Sign the Petition!

Monday, August 31, 2009

A Sea Change in the Way Cars Are Sold?

The dictionary defines a sea change as “a striking change, as in appearance, often for the better.” A lot of economists and other experts have speculated that we are experiencing a sea change in America, or even globally, as a result of this worst recession since the Great Depression. The experts are saying that Americans will never again spend as much or save as little as they have. Because so many of us have lost our jobs, had our homes foreclosed on and cars repossessed and have seen our 401K’s cut in half we will never be the same.

Nobody disputes the fact that the Great Depression caused a sea change, at least in that generation who lived in it. Those of you who were old enough to remember the thirties will vouch for that. I was born in 1940 but my father was born in 1892. He was a young man during the thirties and those years changed him for the rest of his life. Even though he was a relatively wealthy and successful Pontiac dealer, he saved and spent his money as if he might be looking for a job tomorrow. As a child, I can remember my mother admonishing him for wearing his shirts and his pants for too many days. He didn’t want to spend the money to send them to the cleaners. A lot of my Dad rubbed off on me and I still can’t stand to throw anything away. My wife, Nancy, has to cajole me to donate shoes or clothes that don’t fit me anymore to Goodwill or other charities.

Last Friday, I was honored to be invited to an interview at the Palm Beach Post. Charles Passy, one of their oldest and best reporters, invited several local business owners and I was the one representing car dealers. It was Charles’ interview that gave me the idea for this column. The purpose of this interview was to learn what local businesses had experienced with their customers and employees that might suggest a sea change in saving and purchasing habits. You can read what everybody had to say in this Sunday’s, September 6, PB Post.

I agree that we are experiencing a sea change but one that is quite different from the one of the Great Depression. This time in addition to Americans being traumatized by the loss of their jobs, homes and retirement, they are traumatized by their loss of trust. Just a short while ago, insurance companies and banks were considered among the most trustworthy of institutions, but no longer. Wall Street and their government regulators are among the least trusted also. Trust in the media and politicians are at an all time low. Americans don’t know where to turn to invest or save their money. Just recently, Americans were so afraid of putting their money in a bank or any place else except the U.S. Government that they actually paid the government interest on treasury notes to keep their money safe.

The recent government incentive program, “cash for clunkers” is evidence of the lack of trust that car-buyers have for car dealers. Read car ads or watch them on TV and every day you will see offers of savings that exceed the savings of “cash for clunkers”. But when car buyers heard it from a trusted source, the United States government, they came in and bought cars in record numbers. August is the best auto sales month since January 2007 and it has occurred in the middle of the biggest recession since the Great Depression. In my Toyota dealership in North Palm Beach, I shattered my old record of 404 new Toyotas. I’m writing this column on Monday, August 31, and it looks like we will sell about 500 new Toyotas in August.

As many of you know, I practically never advertise prices. This is simply because most other dealers advertise prices less than what they are actually willing to sell the car for…often times below their actually cost. If I advertise a car for an honest price, mine will appear higher in comparison.

More evidence of this sea change of Americans gravitating to invest, save, and spend their money only with those whom they can trust is my rapidly expanding market share. I outsell my two nearest Toyota dealer competitors to the south of me combined. I outsell the three nearest Toyota dealers to the north of me combined. I outsell Ed Morse Delray Toyota by a large margin even though he is in a population area three times the size of Lake Park/North Palm Beach. I outsell all the Toyota dealers in the Orlando, Tampa, and Atlanta markets. I also outsell most of the Toyota dealerships in the Ft. Lauderdale-Miami markets. I am the 5th or 6th largest seller of Toyotas in the Southeast USA. I use only Toyota for comparison, because Toyota is the number one retailer and I obviously outsell all of the other makes.

I’ll probably take a lot of flak for bragging about how many cars I sell. I’d be lying if I didn’t admit it feels good to be #1. However, I believe my unparalleled success is good news for car buyers, even those who don’t buy Toyotas. Auto retailers everywhere are watching Earl Stewart Toyota and trying to figure out how we do it. If they figure it out, they too can match or exceed my success. And if they do, you, the car buyers of America will benefit as well.

