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Monday, October 25, 2010

You Should Be Concerned About Auto Fleet Sales

Fleet sales are to daily rental companies, commercial, and government agencies. These are volume sales, not usually one at time but up to “thousands” at a time. Rental and leasing companies hunkered down during the recession and stopped buying new vehicles. They hung onto their old vehicles just like many individuals did.
But, as a result of the recession and fewer new vehicles being sold and more people buying used car than new, the value of used cars has risen. The big fleet buyers see that as an opportunity to sell their current used cars at auctions and replace them with new. It’s truly a buyer’s market for fleet buyers. Not only can they sell their old fleet for more money, but they can replace those cars at unprecedented low prices from the manufacturers.

Large fleets have always been able to buy cars for less money than you can because they buy in much larger volume. In most cases, they deal directly with the manufacturer and often buy cars for less money than the dealers can buy them for. Sometimes the sales transaction “passes through” the dealer, but the price is often determined by the manufacturer and the special, low prices are only for fleet buyers. Dealers also sell directly to fleets and even when these prices are not subsidized by the manufacturer, they are lower than you can buy the car for.
Manufacturers will actually sell cars to fleets below their cost! This is especially true in these bad economic times. Desperate manufacturers like Chrysler and GM who have recently declared bankruptcy and are struggling for survival need to keep their plants running and need to present a positive picture to the public and their lenders (us taxpayers). It’s actually less expensive for a manufacturer to sell cars below their cost than to close the plant down. When Chrysler or GM closes a plant and lays off workers, they encounter huge expenses. They have keep paying the UAW workers even though they aren’t working and the cost of stopping and restarting the assembly lines is very large too. They would prefer to lose a few thousand on each car and pray that the economy gets better.

GM is getting close to an IPO, selling stock to us taxpayers so that they can pay back the government. To keep that stock price high, they want to be able to report higher sales. This is what the press focuses on and amazingly they never differentiate between retail sales and fleet. Last month (September) 39% of Chrysler’s sales were to fleets. 25% of GM’s and 29% of Ford’s were to fleets. Only 7% of Honda’s and 9% of Toyota’s were “reportedly” fleet. I say “reportedly” with respect to Honda and Toyota because some of their fleet sales go unreported. Dealers can sell cars to fleets but they get counted as retail. The industry term for these kinds of sales is “fleetail”. The dealers can collect retail incentive money on these which they can’t on “official” fleet sales. Also fleetail sales count as retail toward their sales quotas, contests, and sales awards. Dealers are inclined to sell fleetail cars at or even below cost because of this. We don’t know how many Honda and Toyota retail sales are truly retail and which are fleet/fleetail.
Here’s why these fleet sales are bad for you. All of these cars that are sold to Hertz, Avis, and the US Government don’t just “vanish into thin air”. They come back on the used car market through auto auctions all over the USA. If you bought a Ford Focus this year and Ford also sold 20,000 Ford Focuses to the fleets, Ford caused your Focus to depreciate at a much higher rate than it would have otherwise. This is simply the economic law of supply and demand. The more used Focuses that Ford sells at the Manheim auctions in 2013 (the same year you are ready to trade yours in for a new car) the lower the price they have to sell them for. The bottom line is that that new car could cost you an extra $2,000 based on the lowered trade-in value of your Focus.

My advice to you is to carefully consider the number of fleet/fleetail sales the various manufacturers are making when purchasing your next new car. Chrysler is clearly the leader in fleet sales and I would avoid Chrysler products like the plague unless I planned to never trade it in. I’d lease a Chrysler product if I absolutely had to have one. You aren’t responsible for selling the used car at the end of the lease. Of course you already paid for the high depreciation in your lease payments unless Chrysler over estimated the residual which is possible. Ford and GM are also big fleet sellers. A good guide to consult is the industry “bible” for future used car values, called residuals. This is the Auto Leasing Guide, ALG. Every dealer and manufacturer has one. You can ask your dealer to see his copy (If he won’t just email or call me). This guide is the best estimate of what a new car bought today will be worth in 1, 2, 3, 4, 5, or even 6 years.

