Ziegler Supersystems, Inc. October 2003  Dealer Magazine Article

Thirty-six to Nothing

New house in a new neighborhood...new school...new acquaintances and new parents to meet. Our son, Zachary, is now in high school meeting new kids. It’s not like the kids he’s known all of his life up to this point will be in school with him; they’re still in the old neighborhood going to another high school. Luckily for him he makes new friends easily. I don’t remember having that many pretty young girls chasing me when I was that age...and...They are so aggressive.

Hard to believe he turns fifteen tomorrow. That means he gets his learner’s permit and will soon become the family chauffer on neighborhood trips. Now that’s a scary thought. It’s all moving so fast.

It’s Labor Day Monday here in Atlanta and I am sitting poolside on the deck putting these thoughts into the laptop. I have already fleshed out the meat of this article...about 10 pages...and now I am just chatting and visiting with you folks before I get into it. More than twenty hours of research has gone into this month’s article so far and I’ll probably be sitting here three or four hours from now wrapping it up. Debbie just brought me a cold tuna and fruit salad with crackers...poolside stuff for lunch.

I’ve got the Remy Martin Louis XIII Cognac and a snifter sitting here for my traditional celebration at the end of the article. The stage is set.

Two days ago...Saturday afternoon was the season opener for Brookwood High School varsity football. Now, you gotta understand...football is a religion here at Brookwood. Trust me...These people take football very seriously ...very...very seriously! Our team has won state championships AAAA ball...always in the top two or three in the state every year since the school opened back in the eighties. Our team is unstoppable...a juggernaut. And...Since Zach is playing 9^th grade ball, Debbie and I get to volunteer for all of the parents stuff like concession stand duty. We even have a private clubhouse for team parents with closed circuitry television and a big picture window overlooking the field for game days.

Well, Saturday’s season opener was in the Georgia Dome where the Falcons play. (I am not totally convinced our varsity couldn’t beat the Falcons) First High School game I’ve been to in more than twenty-five years. Brookwood Broncos against the Starr’s Mill Panthers.

Our guys came bursting onto the field with their hair on fire, frothing at the mouth like a bunch of rabid junkyard dogs getting all over a pork chop...slapping each other and jumping up and down and screeching primitive primal screams. Our band was equally impressive and intimidating, maybe a hundred kids, great uniforms, with a really-really loud never-ceasing drumline. I counted ten tubas.

Then the Starr’s Mill Panthers came out sort of running onto the field. They certainly appeared to be a little more civilized than our kids in their sparkling clean new white and blue uniforms. I had never even heard of Starr’s Mill before...somebody said it was a brand new school over by Peachtree City somewhere...they said they thought it just opened this year...maybe their first year. Who knows?

The Starr’s Mill marching band was equally polite looking...maybe fifty kids...very well behaved...I counted three tubas.

The game was scheduled to start at 5:30 but I was already starting to get a sick feeling. This wasn’t going to be pretty.

David and Goliath...Rocky versus Ivan Drago, the giant Russian boxer...Bambi versus Godzilla...Starr’s Mill versus Brookwood varsity, history is filled with mismatched competitors.

There’s a bloodbath going on U.S. Soil right now. Most of the other prognosticators in and around the automobile industry have already counted out Ford, General Motors, and Chrysler. They say the former “Big Three” are scrambling just to stay alive and their pulse is feeble. Wall Street appears to have abandoned Ford...and G.M. is also drawing some bad press from the financial sector. USB Warburg recently published the following excerpt...

"Taking the trends we see in the auto industry today and following them through to their logical conclusion, we think it not unlikely in coming years that either Ford or GM will go into Chapter 11, or Chrysler is ejected from DaimlerChrysler."

Of course, Remember, I was all over these issues long before the mainstream press. I was all over it in this magazine nearly two years ago in my December 2002 article titled Invasion of the Body Snatchers ... In part, I wrote at that time...

Wall Street Analysts and Credit-Rating Directors generally agree that Ford is barely covering its interest expense. We’re hearing they are hovering on the edge of the cliff. Dare I say hanging by their fingernails?  One word that keeps popping up in article after article is the word “Survival”.  There has even been conversation among analysts about what are the alternatives when and if Ford falls. If Ford Bonds are in actuality downgraded to “Junk Bond Status”, it is generally accepted that the market does not have the capital capacity to absorb it. We’d be talking about Federal bailout similar to Chrysler Corporation of the early eighties.