Monday, August 24, 2009

CASH FOR CLUNKERS LEGISLATION IS A WASTE OF TAXPAYERS’ MONEY (With New Preface)

*Now that the cash for clunkers program has ended, I thought it would be good to rerun my original column on this subject. My belief about the program being ill thought out remains, but I’m hopeful about there being some economic benefit. This will be decided in the next few months based on whether the demand for new vehicles “falls off a cliff’ because clunker deals were not fresh business. There is a fear that we merely borrowed sales from the future from those who would have bought a new car in the next few months anyway.

The cash for clunkers program was not only wasteful of taxpayers’ money but it was administered just about as sloppily and inefficiently as is possible. Ray LaHood, the head of NHTSA did not have a clue as to how car dealerships operate, what paperwork is pertinent to a sale, or how a dealership’s cash-flow would virtually dried up by not paying dealers promptly. You will be reading about dealerships that were literally put out of business by this program because they did not receive the money from their sales from NHTSA. As I write this preface, less than 10% of the $3 Billion dollars has reached dealers. My own dealership is owed well over $1 million. Because dealers make far less than $4,500 or $3,500 on a sale, every clunker transaction drove them further into a negative-cash position….some to the point of bankruptcy and thousands were forced to quit the program early.



Once again our Congress and Senate have proven that they are out of touch with reality or, perhaps more likely, simply inclined to pass any legislation that will get them reelected.

The “Cash for Clunkers” bill passed the House and the Senate and awaits President Obama’s signature. It is supposed to be help energy conservation because it will take higher gas mileage vehicles off the road. It’s also supposed to help our floundering economy because it will incentivize owners of “clunkers” to buy new cars. When the driver of a clunker, defined to be a vehicle with relatively poor gas mileage and worth up to $4,500, trades it in he gets a voucher for either $3,500 or $4,500. Then the dealer must scrap that vehicle.

Here’s why our politicians are out of touch with reality. Our country is in the worst economic condition since the Great Depression. The most severely affected are those at the lower end of the economic spectrum. Arguably even more important than housing to this class of people is transportation [you can sleep in your car]. It’s not possible for many to get to work without a car. It’s not even possible for many to look for work without car. How about taking your children to school or getting to a doctor or hospital? These are the people who buy “clunkers” because they don’t have the credit to buy anything more expensive. Or, maybe they can’t get any credit at all and can afford only cars cheap enough to afford to buy for cash.

If this legislation works the way the politicians say they want it to, it will remove most clunkers from the road and drive up the prices of those few remaining to make them unaffordable to those that have no other transportation option. Of course, a lot of the economically challenged are already driving clunkers. The new law doesn’t permit them to use the $3,500 or $4,500 voucher to buy a nicer, more reliable used car. They may only buy a much more expensive new car. Unfortunately, most people with bad or no credit who are forced to drive a clunker, won’t be able to get financed on a new car even with the $3,500-$4,500 down payment.

Logic dictates that no one would have his vehicle scrapped for a $4,500 voucher if was worth more than $4,500. But, who is to say what a clunker is really worth? I can tell you from my 40+ years in the retail auto business that you can show a used car to five different used car managers and get five different opinions as to what it’s worth. I advise consumers to shop their trade-in to at least three different car dealers before they accept a trade-in allowance from the dealer they buy from. Typically you will see a $2,000 to $5,000 difference between the 3 professional opinions. I see nothing in the legislation to control this variable. I can guarantee you that there will be thousands of vehicles scrapped that are worth more than the voucher amount. How will you feel knowing that you paid $4,500 of your tax dollars to scrap a car that had a market value of $6,000?

To the extent that lower gas mileage vehicles are taken off the roads, this is good. But energy conservation is not our country’s top priority right now. We need to think about cutting our 10%+ unemployment in half. Scrapping the only cars that many of our unemployed can afford to buy and driving up the prices of those that remain is not the right way to go about this.

The car dealers love this because of the general lack of understanding of this new law will likely drive potential buyers into their showrooms. You can argue that this is good because it will stimulate new car buying. But, is it good to stimulate the economy through deception? I’m already getting solicitations from marketing companies with all sorts of cute ideas about how to exploit this legislation. You can expect to see an advertising media blitz on “Cash for Clunkers”.

I will end this column on a positive note. One Congressman who voted against this legislation is Tom Rooney from my district, the 16th. There are always a few who vote their conscience and not what will get them reelected. Unless we recognize and vote for guys like Tom Rooney, this endangered species will vanish.