Monday, October 18, 2010

Good People Make Good Car Dealerships

In my columns over the years I’ve always advocated carefully choosing the car dealership that you buy your vehicle from or allow to service it. I still believe this is important. In fact, I recently published a list of dealers that I recommend you buy your car from and a list that I recommend you avoid. We’ve all visited a restaurant or retail store and had a terrible experience with a waitress, sales person, or other employee and never returned. Yet, we’ll friends recommending the same store that we swore never to patronize. We condemned an entire company because of one person.

I also wrote a column a couple of years ago in which I suggested that you carefully choose the individual who advises you and sells you service on your car. These individuals are really commissioned sales people who sell you service just like car sales people sell you cars. Unfortunately most dealerships call them something else like “assistant service manager” or service advisor. In my dealership we used to call them Assistant Service Managers because that’s the term that Toyota uses. We now call them “service advisors” because too many people thought they were dealing with the service manager. In all candor, I’d feel more comfortable naming them what they are, “service sales people” and I may make that change.
As I was rereading this old column, it occurred to me that the same recommendation applies to all companies, not just car dealerships and it applies to all departments in a company. Whichever car dealership you choose, take the time to pick and choose those individuals you deal with. Car dealerships, just like other organizations, are nothing more than the sum of their parts…their people. You should get to know the person who sells you service and, if you don’t like him, ask for another person to handle your service requirements. You should also meet and cultivate a manager in the service department.

The same holds for the sales department. When you buy a car, don’t settle for the first salesman who approaches you. For example, if you’re a woman you may feel more comfortable dealing with another woman. Or, if your native language is Spanish or Cajun, you may feel more comfortable with one who can converse with you in your native tongue. Don’t be shy about asking and don’t feel bad about hurting the feelings of the first sales person. An automobile is the 2nd largest purchase most people make and it’s very important that you feel comfortable with the person selling it to you. Furthermore, if after dealing with your sales person for a while, you think you made a bad choice, ask to speak to the sales manager or general manager. Believe me, car buyers hold all the cards in today’s shaky economy and no sane sales manager is going to lose a sale because a prospective customer doesn’t like or trust the sales person she’s dealing with. He will handle your sale personally or choose another sales person you do feel good about.

Car dealerships have other departments including parts, finance and insurance, accounting, and some have body shops. My same recommendation applies to all departments. A word of caution, when you ask to speak to a manager, be sure you’re really are truly speaking to one. Car dealerships are notorious for calling rank and file employees managers to trick the customer.

My purpose in writing this column is in realization of the fact that there are no perfect companies, especially car dealerships and that includes mine. I employ 130 individuals and I would be less than candid if I didn’t say I have a few rotten apples in my barrel. Unfortunately, I don’t know who they are and finding them is a continuous work in progress. The same thing applies to all companies including car dealerships. In my list of recommended dealers, there are some employees of those dealerships who would take advantage of you but most would not. In those dealerships that I recommend you don’t buy your car from, there may be a few honest, courteous employees. Then there are all the dealerships that I don’t put in either category. Your odds of finding the right individual are much better if you patronize a good company or car dealership, but don’t totally let your guard down.

Just stay away from the ones that I recommend you don’t deal with. In every organization there’s a tipping point. A great company reaches a critical mass of good employees and as their reputation grows, more good employees from other companies seek to be employed there. Honest, hardworking, courteous people enjoy working in an environment where others are like them. The same holds true for evil dealerships and bad companies (those on my “don’t buy” list). A good person with a conscience has a very difficult time functioning in an environment where, from top management all the way down, the design is to trick and take advantage of customers. These few good people don’t last long in evil dealerships and flee to a place where they can treat their customers in a manner that lets them sleep at night.

Monday, October 11, 2010

BAIT & SWITCH ADVERTISING (Read the fine print)

All car dealers pay the manufacturers the same prices for their new cars. Dealers will lead you to believe that volume dealers pay less, but this is not true. So, when a car dealer advertises a price for a new car in the newspaper, he has no price advantage over his competition.

Virtually all of the prices for new cars you see advertised in the newspaper are so low that it would be impossible for a dealer to remain in business if he sold more than a very few cars at that price. The reason for this is that, if a dealer advertised realistic prices with a reasonable profit built in, another dealer would advertise a lower price. The dealer who advertised a realistic price is actually helping his competitor sell a car.

