Ziegler Supersystems, Inc. July 2003  Dealer Magazine Article

The Barbershop Mirror

When I was a kid...maybe ten...maybe eleven and lying about being twelve...anyway it was somewhere back around then, I can remember a psychedelic experience that held me hypnotized in a trance-like coma as my young mind calculated and recalculated all of the possibilities.

...It was the barbershop mirror.

Old Joe was a retired Navy Chief Petty officer with blue tattoos all over his arms...a hula girl and an anchor...skulls and knives and snakes. He didn’t have much of a personality; He just stood there, sort of in his own world, barely spoke while his shears created wide white sidewalls over both of my ears.

This was Joe’s barbershop in the Lake Shore shopping center. The décor was 1950’s testosterone...with the black and white linoleum tile floor...the largemouth bass mounted on the wall was covered with dust...and  there was a checkerboard and magazines and a shoeshine stand where somebody used to do shoe-shines.

My father sat reading while Joe cut my hair and I stared at that mirror.

It was the coolest thing I have ever seen. You see there was a mirror in front of me hanging on the wall and another one behind me on the other wall. I could see myself and old Joe in the mirror but I could also see myself and old Joe in the mirror image of the mirror image behind me. Actually, I could see the same image thousands of levels deep repeated in the mirror in the mirror in the mirror in the mirror, each image getting smaller and smaller into infinity until it disappeared into the tiniest little dot that I knew was actually still yet another extremely tiny image within an image in the mirror.

Is every image in the mirror another dimension? Was I looking at endless possibilities...endless choices with endless alternative outcomes?

What if...what if Jac Nasser had never ruled Ford Motor Company?  What if Roger Smith wouldn’t have blown that initial $1.5 billion on research and development for Saturn and put it into Oldsmobile instead?  What if Chrysler was still a domestic corporation?  Why are the Camaro, the Firebird and the Thunderbird being discontinued? What in the hell are the Scion and the Element really all about? Who was the moron who thought “The Caddy that Zigs” campaign was gonna sell?

I have screamed out in so many articles as the factories pursued obvious idiocies, resulting in devastation that would have been overwhelmingly apparently obvious to normal thinking individuals who possessed common sense. 

I was never so vain as to think my predictions have such a high degree of accuracy because I am so intelligent but rather because someone else was so stupid.

Go Figure!

I have never-ever had such an overwhelming response to anything I have written than the deluge of emails and phone calls I have received from Mitsubishi Dealers, managers, other columnists and reporters from other publications and media...as well as many Factory Folks concerning my April article titled “Bombs Over Babylon”. Some of the biggest, most influential dealers in the country called me to congratulate me on the article.

Some of the conversations left me with tears streaming down my face laughing out of control...red-faced, coughing and snorting...as dealers and I compared notes about the perceived ridiculous absurdity of the management team at the helm of this apparently adrift ship.

No sooner had my article hit than my friend; Mark Rechtin, at Automotive Snooze came out with a similar damning article chronicling even more buffoonery emanating from those lovable alleged clowns of the automotive midway. 

Rechtin’s article was titled “Mitsubishi wrestles inventory glut”

...Automaker, dealers clash over bloated stocks

Remember the dateline on this article was May 19^th ... more than ten weeks after I actually wrote my April article. Rechtin wrote about how Mitsubishi dealers were being invoiced for cars months before they were shipped or built. Whoa there big fella’...does this smell like Mitsubishi might be hyping sales statistics? Nah...Those Canadian ex-Saturn guys with tha’ good hair wouldn’t resort to anything like that would they?

A quote from the article burned into my mind... “Sources within Mitsubishi and its dealer body say that Mitsubishi in March unloaded nearly an extra month's worth of retail units into dealer inventories that were pulled ahead from future orders. Some dealers say they even had cars they had never ordered slipped in with the rest of a shipment.”

Uh-oh...are those guys at Mitsubishi bogusing up the figgers...again? It’s either that, or Rechtin’s lying like that dude at the New York Times.

