Car For Sale: Another Misinformed Journalist

Why Alfred E. Newman? Because it Reminds me of the Figure Behind this Story (or why Political Journalist are Political  Journalist and Car Guys are Car Guys)

At this time last year  the price of gasoline was well on its way to starting a nation wide panic. No longer would America buy trucks or SUV’s. The press predicted that the price of gas would get so high that people would just park their SUV’s on the side of the road and walk away. The Ford F150 and all of its counterparts were doomed for extinction.

Last year the price hike on a gallon of gas could change three times a day. Do you think that was caused by a shortage in oil or was it caused by speculators and an over hyped media looking for another sensational story? There was no shortage of oil but there certainly was a lot of hype. That hype cost you and I a lot of money and was one of the catalysts that started our current economic meltdown. I don’t recall any journalist coming out and saying “Maybe we over-reacted!”.

Fast Forward.

This appeared on the front page of MSN.com this morning.”Deal or No Dealership Why is Chrysler closing 789 car dealerships? The author claimed to be a Political Reporter for Slate. Another title for this article could have been “How Irresponsible Journalism Takes Money Right Out of Your wallet”. First why is a Political reporter attempting to write an objective, non biased story on the state of the automobile business?

What this country needs right now is a sustained boost in our economy. One way to boost the economy is to fuel confidence and optimism and remove irresponsible, hype journalism such as witnessed below by Christopher Beam. Follow me through this article as I help Beam get his facts straight.

By Christopher Beam Posted Wednesday, May 20, 2009, at 6:20 PM ET

Beams View of the Automobile Business

Chrysler disclosed in a bankruptcy filing last week that it plans to close 789 dealerships—about one-quarter of its total. General Motors,meanwhile, told the owners of 1,100 dealerships that it will drop them from its network.

How does shuttering dealerships help car companies?

It saves them money. Car companies don’t actually own dealerships—instead, they have contractual agreements that dictate factors like location, display space, signage, and service options. Nevertheless, Chrysler and GM and other auto manufacturers must maintain a large, costly field force of trainers (to train technicians to fix cars), salespeople (to persuade dealers to buy more cars), and auditors (to verify claims for reimbursement). The more dealerships, the more go-betweens a car company needs to employ and the more money it has to shell out.

The Car Guys View of how it really works.

The manufactures never have and never will “give or supply” a service to a dealer without charging the dealer for it. There is no FREE LUNCH. All Dealers incur the cost of training any and all of their employees. 95% of the training for salespeople is done in-house. The dealer picks up the tab in full or in part on training. In a lot of cases salespeople invest in their own training with notables like Dale Carnigie, John Maxwell and Brain Tracy. Service technicians do the same in house training. They watch training videos and study the work-study manuals. So some training is completed outside the dealership, the majority is completed in-house.

The amount of money Chrysler pays it support staff before or after reconstruction is minuscule in comparison to the whole.[Multi Billions] Beam’s comparison and example is absurd unless you were presenting this to third graders.

Beams View:

Another benefit: Shutting down dealerships weeds out weaker branches to help stronger dealerships stay viable. It also makes sense from a branding perspective, because when a dealership starts to fail, dealers resort to tactics that make the car company look bad. Think free hot dogs, “push, pull, or drag” sales, and giant inflatable gorillas on the roof. (Luxury car companies like Lexus explicitly forbid dealers from using the words price or sale in their ads.)

The Car Guys View:

In every industry, in every vertical market you have the Neiman -Marcus operators and you have the Dollar General operators. Neiman-Marcus and Dollar General both satisfy a niche in the market. These niches are consumer driven not industry driven. They both satisfy a demand and work well in their respective markets. There is nothing “wrong” or socially unacceptable with a “free hot dog”.