Thursday, August 20, 2009

Cash for Clunkers to End Monday August 24th

The story below was just forwarded to us from TMS. The bottom line is as follows:

-The CARS program will end Monday August 24, at 8 PM EDT.
-All deals must be submitted by that time -Dealers are still able to resubmit rejected applications after the deadline

Monday, August 17, 2009

The Achilles’ heel of Car Dealerships [and even good businesses like Costco]

I’m often asked why my Toyota dealership in North Palm Beach is so successful. My dealership is actually located in the tiny little town of Lake Park [population 8,721 as of the last census]. I’m on the city border of North Palm Beach, so I advertise my location there so people can find me. I mention this because Earl Stewart Toyota sells more cars than any other car dealership in Palm Beach County. We are the 7th largest seller of Toyotas in the Southeast USA. People can’t understand how we can sell so many cars in such a small population area.

Furthermore, people are mystified by our high customer satisfaction ranking. Last year, for example, we were honored to be selected by Toyota as one of just 12 dealers [out of 1,277] in the USA for the President’s Cabinet Award. The award is based on sales volume and customer satisfaction.

I know that I sound like I’m bragging and I guess I am. A lot of people have been quoted as originating, “It ain’t bragging if you can back it up”. I first heard it when Mohammed Ali said it, but he probably wasn’t the first. In this column, I’m going to reveal the secret to my success. All car dealers and all businesses can use my secret to become at least as successful as I.

First, let me relate an incident that happened to me just recently at the Costco Wholesale Club on Northlake Boulevard in Palm Beach Gardens. Costco is my favorite retail store and my wife, Nancy, and I shop there almost every Saturday. In fact, I’m also a stockholder and, for readers of this column, I recommend you buy some Costco stock.

In the past several months we noticed that the shopping carts at Costco were littered with trash…used napkins, used tissues, paper and plastic bags, and unidentifiable “stuff”. This is partly caused by the free food samples that are passed out in paper cups or plates and with napkins and toothpicks sometimes. Customers eat their samples and throw what they don’t eat into their carts. When Nancy and I come into Costco on Saturday mornings and pick up our cart, we have to take the trash out of the cart with our bare hands and find a trash receptacle. This would be a nasty enough a task even without the Swine Flu pandemic in the news every day. Because I’ve been a regular member of Costco for 25 years or more, I know many of the store’s employees and regard many of them as my friends. I mentioned this to several of them and they promised to bring it up with upper management.

When nothing changed and the carts were still filthy, I spoke to a Costco employee who I knew very well and who I especially admired for his special concern for his customers. He suggested that I fill out a written suggestion and put it in the suggestion box in the front of the store. He said that all of these suggestions were sent to Costco headquarters in Issaquah, Washington. I did that, but two months later there was nothing done. At this point I took it upon myself to speak to the “weekend manager” because I shop at Costco only on Saturdays. He listened but didn’t seem very concerned. He told me that the reason the carts were littered with trash is because Costco customers left their trash in the carts. I told him that I understood the reason, but I thought the carts should be cleaned for the next customers. I asked him why the employees who picked the carts up from the parking lots and brought them back to the front of the store couldn’t clean the carts out first. He didn’t have an answer for that but he said he would “take it under consideration”.

About a month has passed since my last conversation. Last Saturday, the carts were still filthy. In fact, I cleaned out two carts for ladies waiting for carts plus my own cart. For those of you familiar with Costco, you know that you have to show your membership card when you enter the store. When I did this, I asked “the shopping carts are still littered with trash. Why can’t Costco clean them out?” The Costco employee replied, “It’s the customers’ fault that the carts are dirty”. I have to admit that I briefly lost my cool. I turned to him and said incredulously, “Are you blaming me because your shopping carts are dirty?” He looked at me angrily and said again, “It’s not our fault; It’s the customers’ fault.” Immediately after this, I went to men’s room so that I could wash my hands.

By now, you may have guessed what my secret to success is. You can sense my frustration with Costco which is still my favorite retail store, by the way. That frustration is that I, their customer, cannot communicate with higher management. When I advised the local lower level Costco employees, it went no higher than the weekend manger. When I send a written complaint to their headquarters, who knows what happens to it? When I spoke personally to the weekend manager, it stopped right there. Most of the employees in Costco are great employees who care very much about their customers. These employees agree with me that the shopping carts should be cleaned before they are returned to the customers. In fact, one employee said that they should emulate Publix which, not only cleans their carts meticulously, but provides sanitary wipes in a dispenser so customers can clean the cart’s handle.