Here’s the deal. It appears that Mitsubishi has gotten into the habit of shipping cars to dealers they never ordered to the point that many Mitsubishi dealers have had to shut down their floor plan accounts to stop the factory from loading them up. Rechtin says that some insiders estimate that Mitsubishi dealers are sitting on a 120-day supply of inventory.

Interestingly enough, another article appeared almost simultaneously in the Wall Street Journal saying that Mitsubishi Profits tripled over the last fiscal year.

“Mitsubishi Motors reported that its profits for the fiscal year (ending March 31^st) tripled to $317 million as cost cuts and growing sales in North America offset its money-losing Japan operations.”

Remember I said this...if it’s warm and stinky and it smells like bullcrap...it’s probably bullcrap. We’ve got dealers shutting down their floor plan accounts...reportedly so the factory can’t shove any more unwanted units down their throats and we’ve got a reported 120-day inventory supply on the ground nearing year’s end that ain’t moving...and we’ve got estimated huge finance losses in storage at 120% of invoice...apparently sitting on a large loan portfolio peppered with some of the worst credit criminals on the planet driving Mitsubishi cars for free for up to a year. We’ve got monster multi-thousand-dollar hits every time one of their repos go across the auction block...Money bleeding out of every artery...we all see it every week...everywhere...it ain’t a big secret. AND somebody in Southern California has the cajones to claim they are profitable? AND, they are now forecasting bigger (ridiculous and incredible) growth and profits?

Greg O’Neill, COO of the corporation (Pinocchio?) was quoted as saying... “We were trying to support a sales plan in a very competitive environment. Our retail plan just didn’t materialize and that is why there is that crunch.”

Excuse me! This is all just my opinion of course, judge for yourself, I might be wrong...BUT...Do these people even take themselves seriously? The truth is that their sales plan did work. They put a lot of the wrong people in cars and trucks on purpose and puffed up the ledger. I don’t think Albert Einstein possessed the genius to extrapolate this degree of alleged and perceived pompous buffoonery, mismanagement, and thinly-disguised appearance of chicanery out to its ultimate mathematical highest power within a hundred decimal points of what we are witnessing here.

I have to hand it to them though. Following my article, which rattled around their North American headquarters in Cypress, and inspired several high level meetings, they went to their dealers and basically sort came clean and accepted responsibility for mismanaging the “Daybreak” program. I sorta think my article may have nudged them over the edge but they handled it well.

Now though, we hear reports in mainstream press and commentary coming from the financial community that they are putting more cars in the pipeline than the market can possibly absorb. As I predicted, and now others in the mainstream media are also saying, this “house of cards” might soon collapse. There are just too many apparent desperation moves. When a conservative publication like Automotive News goes on record saying this is happening, I have got to believe Mitsubishi is trying to cook the books, so-to-speak...by invoicing forward on units that aren’t even shipped. (I wonder if they are actually even built yet?) In truth, nobody is buying it. The whole scheme is just too transparent. Do me a favor, interested parties...please go to the new Dealer-Magazine website and post your comments on my viewpoint about Mitsubishi.

Here Comes Da Judge

I have been writing and speaking about this for several years now...and now it appears the reckoning has arrived. Swarms of “Attack Attorneys” are poised to sue dealers and manufacturer’s lending arms coast-to-coast.

We have all seen the ads in the papers in Texas, California, and Florida by attorneys I perceive to be the “bottom-feeders” of their profession, soliciting consumers to sue car dealers with nuisance lawsuits that are almost always settled out of court. These guys and gals are just small-time extortionists with a license in my opinion. BUT NOW...here come the next generation in the evolution of the process. They are bringing out the “Big Guns” and there is about to be a bloodbath. A Tennessee court just authorized class-action lawsuit against Covington Pike Toyota, one of the largest Toyota retailers in the country, and its parent company, United Auto Group (Roger Penske’s group).

In the 1920’s a reporter asked famous bank robber, Willie Sutton, why he robbed banks...his answer has become a classic... “Because that’s where the money is.”