Most of the new car prices advertised in the newspaper are below the dealers actual cost. He protects himself by selling very few at this price and counting this loss as a cost of advertising. Next to an advertised car you will see some letters and numbers like, #5632A. That is the “stock number” of the car being advertised. This is all that the dealer does to tell you he has just one at this price. The chances are that if you are not the first person in the dealership on the morning of the ad, this car will be gone.

Look for these two fine print disclosures at the bottom of the ad: (1) Price good on date of publication only. (2) Price good with copy of this ad only. These are just two more ways the dealer can avoid selling you the car at the advertised price.

If you read my last column, you understand about “dealer fees”. These fees are additional dealer profits ranging from $500 to almost $1,000 that are added to the agreed upon price of the car by most dealers in Florida. Florida law requires that this dealer fee be included in the advertised price. When the salesman tells you the advertised car has been sold but he has another one “exactly like it”, he can legally add back on that dealer fee.

As you can guess, the salesman’s commission on an advertised car is either zero or very small. Having a very small incentive to sell an advertised car, he will most likely encourage you to buy any other car.

My recommendation to you is to ignore advertised new car prices. If you must respond to an ad car, call the dealership first and ask if the car is still available. If the answer is no, you have saved yourself a lot of time and aggravation. If the answer is yes, ask if they will hold the car for you. If you have to, offer to give them your credit card for a deposit to hold the car. If they won’t hold the car, save yourself the wasted trip.

The only way to get the best price on a new car is by getting competitive bids from at least 3 car dealers for the exact same year, make, model, and accessorized car with the identical MSRP. You can do this on the Internet, by phone, or in person. Use Consumer Reports magazine, the Internet (www.edmunds.com and www.kbb.com are two excellent free sources of information), or even your local library.

Monday, October 04, 2010

Ten New Year’s Resolutions for Car Dealers in 2011

This is a modified version of the same column I wrote last year. Unfortunately it applies very well to this year for two reasons: (1) The economy has not improved as we had hoped and (2) Car dealers did not abide by my suggested new year’s resolutions for 2010. In fact, car dealers have gotten worse. For example, we now have Ft. Pierce Nissan and Delray Mazda-Kia (both owned by Mike Grieco) double-charging for freight on new cars in addition to their dealer fee. Napleton Nissan in Rivera Beach was also double charging for freight but recently stopped. Somebody once said that the best antiseptic was sunlight and that’s why I never give up on bringing things like this to the attention of my readers.

2009, with the exception for August [Cash for Clunkers] will go down as a 2nd bad year in a row for our economy and especially for car dealers. 2010 is has also been a very tough year for car dealers in Florida and especially on the Treasure Coast and Palm Beach County. I’ve been a dealer for over 40 years. I say that because I don’t want those dealers who read this to think I’m “kicking them while they’re down” by preaching redemption. I’m suggesting these resolutions because they can help these dealers survive these bad times and prosper even more when business returns to normal.


(1) Eliminate your dealer fee. We’ve seen some progress in dealers eliminating their dealer fees in Palm Beach County. Palm Beach Toyota and Royal Palm Toyota dropped their dealer fee in June and Royal Palm Nissan dropped theirs in November. This was due, not to a “moral revelation” by the dealer or legislative action but economic pressure. Palm Beach Toyota and Royal Palm Toyota are my two nearest competitors. Six years ago, when I eliminated my dealer fee, Royal Palm Toyota did not exist and Palm Beach Toyota was outselling my dealership by a wide margin. Now I outsell both dealerships combined. Hopefully other dealers can learn from this economics 101 course, Ethical Business Practices Equal Increased Business. Quote your customers the full, out-the-door price. The only additional costs passed to your customer should be federal, state, or local taxes and/or fees like Florida sales tax. This is the generally accepted practice in retailing all other products and services. A price is quoted to your customer when you communicate a price in any fashion including advertising a price in the newspaper, radio or TV, painting a price on a windshield or sign, saying a price over the phone or in person, or giving a price over the Internet. Your “dealer fee” is profit for you. It is not a “fee” and it should be included in your price.

