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Saturday, December 27, 2008

The Recession of Trust

There are dozens of theories about why the world finds itself in such a severe economic decline. I don’t say that lack of trust is what started the ball rolling but I firmly believe it’s what's keeping the ball rolling.

This morning I was on my treadmill trying to work off some our Christmas feast and watching CNBC. A General Motors commercial came on about their “Red Tag” sale. The announcer said that the price on the red tag is the price you pay”. He says that these are not just the lowest prices of the year but the lowest prices ever! Now, bear in mind that this is a General Motors TV advertisement, not a GM dealer advertisement. What the ad did not say was that the dealers charge an additional profit called a dealer fee, doc fee, dealer prep fee, or any other name they care to give this extra, after-the-fact profit.

In this morning’s PB Post there was a print GM factory ad for the same red tag sale. In the fine print there was a statement that the red tag price was plus tax, tag, and “dealer fees”. Now this same disclosure was probably on the TV ad too, but I don’t have time to read this with my magnifying glass which is what I have to use on the newspaper ads. The bottom line is that General Motors Corporation is lying to its customers when they say that the red tag price is the price you pay. The red tag price is not the price a Florida car buyer pays. In addition, she also pays any amount the dealer chooses to add to the red tag price which he can also name anything he wants. In Florida there is no limit on how much a dealer can charge for a dealer fee. I know of Florida dealers charging at least $1,000 and I know of one Georgia dealer charging $2,350! These two dealers happen to be Toyota dealers but I’ll bet there are GM dealers who have fees in that ballpark.

Have you noticed how many Wall Street people are going to jail lately? How about that Bernie Madoff? Not only did he carry off the biggest swindle in the history of the world, but he mainly swindled his friends and charities. The Investment Banks lost so much trust that they have had to convert to conventional banks. The public has lost so much trust in the government that anytime a government official goes on TV, the stock market drops. I actually heard a commentator on CNBC says that traders are making profit by shorting the market whenever Hank Paulson appears live on TV and then covering as soon as he’s off the air.

The banks don’t trust the borrowers and are afraid to lend money. They don’t believe the appraisals and they don’t believe the accuracy of the credit statement. The borrowers don’t trust government so, even those who are credit worthy, are afraid to borrow money for fear things will get much, much worse. We have lots of companies and individuals with large sums of cash just sitting by because they have no trust in our country’s future.

I can’t solve the problems of the world, but I can offer some very good advice to car manufacturers and dealers. When your customers trust you, they will part with their money and do business with you. Unfortunately, it’s not easy to restore trust. You can’t run an ad that says “Trust Me” when you’ve been lying to your customers for years. You can only earn back that trust a little bit at a time. The good news is that once you earn the trust of one customer he will tell a dozen or more of his friends. Trust grows exponentially. However trust requires sacrifice. You have to forego the “fast buck”. You can’t advertise a sale unless it’s real. That means you really are selling your cars for less than you did last week and it usually helps to have an honest reason for why you will do that. You need to quit charging that dealer fee and include all of your profit in the price you quote your customers. You need to give your customers your best price when they ask for it by email, over the phone, or in person. If they ask for copy of their paper work, the buyer’s order, give them a copy. Yes, they might use that to compare your price with the competition, but that is their right in our free marketplace. Never give a prospective customer a price below what you know is possible to bring him back and then try to raise it when she does [this is called the low-ball].

By just being honest, respectful, and courteous to each of your customers you will eventually win back their trust and when that happens there will be no more recession.