That was just one paragraph out of the whole article dedicated to the increasingly obvious eminent financial collapse of the dynasty of the former “Big Three.”

In the meanwhile, Toyota and Honda are like Pac-Man, gobbling up record market share and they are financially healthy...The Koreans are coming on strong and Nissan’s having a renaissance with sales momentum and exciting new product. BMW is still dominating the Luxury segment (cars over $40,000) and the Japanese are preparing a devastating assault on the North American light truck market, Detroit’s last dominant stronghold. 

Ford is technically bankrupt...General Motors has serious capitalization issues...and Chrysler, in spite of their great quality exciting new product, keeps getting it’s ass kicked no matter which way they turn. (Ouch! Ouch! Ouch!)

July was the biggest month of the year to date for U.S. Auto sales BUT the “Big Three” all lost market share with same month sales declines, Ford taking it the hardest...while the Japanese imports gained substantially. Toyota and Honda collectively picked up 1.62% additional U.S. Market Share since August of last year according to the recently released JATO U.S. Market Share index.

JATO Dynamics claims to be the world’s largest supplier of automotive industry and marketplace statistical information. Of course that’s a mighty “powerful” claim. Their information certainly couldn’t be any more bogus, fabricated, or self-serving than what we are being served by some of our domestic alleged research statisticians.

The numbers are in and August sales hit record numbers for most manufacturers again. The last fifteen days have been incredible...with General Motors setting a new record for truck sales. It was Ford’s best month of 2003 although they are nowhere near catching up with previous sales levels. To demonstrate how strong this surge is...if this pace were to continue, we would sell more than 19 million new vehicles in the U.S. this year. I smell momentum and renewed consumer confidence building into the second half of this year. I think sales are about to get real good...real soon.

Unfortunately, Somebody’s Gotta Die

Even coming out of back-to-back record months in the industry, General Motors, Ford and Chrysler still have their backs up against the wall and the only way out is to continually increase market share. Down-sizing the corporations is not an option...they have to keep selling more to service their debt load and fulfill their legacy obligations. (Pensions, health care etc.) Cost-cutting has severely weakened Ford to the point where they appear to be the weakest player on the field. Now I hear they are shutting down Ford Credit Branches...not good.  This war is going to be won or lost with great product not with layoffs, cost-cutting and some hide-the-weenie accounting wizardry. Clue-impaired bean counters have all but ruined Ford Motor Company’s prospects to come through this storm. If and when that happens, tears will stream down my face in rivers. This corporation was so beautiful...so magnificent and, if it falls, it would have been destroyed by smug, over-educated, arrogant imbeciles who blew billions upon billions chasing goofy technology solutions as was being suggested by questionable researchers...all the while they were, at the same time, double crossing their loyal dealer body. AND, If Ford should manage to pull out of this crisis; it will once again be their loyal dealers who pulled their allegedly deceitful, unworthy asses out of the fire. (my opinion of course based on recorded history and obvious bad management) And, if their loyal dealers save Ford Motor Company’s bacon once again, I predict Ford will probably once again reward them by hiring J.D. Power and Associates to devise another irritating new way of dicking around with their business and making their lives miserable. These people just can’t seem to help themselves...it’s their nature.

Now analysts are saying that the Japanese and the Koreans intend to dump nearly 2 million additional units annually into the U.S. Market in the next few years. Even if the U.S. Market raises to saturation levels above 18 million new vehicle sales...It’s a mathematical certainty...the market can’t support that production we’re over the point of saturation...unfortunately somebody’s gotta die.

Letters, phone calls and emails keep pouring in from dealers and managers about my most recent articles about what I perceive to be the ongoing alleged abuses inflicted on dealerships by the Evil Malicious Honda Excell program. You know, I am not totally positive that Honda’s top management realizes just how bad this program really is. Someone told me that when the program was first presented to Dick Colliver, executive vice president of American Honda, he was enthusiastically all for it. They told him it was going to increase CSI and, according to my friend, Dick Colliver allegedly enthusiastically said... “I’ll drink to that!”

One extremely influential Honda dealer wrote me a lengthy email partially defending the company but mostly blasting the Excell program. Understand, this man is as honest and loyal to Honda as they come. He is one of their strongest advocates.

His letter began with...

Jim, after reading your recent articles about Honda, I felt compelled to write. You know me and my family, we have 12 dealerships in a major metro market and, without a doubt; Honda is our most valuable nameplate.

