is bad or stupid? I ask the same question of the Republicans. If you don’t agree with me, why must you hate me and threaten me. I respect your opinion even if I disagree; why can’t you respect mine?

(2) Dear Mr. Stewart

Maybe you need to talk to Tom McKenna of Seacoast Water in Stuart, who is being forced out of his business by his Hispanic landlord because he just wants tenants that appeal to Hispanics. Wake up and see what is happening in this country and you are a part of it. Sure you are entitled to your views, but you are going to lose alot of customers who do not share your views. Believe it or not, people are turning away from companies who are advertising in Spanish. America should come first and the language here is English, not Spanish.


Dear Laura,

I don't know the specifics of the matter with Tom McKenna and his lease. I believe that you are referring to a story in the PB Post. I am a businessman and I do know that a landlord cannot force a tenant "out of business". Tenants have rights just like landlords. A landlord can elect not to renew a lease, in which case that tenant would have to lease space elsewhere. He would still be in business but at a different location. Landlords have rights too. If a landlord believes that they can lease their property to another tenant that will enhance their profits, that is what free enterprise is all about…and America is all about free enterprise. In some countries, the government can tell businessmen who they can and cannot lease to or do business with.

I am in the process of expanding my Toyota dealership. I purchased the property next door to my property. On that property is a Cuban restaurant, El Colonial. Their lease in up next month and I will not be renewing it, but I am working with the owner, Jamie Gomez, so that he will have plenty of time to find a new location. Jamie and his father, Jose, operate the restaurant and are American citizens who came here from Cuba. By the way, Jaime watches English speaking TV, loves my commercials, and recently bought a new Toyota Land Cruiser from me.

PS: If you like Cuban food, this is one of the best. It's Zagat rated very high and my employees and I eat there often. I will continue to do so when they move.


(3) This is for Earl Stewart. I saw you add on TV the other night and must say I was skocked. An Add in spanish- due what you must. Not only will I not buy a X2 Scion from you but I will ask my friend and fellow employees not to by a car from you. Why should I push 1 for english and I don't need your ads in my face in spanish.

Dear Charlotte,

I am sorry that my Spanish language ad offended you and I’m sorry that you have chosen not to do business with my dealership again.

You may be surprised when I tell you that I believe English should be learned and spoken by all citizens of this country and that I don’t support amnesty for illegal aliens. I also don’t like the answer machines that say “touch 1 for English or Spanish”. When you call my dealership you never get an answer machine. Please feel free to call me and discuss this further at anytime. My calls are not screened and I am always available to everybody.

My innocent and only intent was to sell some more Toyotas and Scions to American citizens of South Florida who are of Hispanic descent.

I advertised on English-speaking channels, rather than Spanish for two reasons:

(1) The vast majority of American citizens of Hispanic descent living in South Florida speaks English and watches the same channels you and I watch. My ad was not aimed at illegal immigrants who are very few and can’t buy cars anyhow. Most can’t afford a car and, if they could, cannot buy a car without a social security number, drivers’ license, insurance, etc.
(2) The only Spanish channels shown in our area originate in Miami and because of their vast audience, are cost prohibitive for me to advertise on. I am paying $100 to $350 per ad and the Spanish channel, which all originate out of Miami and cover all of South Florida, cost about $5,000 for a 30 second spot. This is way over my allowable advertising budget.

You may wonder why I spoke in Spanish and there are also two reasons for that:

(1) It is a sign of respect when you speak to someone in their native tongue or the native tongue of their parents or grandparents.
(2) Speaking in Spanish on a 100% English TV channel “cuts the clutter”. It got your attention and the attention of many more. It was very controversial with lots of supporters and some detractors. This is the goal of any advertiser…to have his commercial noticed.

Best wishes,

EarlStewart

Friday, August 10, 2007

Buy a Car You Can Afford

I was talking to a friend of mine this morning and I asked her what the one thing was that worried her most about buying a new or used car. She told me that it was paying more for a car than she intended to or could afford.

I have written in past columns that you should know exactly what car you want to buy before you do your comparison shopping. You have to compare “apples and apples”. You must also have a firm idea of the most that you will pay for that car. If you don’t know that you can buy a specific year, make, and model for your maximum budgeted price, go back to the drawing board and come up with a car you can afford. Even if you think you can but find out that you can’t after comparison shopping, don’t buy anything until you have chosen another car that you can afford.

When I say “know the price you can afford”, don’t think that I am talking about “monthly payment”. Too many people equate price with monthly payment. In fact, car dealers rely on this confusion to make big profits. If you really want to “make a car salesman’s day”, just walk into the dealership and tell them you’ll buy that car just as long as he can keep your payments under a certain amount. When you have told him that, you are telling him that you don’t care about the asking or selling price, whether you buy or lease, what interest rate you pay, what your trade-in allowance is, how well the model you chose retains it’s value, or how long you finance the car. Each of these items is inextricably tied together.