When a customer has any kind of a problem in my company, I hear about it 99% of the time. As most of you know, nobody in my company, including me, screens their calls. All calls to me and all of my employees are put immediately through. If I’m not in the dealership, the calls are put through to my cell phone. You probably know that I have 4 red phones strategically located through my dealership. A red phone is always within a few steps of every customer. The sign on the phone says, “If we have not exceeded your expectations, please pick up this red phone; The buck stops here”. There is no dialing required and when the customer picks up that red phone it automatically dials my cell phone. If all of that isn’t enough, I give every customer my home telephone number which is printed on my business cards.

So there you have it, CEO’s of companies all over the world. This is the secret to success. LISTEN TO YOUR CUSTOMERS. You all say that but you don’t walk the talk. You have layer after layer of insulation between you and your customers…secretaries, assistants, middle managers, executive managers. All of them are telling you what they think you want to hear but not what’s going on “in the trenches”. It’s not easy, but who said success was supposed to be easy. How bad do you want it and how much are you willing to sacrifice to get it? Am I worried that my competition will read this and be able to compete more successfully against me? What do you think? LOL!

Monday, August 10, 2009

Don’t let the Dealer Clunk You With Your Clunker

Since the U.S. Senate voted an extra $2Billion of our taxpayer’s money toward Cash for Clunkers, the insane rate of frenzied new car sales has not slowed. In over 40 years as a car dealer, I’ve never seen an incentive that has so energized the retail auto industry. The CARS program has so exceeded the expectations of our government, the auto manufacturers, and car dealers that auto inventories are evaporating at a rate so fast that dealers will be virtually out of cars in the next few weeks. Auto manufacturers will not be able to gear up production fast enough to keep cars on dealers’ lots.

Anytime you see buyers panicked into buying based on a program that’s almost too good to be true, you see buyers being taken advantage of. I’ve listed some of the main dangers you may encounter if you decide to trade in your clunker before Labor Day, September 7, which is when the program is scheduled to end. I believe it will end sooner because the extra $2 Billion will be gone before that.

(1) Confirm for yourself that your old car qualifies. You can get this information by clicking on www.Cars.gov or calling the toll free number 866 CAR-7891. The basic qualifying rules are that your car must be less than 25 years old, get no better than 18 miles per gallon, and be continuously owned and registered by you for at least one year. It also must be continuously insured for one year, but not necessarily by you. You may have given your old car to your child or grandchild. Knowing that your car does qualify and for how much, gives you an edge in the price negotiation.

(2) Do not tell the dealer you are negotiating a price with that you own a clunker. Tell him that you have no trade-in. When dealers know that you have a clunker worth $4,500 or $3,500, they see “dollar signs” and extra profit in their pockets. Surveys show the average profit dealers are making on sales with clunker trades is 20% higher.

(3) Get at least 3 competitive price bids. If you are Internet savvy, you can get a dozen or more price quotes in less than the time it takes you to drive to 3 dealerships. Your Internet price is usually the lowest price a dealer will sell a car for.

(4) Do not sign a form making you responsible for the government not paying the dealer the clunker money. Many dealers are requiring that customer sign a form accepting the responsibility to reimburse the dealer if the CARS program does not pay the dealer all the money that he expected. In many cases customers are signing these forms along with the myriad of others, not even being aware. If the dealer won’t budge on this, buy your car from another dealer.

(5) Demand to see the actual price the dealer is getting for the salvage on your vehicle. The government does not require that the dealer take this amount off the price of the new vehicle, but it does require that the dealer inform you of the “estimated” salvage value of your vehicle. This is so that you will have this information in negotiating the best price of the new vehicle. However, this is a big oversight in the government program and does not accomplish its intent. The estimated price means nothing and can be far from the actual price he sells your car to the salvage company for. The average price so far given as estimates to clunker owners is $75. In my dealership, with about 130 clunkers traded for so far, we are averaging about $450 per clunker. We allow the full salvage value less $50 [specified by the government]. Insist that the dealer take the full salvage price he got for you car [less $50] off the price of the new one.