Then later in the body of the letter he went on to say ...First of all, let me say I am disillusioned and disgusted with the Honda EXCELL program.  Our Honda franchises resisted participation and enrollment in the program until the pressure was over the top of the pressure gauge

Later in the text he said ...The hypocrisy surrounding the program is obvious. American Honda rewards dealers with cash incentives and gives them more cars based on their sales levels, not on their dealership’s CSI. Even though Honda emphatically claims to be CSI driven, in reality they are sales driven.

Our Honda district manager is quick to review our daily sales reports BUT never, not once, has anyone from Honda ever even mentioned that our CSI outperforms all of our competition in this market. In effect, it appears that they wink at the violators as long as they continue to produce the numbers. Honda dealers receive cash incentives and can only earn inventory based on sales volume.  So one must assume that Honda is sales volume driven, period!  As a dealer, I am required to review our daily sales report with our district manager in comparison to the market and other Honda dealers, but I have never had anyone from Honda commend us nor have we ever been financially rewarded because we have consistently had the highest CSI of any high- volume dealer in our top-10, major market area. The President’s Award, which we are now required to purchase, is little more than a lapel pin and a doormat. The only time CSI seems to be important is right after the JD Powers survey comes out or during the national dealer meeting. 

---Anonymous dealer, personal friend---

THEN...there were more letters, calls and emails about what I have written about what I perceive to be gross top-level mismanagement at Mitsubishi. *

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* Canadian national ex-Saturn guys with good hair and wrinkle-free clothing allegedly force-feeding unwanted inventory to some unwilling dealers as these executives were allegedly spending freely, big-budgets, on seemingly goofy advertising initiatives while initiating apparently bottomless pockets deferred payments, high-residual and zero interest financing programs to the credit challenged, high-risk of default masses in an attempt to cover voodoo accounting practices designed to impress unimpressed Wall Street analysts still reeling from reports of catastrophic losses in Mitsubishi’s financial arm. Of course that’s all just my opinion and the way I view the facts based on the assumption that I have common sense and an IQ superior to an earthworm. I might be wrong.

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In the words of Richard Nixon’s cabinet...“We are not a Dilbert Executives.”

A Weird Situation

Well, here’s a weird situation. I am sitting here in a hotel in Iowa...it is now Wednesday night, two days after I originally wrote this article, wrapped it up, and submitted it to Mike Roscoe. In the original version of this article I submitted last Monday, this paragraph was all about a prediction I was making that Pierre Gagnon was going to be fired real soon as CEO, president of the North American operations by Mitsubishi. In that paragraph I was also alluding to who his replacement was going to be.

Well damn, wouldn’t you know it? I get this call from a prominent Mitsubishi Dealer from Texas telling me the news that our boy, Pierre has evidently bit the big one and that his replacement was going to be Finbarr O'Neill, formerly CEO North America for Hyundai. Couldn’t they have waited till my article came out? Now, I have to rewrite this couple of paragraphs.

In the official press release it was explained that Mr. Gagnon resigned to pursue other opportunities. Other opportunities? Considering Gagnon’s track record, I’m thinking maybe “super-sizing” fries perhaps.

Gagnon’s departure isn’t nearly as impactful as the news that he is being replaced by Finbarr O’Neill. This guy, O’Neill is one of my all-time corporate marketing heroes...a visionary! There is little doubt that Finbarr O’Neill was the driving force behind Hyundai’s meteoric increases in sales and market share in North America. This is incredibly good news for Mitsubishi Dealers. As I was going to write in the original version of this article, look for O’Neill to completely shake up and shake out the management deep into the field levels. From accurate information coming to me over the last few weeks, I believe heads will roll and we will see Finbarr gathering up some old familiar faces he’s worked with in the past. Remember I am writing this on September 5^th, a lot of this may have already come to pass by the time you read this...just remember, I was all over it...way ahead of the curve...my sources are really good, accurate and planted deep.

Unfortunately, this could be devastating for Hyundai...I have praised this corporation for their great advances in the marketplace and quality improvements to product to world-class levels...BUT NOW...the architect of their renaissance has left the building. Word  have been getting for some time now is that Finbarr and his executives were being squeezed out and pressured by the Koreans. It appears that as the Koreans began to take more and more control of U.S. Operations, the U.S. Executives starting bailing out.  Well, Rots of Ruck to those cagey Koreans. You guys are squarely in the driver’s seat now. I have repeatedly said Nissan and Hyundai were the wild cards going to the Super Bowl...BUT...both corporations have made what I consider to be some extremely stupid moves recently.