(2) The buck stops with you. You are responsible for the actions of your employees. Your salesmen, service technicians and service advisors are virtually all paid on commission. If you do not police your people and hire ethical people your customers will be taken advantage of. If you are an absentee owner, as most owners of car dealerships are in South Florida are, you have to have someone running your store that knows and cares about what is happening to your customers. Your ignorance of the mistreatment of your customers is no more an excuse than being ignorant of a law when you break it. You may think you know how your employees are treating your customers, but I promise you that you don’t unless you communicate directly with some of them. You cannot rely exclusively on reports from your managers to tell you the truth.

(3) Don’t advertise a car at a price that you don’t want to sell it for. If you advertise a car for a specific price, you should be willing and able to sell that car to as many customers as respond to the ad. If you run out of stock, give the customer a rain check. Also, pay your salesmen a commission on the ad cars. Now most of you don’t pay a salesman a commission if he sells the ad car. What do you think that salesman is going to tell the customer who comes in on the ad? If you run out of that model, you should give your customers a rain check. When you don’t do that, it’s called “bait and switch”.

(4) Don’t insist or encourage your customers to buy and take delivery of their car on the same day. This is called a “spot delivery” in the trade. There are lots of thing bad about this. A car is the 2nd largest purchase a person makes. The customer should be allowed time to reflect and think about this decision. Cars are often spot delivered when the credit has not been approved, especially nights and weekends when the banks are closed. Customer often have to be called back to sign another contract at higher payments, higher interest, and/or higher down payments. This is sometimes done deliberately because customers are often too embarrassed to tell their friends that they really haven’t bought that shiny new car they were showing off. Attorneys in other states have filed class action suits against car dealers and attorneys in this state are working on doing the same.

(5) Give customers who are” just looking” a price when they ask for it. It’s insulting to today’s sophisticated buyers to be told when they ask for the price that they can buy the car for, that they have to make an offer in writing with a deposit first. It’s also insulting when you tell the customer that you won’t give her a price until she’s “ready to buy”. Can you imagine being told this by a salesman at Best Buy when you asked the price of 50” Plasma TV? Your salesmen won’t give prices to your customers because they are afraid the customer will compare his price with the competition. This is what the free market place is all about! Customer should shop and compare. If you treat your customers with respect, integrity, and courtesy, they will return to you an offer you the right to meet or beat a lower price.

(6) Don’t advertise discounts from “dealer list” price. When you mark up the manufacturer’s list price by thousands of dollars and then advertise a discount, you are misleading you customers. The federal government has a law that every new car displays a “Monroney label” [named after the U.S. senator who sponsored this bill] on the window when it is sold. The reason for this law is to give car buyers a fair, even basis for comparing prices between different dealers. By confusing your customers between “dealer’s list” and “manufacturer’s list” you are circumventing the law.

(7) Don’t advertise lease payments that require large down payments hidden in the fine print. Most people lease cars to minimize their monthly payment. When your customer comes in on the ad finds out she has to pay $4,000 cash down to get the lease payment you advertised, it’s just plain wrong. There are some dealers who actually advertise prices with a qualification that the customer pays an additional sum first to get the advertised price.

(8) Do not advertise that you can get anybody financed no matter how bad their credit. This is not true and just plain cruel, especially during these terrible economic times with very tight credit.

(9) Don’t guarantee the lowest price with qualifications that cannot be met. Your qualifications are usually that you “reserve the right to buy the other car from the other dealer who beat your price” and that the customer must have a signed buyer’s order from the other dealership. You know that the other dealer will never agree to sell you that car and you also know that the chances of the customer getting out of the dealership with a signed buyer’s order without taking delivery are slim and none. Dealers reading this, I dare you to show me evidence that you have honored your guarantee with jus one customer. I’ll make you a bet that you have never honored that guarantee.

(10) Don’t offer a minimum $10,000 [or some other high number] for every trade-in. Sometimes these ads, say “if you can push, pull, or drag your old car in we will give you at least $10,000 toward the purchase of a new car. You then mark up the new car so high, you are not really offering the customer anything more than the wholesale value, if that.