(6) If you are buying a used car, be sure it’s not a clunker trade-in. It’s illegal to sell a clunker trade-in to anyone except an authorized salvage yard. But, with all the confusion going on and the desperation of many dealers, it’s likely that clunker trade-ins have been and will be sold. I’m seeing an unusually large number of old cars advertised for sale. If you see a used car advertised for under $10,000 be very, very careful. Check first to see if it would qualify as a clunker and, if so, do a CarFax title search and contact the previous owner. You may be able to get this information from the government, but their computers are so overwhelmed, it’s doubtful. Even if the old car you’re considering is not a clunker trade-in, be very wary of paying $6-$10 thousand for an old car that is worth a few hundred dollars for salvage.

(7) New vehicle inventories are approaching their lowest levels ever. You will be pressured by many dealers to buy a car you don’t want because the one you do is not available. They will tell you that, if they have to order the car, the cash for clunker program will have expired. This may be true but do you really want to spend $26,000 or for a new car that you really don’t wan to drive?

(8) 60 months is the minimum lease under the CARS program. This is another big mistake by the government. You should not lease a car for 60 months or more, but you have no choice with CARS. When you sign any lease contract, you are obligated to make a lease payment for every month the lease is for. If the car turns out to have big mechanical problems, you still have to make 60 lease payments. If you die, your estate must make the rest of the lease payments. If you become disabled, you’re still obligated. If you buy or lease another car before the 60 months is up, the unpaid lease payments are added to the price of that new car.

Monday, August 03, 2009

SHOP YOUR FINANCING AND TRADE-IN WHEN BUYING A CAR

If you have read my earlier columns you know how important it is to get several competitive prices from different car dealers on the car you are buying. Equally important is to get at least 3 prices/bids on your financing and the true value of your trade-in.

The absolute worst thing you can do is to tell the dealer “all I care about is keeping my payments under “$X per month” and not know what the interest rate, terms, or products are included in the payments. Part of the profit a dealer makes on his cars is called “F&I income” and averages from $500 to as much as $2,000 per car sold. You can do your homework and buy your car at a very good price, but by not shopping your financing you can pay the dealer thousands of dollars in finance profits.

Credit unions are often the best source of funds for buying a car. Because they get special tax breaks from the government not available to banks, they usually have the lowest finance rates. Even if you don’t belong to a credit union, there are several you can join for a nominal fee. You should also get a financing quote from the bank you do business with. Also, give the dealer that you are buying from an opportunity to beat the rates you were quoted. Sometimes he can.

When you are taking delivery of your car, you will be asked to consider buying products like extended warranties, maintenance plans, road hazard insurance, GAP insurance, roadside assistance, credit life insurance, etc. My suggestion is that you do not make a snap decision on these products at the last minute. You should get complete information on each product and determine if it has value for you. You may already have coverage for some insurance products in policies you already own. With extended warranties and maintenance be sure you understand what is covered and what is not covered and what the deductibles are.

You should get at least 3 bids on the value of your trade-in. You can get some pretty good guidance from Kelly Bluebook, www.kbb.com and www.edmunds.com. Make an appointment to drive your trade-in to show the used car manager at a dealer who is franchised to sell the make you own. A Chevrolet dealer will likely pay you more for a Chevrolet trade-in than a Ford dealer would. That’s because people generally will shop for a used Chevy from a Chevrolet dealer. Get one or two more bids from other dealers in the same make. If you are near a CarMax store, you should take your car there too. They regularly buy cars like this for their inventory. The price you will be quoted is referred to as the ACV which stands for “actual cash value”. This is the wholesale value of your trade in.

Don’t confuse the ACV with the trade-in allowance that the dealer you are buying from gives you. The trade-in allowance includes part of the markup on the vehicle you are purchasing. You have probably read ads saying “MIMIMUM $4,000 ALLOWANCE ON ALL TRADES”. It’s not hard to offer thousands more on a trade-in than its ACV (true wholesale value) when you mark up the new car several thousand dollars more. Be sure that you explain that want to compare the ACV of your trade-in. Tell them you want the markup on the price of the car you are buying discounted, not added on to the ACV of your trade. Remember, however, that if you sell your trade-in to another party, you lose the advantage of deducing the trade-in from the price your sales tax in calculated on. At 6%, you would pay an extra $600 in sales tax for a trade-in with a $10,000 ACV.

With competitive bids on the car you are buying, the interest rate on your financing, and your trade-in ACV you are sure to minimize the total cost of that new or used car.