You know, if you’ve followed my speeches and articles over the years, you’ll remember that I predicted Jacques Nasser’s demise months before anyone else had the cajones to say it. I wrote about it in this magazine the very day the Ford family (secretly) made the decision to terminate him, three months before they actually pulled the trigger. As a matter of fact, I predicted his dismissal to the day from the keynote speaker’s platform at a state dealer’s convention just three days before it went down. Does anyone remember when Jacques Nasser was running around at the Tokyo Auto Show back in October, 2001 still trying to act like he was still in charge at Ford Motor Company....of course back home they were figuratively cleaning out his desk...Jacques was dismissed (resigned) shortly after he returned, on October 29^th, 2001. Its amazing how some of these guys (gals) never see it coming. Of course that has nothing to do with Pierre Gagnon; I was just having a flashback.

Ain’t Never-Ever Gonna Happen

...not in a billion-trillion years

It was a stupid idea then...and it’s still as stupid idea now.

I’ve written about this before. Idiotic people pushing idiotic concepts that other idiotic morons have already been proven not to work in the past. It seems to be a cyclical event in the retail car business. By now, most of you are aware that I have made some heavy predictions going completely against the grain concerning Honda and Toyota. Although both of these corporations are realizing incredible sales and market share increases in the U.S. Market; I believe they are both deviating off of course and, ultimately, even though gaining market share in the short term, I believe both companies will lose substantial market share and revenues...Honda taking a harder, deeper fall than Toyota.

In recent months and weeks a series of articles in the industry press popped up on my radar screen and I found myself, once again, laughing out loud as more of these pompously absurd new-age business consultants, wet behind the ears, flea-brained MBAs, university faculty, and assorted clue-impaired factory executives piously declare they know what the retail public wants and needs and how the public prefers to be treated by us, the stupid car people.

Well, it’s back. This time its Toyota and Nissan appear to be leading the charge. I have written so many nice things about Nissan and their great product and now, within a period of weeks I am hearing they are doing some incredible stupid things.

In November, 2000 I wrote an article titled Braveheart. In that article I was criticizing General Motors (Remember, this was written during the Zarella regime) and their “built to order” strategy.

At that time I wrote...

On other issues…did you see where General Motors is charging ahead in Minneapolis with another (allegedly goofy) initiative? They are going to test (and ultimately fail) three concepts. First of all they are stuck on the idea that the public will go for “built to order” cars.

Isn’t Ron Zarella still the alleged Marketing Czar of General Motors? (Who would have believed he’d still be here? Dammit! I am about to lose another bet.) 

The truth of the matter is the public will reject the whole concept. Remember this, just my opinion, mind you; any program designed by propeller heads will only appeal to the small niche propeller head market. Maybe they should have tried this out on SAAB or Saturn first.  

First of all, most people are not going to wait for a car to be delivered. We are into the instant gratification, right now, spot-delivery generation. That’s why dealers with the most cars on the ground and the best, right-now selection will always sell more cars. 

Secondly, in case you haven’t noticed, the Internet is a bust. Dot-Communist companies are dropping like proverbial flies. The public has voted “No” with a very loud voice! We are going to exchange our retail customers who would have bought from us anyway for low-profit fleet buyers. These alleged geniuses at General Motors are going to use Oldsmobile as a test market…brilliant demographic. 

Thirdly, they are sneaking in e-pricing, which is probably the most destructive concept out there. The factory is going to further reduce their already non-existent markup in a blatant price fixing scheme, which must be some kind of illegal.

Well folks, nothings changed except the players. Toyota and Nissan are banking on “built to order” car sales as an integral part of their marketing strategy...and they are going to pay heavily for that absurdity and lack of market savvy.

As I have said repeatedly, the American public is into “Right Now” delivery and instantaneous gratification. The dealer with the best selection available on the ground...right here and now...will always get the deal. We in the real retail world know that customers often buy emotionally and often back out of the deal during the cooling off period...and they will not stop shopping just because a car has been ordered. That’s why so many dealers locates drop out and cancel. There’s no emotional attachment to a car unseen, no sense of urgency, no mental ownership...it’s a bad idea by people who have no concept of how the retail public thinks.

I heard rumblings about Toyota pushing “built to order” in their Scion meetings but I was not aware it was going to become a corporate culture issue. Interviewed by the newswire during the Management Briefing Seminars in Traverse City Michigan in August, Atsushi Niimi, president and CEO of Toyota's manufacturing arm in North America. Niimi said that Toyota is rolling out a new initiative where consumers can custom-order any of the nine models built in North America. The projected turnaround time is two to three weeks.