Many dealers add a supplementary price sticker alongside the federally mandated Monroney label. It often looks exactly like the Monroney and buyers assume it is part of the official MSRP. This extra label adds thousands of dollars to the real MSRP. Be sure you determine the real MSRP and the real discount from MSRP. When you lease a car, the leasing company owns the vehicle at the end of the lease, not you. That’s why lease payments are so much lower. If you buy the car, not nailing down the interest rate by competitive shopping allows the dealer to make a lot of money in finance reserve. This is the money banks pay dealers for charging a premium over the interest rate that the bank charges the dealer (called the “retention rate). The interest profit to the dealer can be in the thousands of dollars on a single transaction. If you don’t competitively shop your trade-in and check research sources on the Web, the dealer selling you the car may not allow you the fair market value for your trade-in, just another way of increasing his profit. Some makes and models of cars depreciate faster than others. After 3 years, some models retain up to 61% of their original cost but some retain as little as 25%. This is a huge price difference between two cars that you don’t find out about until you trade that car in on your next purchase. You can finance a car for 12 months and up to 72 months. The shorter the length of time, the lower the interest cost. Don’t be tempted to finance a car for longer than 36 months just to get the payment down.

You can understand why it’s not as easy as it sounds to have a firm idea of the most you are willing, or can afford, to pay for a car. The selling price and monthly payment are just two of 7 items that you must have a firm grasp of. There is also lease or buy, interest rate, trade in value, resale value of the car you are buying, and length of financing. If you know only 6 of the 7, you have left the car dealer a loophole that can cost you money.

Friday, August 03, 2007

Advertising in Spanish on English TV

For those who missed my earlier column on this subject, I have been advertising my Toyota dealership on English speaking TV. Why would I advertise in Spanish on English speaking TV when everybody who watches speaks English? There are two reasons. First it “cuts the clutter”. The challenge to any advertiser is for her commercial to get noticed (and mine sure did!). The second reason I spoke in Spanish was to signal my respect to those whose [or that of their parents or grandparents] native tongue is Spanish. It is considered an international sign of respect to attempt to speak to someone in their native tongue. If you have ever traveled abroad, you may have experience this. If you have not seen my ad and would like to view it, click on this Internet link http://www.youtube.com/EarlStewartToyota.

Little did I realize when I first began to run my Hispanic TV advertisement what a stir it would have! The complaints started right away, some in the form of emails and some phone calls. I averaged about 5 calls a day and 2 or 3 emails. There were some positive comments but mostly negative. I began to wonder whether I was doing something that would hurt my business, but I could see no tangible evidence that anyone had not bought a car from me because of this ad. About half of the calls and emails were anonymous.

Recently the press picked up on this and there were news articles in the Sun Sentinel and the Palm Beach Post. This caused the tide to turn to favorable comments. Also, I’m getting very positive feedback from a lot of Hispanics. I have not received on single negative call or email from anyone of Hispanic descent. Currently the favorable comments are running about 10:1. I have gone to worrying about whether this ad would harm my business to actually wondering if this may not be the most effective advertisement I ever ran!

This whole personal experience was like taking a course in sociology. The negative callers fell into three categories. The first, and most numerous (about 50%), were the anonymous callers. They would call, state their outrage at my ad and then hang up. The second were those that were did give their names, but refused to listen to my reasoning behind my ad. These callers were less than the anonymous (about 25%) and about the same number as the third category. These callers were actually polite. They stated their concerns and were quite willing to listen to “my side of the story”.

The anonymous callers were virtually all rude, vulgar, and profane. From what I could garner from their one-way rant, they were very, very angry. I also detected “fear” in many of their voices. Some sounded like they had written their words out in advance so they could be sure they got it right. These callers clearly had no knowledge of what my ad is designed to accomplish. They seemed to think that most of the Hispanics in South Florida don’t speak English and are here illegally. I hope some of these callers will call back and listen to my explanation.

The second group was the most disturbing to me. They were not anonymous and they were not nearly as rough in their language, but I was disturbed because I could not change their minds even after they allowed me to explain. I do believe that most of them hung up with less anger in their hearts toward me and most of them dropped their threat never to buy a car from me, but they would not change their mind about my ad.

The third group was very nice and civil. Although they called to express dissatisfaction to my ad, they welcomed my explanation. I really enjoyed my exchanges with these intelligent and open minded callers. After hearing my explanation, they did a “180” and understood my advertising tactics. That’s not to say that they liked them and agreed with them, but they understood. They knew that I meant no disrespect to anyone and that I was simply a car dealer trying to sell some more cars. Several said that they would buy their next car from me.

The sociological lesson I learned (and am learning) from this experience is as follows. Education must always be a priority in a society. Ignorance is very dangerous. You cannot have bigotry and prejudice without ignorance being part of the equation. I learned this from the first set of anonymous callers. My next lesson is that education isn’t always enough. If a person is born and raised in bigoted, prejudiced environment, this can be imbedded in his emotions so deeply that education will not remove his negative feelings. Sometimes it takes more than one generation of knowledge and enlightenment to free one of prejudice and bigotry. We know that many of the Muslim terrorists were highly educated. My most pleasant lesson was from the third group who were educated, open minded, and willing to listen to another opinion. This final lesson was that educated, informed people who were raised in a loving environment can “agree to disagree”. It was F. Scott Fitzgerald who said that the most accurate test of a great mind is the ability to hold two opposing ideas in ones head at the same time”.