There are a bunch of former “Tobacco Litigation Attorneys” who have now turned their eyes toward the Automobile industry as a rich field to harvest. It is gonna get ugly and you are going to be involved. Every dealer in the country and every manufacturer are going to be hit to some degree by the coming tidal wave of litigations and class-action lawsuits.

Obviously, the “Cash-Rich” public companies like United Auto Group and AutoNation...and probably CarMax are the best initial targets but, once the first major settlement happens, every jack with a law degree who can pass the bar exam is gonna on be on the streets rounding up litigants. The class-action against Covington Pike Toyota/United Auto Group could include more than 40,000 plaintiffs. AND, if the attorney wins this case, it is almost certain he’ll file a similar lawsuit against every car dealer in the state of Tennessee. Within a year it will be on your doorstep, no matter what state you do in...It’s coming.

The issue is the fact that Dealerships mark up finance reserve profits and charge the customer a higher interest rate than the “Buy Rate”. I was a high-dollar F&I Manager for years...I teach F&I Schools. Of course we mark up the interest rate. It is completely legal...at least it has been until now.

Remember, we are signing “Holder in Due Course” contracts. In the eyes of the law...The Dealership is actually the lender...not the bank or finance company. Presumably, a lender (in this case the dealer) has the right to finance anyone at any rate up to the state legal maximum. THEN, that dealer does not want the consumer showing up every month making a payment at the cashiers window SO...the dealer sells the existing loan to a bank or finance company and signs over all rights to the loan for less than the contracts face value...AT A Discount Rate (wholesale price). Now, we know the bank or finance company usually agreed to buy that existing loan from the dealer before the dealer offered the customer the contract...BUT, nevertheless, its still an already existing loan when the bank buys it...they are not buying a contract...they are buying an existing loan.

That is the premise we’ve operated on for at least the twenty-nine years I have been in the industry. BUT, I have got to tell you, I think that gonna fall...and it’s gonna fall hard...soon.

Some of the largest public companies have totally abused the F&I Profitability until it glared in the public spotlight. Estimates have it that the largest players make more than 70% of their profits from F&I revenues.

One of the biggest scandals in the history of the industry was last year’s multi-million dollar settlement at Gunderson Chevrolet in California...an AutoNation dealership...all revolving around F&I abuses, fraud and theft by deception. Believe me, nobody at AutoNation told those managers to go and do criminal things to your customers. Regardless of my low opinion of some public companies, these are still good and decent people. (clue-impaired as so many of them are...still good and decent people) More so, it was a result of a corporate culture that put incredible high-pressure on managers to produce high profits in F&I to offset low loss leader pricing on the front side of the sale. OR, at least that’s the way I see it.

The solution is simple AND now is the time for the manufacturers, the banks and the entire finance community to reform the way we do business. GMAC Platinum Plan is a step in the right direction. I believe it’s time to completely abolish finance reserve profits in retail lending. This would take so much consumer pressure off of the dealerships and manufacturers and greatly improve Customer Relationships and Perceptions of the process.

The catch is they need to replace it with a flat rate reimbursement to the dealerships that is fair and consistent. I envision it this way...if the total amount financed was, say in excess of $25,000 the dealer would receive $600.00 flat fee for handling it...every customer would receive the same rate for the tier-level they qualified. If the contract was less than $25,000 then maybe a $400.00 or $500.00 flat to the dealers. Any amount less than that, I don’t feel the dealers would play. What I am advocating is “One-Price” finance at every tier level. Every customer gets the best rate they qualify for every time.

From a dealer’s viewpoint, you wouldn’t be knocking the “Homeruns” out of the ballpark BUT you would make it up by receiving profits on A-Rated customers you didn’t used to make any money on at all because they always got your prime buy rate. The flat-rate instead of finance markup would take all of the combat out of F&I and greatly reduce the time the transaction takes. Your managers would have to shift their focus to product sales instead laying the people away on the rate.