Beams View:

Finally, pre-emptive closings help car companies from getting saddled with tremendous amounts of debt. Let’s say a GM dealer is just getting started: He’ll buy hundreds of cars from GM with money borrowed from GMAC, the financing arm of GM. If the dealership collapses suddenly, GMAC may not get a lot of the money it’s owed. So it makes sense for GM to shutter a dealership before it goes too far into the red.

Car Guys View:

The above is all based on a NEW dealer going into business. Before anyone can buy a dealership they have to prove that they have enough capital to withstand the two or three years it takes to get established. Plus today no one is rushing out to buy a dealership. So Beam your argument is real weak.

Remember when I stated that with the manufactures there is no Free Lunch. Anything a dealer receives from the manufacturer the dealer pays for. There are no gimmes. The manufactures does not negotiate with the dealer. The dealer pays “Full List Price” for every vehicle we buy from the manufacture. There are no discounts. There is no negotiation. Once the dealer buys the car from the manufacturer they have 60 to 90 days to sell it before their cost of the vehicle goes up again due to interest expense. The first 60 to 90 days are not interest “FREE”. Believe when I say that the initial 60 to 90 days of interest is factored into the price of the vehicle way before the manufacturer sells it to me.

Beams View:

When the auto industry first started expanding in the early 20th century, it made sense to have dealerships in every community. Much of the population was rural, and cars broke all the time, making proximity to the original vendor necessary. These days, with a more urban population and better auto engineering, it’s not necessary to have so many dealerships. At the same time, people are willing to drive farther to buy or tune up their cars. As a result, more dealerships don’t correlate with more sales. Toyota sells more cars than Chrysler with fewer than one-third of the number of franchises. (The average Toyota dealer sold 1,589 vehicles in 2008; the average Chrysler dealer sold 124.)Deal or No Dealership Why is Chrysler closing 789 car dealerships?

Car Guys View:

First let me apologize for making you read Beams third grade class presentation on why we do not need more dealers. That was real torture wasn’t it?

First Rural or Urban?

Doenges Ford Linclon Mercury Toyota went urban from rural and started as a Ford dealership 68 years in the American urban metropolis city of Bartlesville Oklahoma. For 10 years prior to that my grandfather owned a ‘rural” Ford dealership in Braman Oklahoma. Most dealerships followed suit in the 1950′s and 60′s. The dealerships that stayed rural were assets to and of their communities. Some of the most profitable dealerships in the country are rural.

Is the Kansas City Metropolitan Area Rural?

According to the Kansas City Star, Chrysler send out pink slips to 11 (eleven) Kansas City Chrysler Dealerships. I would not consider Kansas City rural. So Beam, your assumption that most of these dealerships were rural proves that your research for this article was myopic or non-existent. This type of reporting is irresponsible and is the currency for hype. This kind of hype is the fuel that undermines the confidence of the consumer and our economy.

Toyota and Single Points

Toyota is a single point dealership. Chrysler is a multipoint dealership. In a single point dealership only one brand of cars can be sold. Lexus is also a single point operation. However they do not have the same sales volume numbers that Toyota does. A lot of Chrysler rural dealers have “bundled” franchises. Which means they may have one of the GM or Ford franchies as part of their overall dealership. My point ii this Beams comparison of 124 cars sold per dealer to Toyota’s 1,589 is not a “apples to apples” fair and objective comparison.

Bottom Line: More dealerships sell more cars for that particular manufacture without a substantial increase in manufactures cost. So Chrysler is really taking the real risk. The risk is can we sell enough cars to justify keeping X number of plants open. If I’m selling a product do I want more distributors or fewer distributors? I’m placing my bet with more distributors.

In the majority of cases it was not the dealer who was inefficient it was Chrysler manufacturing. Here is a novel idea. Manufacture quality cars at a fair price. This will help any manufacturer solve 90% of their problems.

BTW…Ford Motor Corporation started to thin out their dealer ranks three years ago. Ford had the leadership and the foresight to avoid some of the land minds currently faced by Chrysler and GM.

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