Amazon to the Recue!

Jeff Bezos Can Make Car Dealers Honest

Last week’s breaking news was that Amazon entered an agreement with Hyundai to sell their cars on www.Amazon.com. The details are sparse, but we can conclude that Amazon will offer Hyundai buyers (and probably Kia and Genesis) a transparent, out-the-door price. Amazon will deliver the new vehicle directly to the buyer, or the buyer can pick it up at the Hyundai dealership. This goes into effect this January, and you can bet that all other auto manufacturers will jump on the bandwagon.

This will afford Hyundai buyers the luxury of avoiding junk fees, dealer-installed accessories, addendum labels, and bait-and-switch advertising. You probably are already a customer of Amazon…63% of Americans are. You know how Amazon works. The price you see is the price you pay. According to last week’s press release, Amazon will also provide financing, which historically has been car dealers’ largest profit center.

You can still buy Hyundais directly from the Hyundai dealers, but now you’ll have Amazon’s out-the-door price to compare. Never in the history of auto retailing has the consumer had access to a true, transparent out-the-door price to shop and compare with the dealers’ competition.

There’s bound to be a huge hue and cry and massive litigation by the car dealers, their organizations, and probably some manufacturers who will be timid about admitting that this is really what they hoped for all along. You’ll see U.S. Senators interrogating Jeff Bezos and/or his CEO and probably the Justice Department going after Amazon, although they’ll risk the ire of car buyers/VOTERS.

All fifty states have enacted franchise laws that make it almost impossible for anyone except a car dealer to retail a new car. The details as to how Amazon and Hyundai were able to find the loophole in these state laws are unclear at this time. Tesla successfully navigated these laws and, if you’ve bought a Tesla, you know what a seamless, transparent, and pleasant experience it is.

I must comment on the irony that the two richest people in the world, Elon Musk and Jeff Bezos, will take credit for changing the retail automobile business from the worst experience to one of the best.

Throwback: Open Letter to Car Dealers 2006

Seventeen years ago, I wrote this open letter to car dealers and published it online and in the south Florida papers. In it I implored car dealers to look to my example and success after eliminating the dealer fee I was charging my customers. 

Flash foward to 2023 and we find ourselves in a world that would be unrecognizable to my 67 year old self. Not only did the dealer fee survive, it grew, evolved, and then metatasized. We call them junk fees now, mainly because dealers came up with so many new names to call dealer fees. During the immediate post-COVID period dealers innovated in the creation of new junk fees and ways to separate customers from their cash.

In this open letter written so many years ago, I truly believed I could inspire other car dealers to pick my chosen path to success. The current state of affairs, particularly in the south Florida car market, remains a stark reminder that these dealers, chose a very different road to go down.

SATURDAY, NOVEMBER 18, 2006

OPEN LETTER TO FLORIDA CAR DEALERS

SUBJECT: ELIMINATE THE DEALER FEE

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

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

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

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

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

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

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

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

Sincerely, 

 

Earl Stewart

Average Auto Insurance up 18%... Florida Auto Insurance up 88%!

This alarming increase in auto insurance premiums has occurred over the past two years, according to the Federal Bureau of Labor Statistics. The purported reasons are more crashes, increased litigation, and higher repair costs.

In my opinion, there’s another very significant but unobvious reason. That is consumer inflation psychology. When prices go up unexpectedly, buyers complain and may even buy from a different store, switch brands, or go temporarily without. However, when all prices for a given product or service continue to rise, buyers learn to expect it and reluctantly accept the fact. When sellers learn that their buyers are acting as if high prices are the norm but don’t complain or consider switching sellers or choosing a different brand, sellers increase prices even more than their increased costs have justified previously.

This happened in the new and used car markets. The Covid shortages and supply chain interruptions caused production and sales to plummet, but because of the inflation psychology of car buyers, car dealers were able to raise their prices so high that, in spite of their car sales being way down, their profit per car was so high they did and are making far more profits today than they did when they sold far more cars. The same thing happened with the car manufacturers because they raised their prices to the car dealers so high as to offset the decline in production.

Now the auto insurance companies are benefiting from buyer inflation psychology. Don’t let this happen to you, and here are some tips to help you:

• Shop your insurance premium with several other insurance companies. Remember, insurance companies are a lot like car dealers; they charge each customer as much as they can get away with. Your insurance company has been increasing your premium every year, and now they’re increasing it at a greatly increased amount. Another insurance company will offer you a lower premium with the hope that they can increase your premium in subsequent years because most people stay with the same insurance company for too many years. You can also hire an independent insurance agent who can do the premium shopping for you.

• Raise your deductible as high as you can and/or drop your collision/comprehensive insurance. The average driver files a claim only once every twenty years. Imagine how much you can bank/invest that saved deductible cost instead of your insurance company doing the same with your extra deductible and collision/comprehensive premium.

• You may be able to bundle your homeowners with your auto insurance.

• Take a defensive driving course or allow driving to be monitored, and some insurance companies will discount your premium.

• Buy a copy of the October Consumer Reports that, frankly, I got a lot of the above information from. You can access it online at www.CR.org.