Unfortunately, and I have been a part of it years ago, we have made our living in F&I preying on stupid people with bad credit. Like I said, I participated, was among the very best of the best at it, I changed my thinking years ago. Now the time has come to reform the process or get our butts handed to us in the courts.

The second line of defense for the entire industry is to incorporate “Menu-Selling” into your F&I Processes. It is the most profitable and most fully-disclosed, consumer friendly way to do F&I Sales. There is no other way to deliver F&I that is fully-documented, legal and safe. If I owned your dealership and my F&I Managers refused to do Menu-Selling, exactly the way it is supposed to be done, every time, without exception, no excuses...If they refused to do it...I would fire them dramatically...immediately...and with a bad reference. If your F&I Manager refuses to do Menu-Selling and full documented disclosure...then you have vital body parts hanging out and you are in the crosshairs for a devastating legal hit.

The third line of defense is to adopt the NADA Code of Ethics...and mean it. You don’t need to lie or cheat or misrepresent to sell automobiles. It all starts with a culture of demanding integrity from the top down. There is such a thing as consumer-friendly negotiation and sales.

Talk about balls...John Smith and General Motors is taking it right at the Germans. The new Cadillac products are world-class contenders and they are taking the luxury performance battle to BMW and Mercedes. Coming in at a price higher than the newly redesigned Lexus 330 and other luxury competitors in this class, the new Cadillac SRX is described as a sport luxury wagon going heads-up with BMW X-5 and the Mercedes-Benz ML350...with no apologies. Still, coming in at a base under $40,000 you can expect the new Cadillac Renaissance to continue into this segment where they have never dared venture in the past.

Even the chairman of BMW, Helmut Panke had words of admiration directed at the revitalization of Cadillac, praising General Motors for establishing a strong, consistent brand identity in the product line. Let’s face it...a Cadillac is clearly a Cadillac and you are not going to confuse it with anything else out there. The new XLR two-seat luxury roadster is going to be another glove thrown at the feet of the European performance sport-luxury fraternity that has dominated that segment for too long.

Ford Motor Company continuing to struggle through a desperation reorganization business plan continues to exhibit a few sparks of intelligence and flashes of brilliance overshadowed by bumblings of a sea of dull, slow, plodding bean-counters trying to account themselves into a profit.

All in all, I think they are trying and...maybe...just maybe they are even sincere about revitalizing dealer/manufacturer relations they have shredded over the last decade of perpetual abuse.

This so bizarre, it is something so asinine; it could only come from Ford Motor Company. You know that a rattlesnake will bite you simply because it’s a rattlesnake. Well a little humorous note here...there is a webpage that you’ve just got to visit.

 http://www.volocars.com/volovsvolvo.html

It seems like there is a little rural community in the Midwest called Volo, Illinois. Remember that is the name of the town...has been for a hundred years or more. It seems that 40 years ago a family started the “Volo Auto Museum”...a privately-owned business featuring classic cars and antique cars. The webpage explains that this museum is the town’s main attraction for international visitors and tourists.

A paragraph on the website reads as follows... “Out of NOWHERE, Volvo of North America (now owned by Ford Motor Company), has brought a complaint against Volo Auto Museum before the World Intellectual Property Organization (WIPO), headquartered in Geneva, Switzerland, asserting that Volvo is somehow losing potential customers because in the cyberspace universe there may be either a realistic or fanciful confusion between potential Volvo vehicle purchasers, and those individuals who might be interested in antique, classic or muscle cars which Volo Museum has been displaying and selling for the last 40-years (long before imported Volvo vehicles were introduced into the profitable American marketplace.)”

I have pointed out repeatedly that Ford Motor Company is Lawyer-crazy...constantly dicking with the states franchise protection laws for dealers and now they are persecuting a little pig-farming community of 200 good solid Americans for using their town’s name in their business because it conflicts with their import’s name. And these people want us to forgive them for all of their admitted past sins?  Rattlesnakes can’t help themselves, it’s just their nature.