Speaking at the same conference, Tadao Takahashi, (Japanese name translates to Fred Smith) executive vice president of manufacturing at Nissan, confirmed that Nissan is pursuing a similar program.

Takahashi admitted that American buyers may not be as patient as Japanese buyers in waiting and ordering their cars. (He probably read that in my column) But, Takahashi was confident that...according to the article... IF American consumers could be convinced to order their vehicles, rather than choose existing cars and trucks off lots, they could end up happier with the final product. More importantly for dealers and automakers, though, inventories could be slashed.

So, in other words it’s a factory scheme to reduce their own costs and improve their own bottom line. I don’t think it’s really about the consumers at all. Of course notice where it all depends on whether or not they can re-educate our culture.

To further validate the concept, the reporter managed to dig up a consultant to make a convincing authoritative statement or two for the interview, Michael Robinet, a vice president at CSM Worldwide, an automotive forecasting firm in Farmington Hills, said “Toyota is at the forefront of building cars to order but other automakers won't be far behind in this competitive market.”

Ziegler observation about Mr. Robinet’s statements...“Yeah, right.”

“Japanese automakers already tend to carry lower inventories than their domestic counterparts. Encouraging or training Americans to go the Dell way with cars and trucks would raise the efficiency bar considerably”    Robinet said. 

Ziegler observation... “Of course, they are going to build cars to order the way Dell sells computers.”

Now these manufacturers are going to have to face their inventory-deprived dealers and say... “Hey Dude! You’re going to be getting screwed.”

Wait a minute, what would an interview about how to retail cars be without a wise university professor checking in?

According to the article...Michael Flynn, director of the Office for the Study of Automotive Transportation at the University of Michigan, said “Automakers have been discussing how to build to order for years but they've been concerned that customers here aren't patient. But the quest for quick-delivery factory orders is more than a customer thrill; it’s a way to reduce inventories,” Flynn said.

"If you can get customers to order exactly what they want instead of having to shop around an inventory on a dealer's lot, then you reduce inventory cost and you lower manufacturing cost." 
 

Ziegler prediction...while Toyota, Nissan and any other players foolish enough to get in this “built to order” game are busy dicking around trying to re-educate American consumers buying habits, their competitors are going to eat their lunch. Right now they are acting like it’s some sort of a little minor experiment...trust me...it ain’t. They are committing to this strategy big-time and it’s going to be a disaster. Once they are geared up for “built to order” it will takes months to reverse course and go back to what works. Loyal customers will be abandoning inventory-weak dealers and defecting to whoever has the cars on the ground...NOW.

Toyota doing this is understandable, they have made several other rather stupid market assumptions recently...but I am genuinely surprised that Nissan is pursuing a strategy as dumb as this.

But, you know when I heard Nissan was contracting J.D. Power and Associates to advise their dealers; I realized then that I may have overestimated their marketing expertise.

At that same conference, Gary Cowger, president of GM's North American operations said during his presentation that Chevrolet plans to introduce nine new models over the next 20 months starting in January. The goal is to displace Ford and return Chevrolet to market segment dominance at 3 million unit sales annually.

That’s what I like about the management team at GM...There’s a war going on and it’s a bloodbath out there and they are occasionally getting their asses kicked...but they are not wimping out and retreating into their bunkers and trying to account and cost-cut their way out of trouble. General Motors has taken some hard hits and they’re fighting back hard...coming straight at the market with great new product.
 

You know, there wasn’t a lot of joy in it for me watching Brookwood roll over those kids. I think our coach played the third string off the bench before the game was over...even the water boy probably suited up and played. Obviously the Panthers were no match for the mighty Broncos but, you know, those kids had a lot of heart. Thirty-six to nothing but they were still playing and hitting hard right up to the final seconds. I could see the pain on their faces. Sure I was glad to see our team win but I also realized how it must have felt to suffer that kind of devastating humiliation. The bus ride home must have been awful. But, you know what...those kids will show up somewhere next week, suited up and ready to play their best with their game faces on.

Swirling a snifter of vintage Louis XIII as the sun sets over the tree line in our backyard, the colors of the sky magnified in my mind through the amber liquid. Sure...of course Brookwood blew those guys out, it was expected. But, you know, those kids from Starr’s Mill played harder...they had to.

Holding my snifter high into the air...here’s to the kids at Starr’s Mill. In the words of Honda top management... “I’ll drink to that!”

This Man Means Business!