Well Ford has their hands full and you may have noticed I have lightened up on them considerably in recent issues, but some things are just so good you have to write about them. None of us wish Ford bad luck....I have cried watching them self-inflict these near fatal wounds over and over again. I read Padilla’s interview in the snooze and reread it several times. They still just don’t get it do they. His comments about dealer-factory relations bore the same condescending overtone I have seen and heard from most of these people over and over again.

Excuse me...the Thunderbird is discontinued...the Aviator is a flop...the 6.0 Diesel was the worst nightmare abortion launch since you screwed up the Focus launch and the Explorer launch and the...well just about every launch in the last few years has been screwed up hasn’t it?

Yup, there’s Steve Lyons up there on the stage ...again ...apologizing ...again...this time he’s admitting that Ford really screwed up the 6.0 Diesel launch. But wait, he’s not going to let us down...yes...yes...there he goes....he’s shifting the blame to the suppliers again. Okay...okay...the audience isn’t buying it so he’s back to accepting responsibility again. We screwed up on the engineering sign-offs; I think that’s what he said. Yup...go figure...and all along I was under the impression that the engineers begged them not to launch that engine prematurely but they needed to get it out in the market NOW...so they over-rode the engineer’s protests. That’s what I thought happened...see how wrong you can be sometimes. They just missed some sign-offs that’s all. It ain’t all that bad is it...We’ve only got a few problems with the hope of the future product launch like “No-Starts”...blew up within 25 miles of the dealership after delivery....multiple cases...oil leaks...bad ICPs...snorts, coughs, bucks, and rattles...rough vibrating idle...lack of power...injector leaks and defects...bad PCM programs...total engine failures due to hydrostatic lockup...over boost...turbo blade defects...corrosion...and the list goes on....just minor stuff.

I am cringing as they get ready to roll out the new F-series products. Hey Steve...listen, just save those speeches you’ve been giving at the dealer meetings...next time just cross out where it says 6.0 Diesel and write in the next model you launch and voila you have the apology already preprepared. Oh. You’ve already been doing that haven’t you? Well darn.

I am not going to mention that you guys have been transferring repair costs for your screw-up to the dealers either.

Leaving the barbershop biting on that cheap little sucker Old Joe always gave the kids, my mind was racing with all of the possibilities and choices we have in life that affects the outcome. Unfortunately, we can’t go back and select other courses or planes of existence. Life is not a dress rehearsal.

Swirling a snifter of 125 year-old Remy martin Louis XIII and holding it to the light, I wonder about all of the possibilities if this or that had happened differently.

More Food For Thought

A few years ago I accurately predicted the crash of the Internet as a viable medium to retail cars and trucks to the American public. Now most of the Dot-Coms are Dot-Gone and I am glad.

That whole goofy period of time where we were trying to sell cars over the Internet at wholesale prices to retail customers with a middleman sticking his hand out for the privilege of getting that ultra low-gross referral. You had to wade through hundreds of so-called leads to find that irritating chiseling invoice buyer you probably hated to see coming into your showroom anyway. I despised (actually I still do) AutoByTel and all of the low-profit lead generation copycats with similar models. They simply made fleet buyers out of retail customers and charged us for the luxury. At least that’s the way I see it.

I read the message boards online where these Internet managers (oxymoron) are whining that they gave the folks the all figures via email but they won’t come into the dealership. Well duh!

It is never gonna be mainstream...period. BUT there are several big exceptions you need to look at...

If you have unique merchandise or hard-to-get models, you need to be on EBay. The online auction is one of the best sources for high retail profitability in the previously-owned, specialty cars, and the limited edition market.

Also, I am still a big fan of AutoTrader.com (even though they are aligned somewhat with AutoByTel). The reason I like AutoTrader.com is because they are a classified ad service NOT a lead referral generator. The business they generate ends up on the telephone not some wimpy email correspondence.

I never said you should avoid technology...only stupid technology

This Man Means Business!