Ziegler Supersystems, Inc. January 2003  Dealer Mag Article

Transitions

Nothing ever stays exactly the way it was. Just returning from the Thanksgiving holiday I find that my mood is reflective and deep. So much is happening right now. I am searching for the smart-ass wisecracking Ziegler but I keep sinking back to a quieter, calmer, more focused and intellectual approach to the introduction of this month’s column. Of course, you won’t see these words until January and, by that time, I will have returned to my obnoxious, self-absorbed normalcy. BUT... rest assured, before the end of this article I’ll be back on track taking a shot at somebody. It’s just my nature.

Everything is up in the air and we are all scrambling to maintain balance. Debbie and Zach and I just returned from an incredible holiday weekend at the Ritz-Carlton at Lake Oconee in Greensboro, Georgia which is just a few miles away from Augusta, where I have heard they have some kind of big golf tournament every year. The food was magnificent; the service excellent, the staff was ultra-professional...the first time I have really laid back and relaxed in recent memory. Although I travel 250 days a year, I will tell you unequivocally, this is the best hotel experience I had had in years...and I stay in some really nice places.

You know we just moved into a new upscale office suite in a class-A building...my business is booming...I am aggressively hiring new people and expanding the company. Last week we signed a contract on a new home...if you’ll remember; our old home (the one we are living in now) is 8000 sq.ft. in an upscale community. Well, we’ve decided to move up. After all there is three of us.

Debbie’s Mom passed away this year and the holidays bring forth memories of other times.

The point of it all is simple...so much is changing. And it scares you and it excites you. This is what makes living worthwhile. Wars and rumors of wars...the economy...uncertainty...taking risks...we, in this industry, entrepreneurs, can appreciate the adrenalin rush these challenges present. The anal, structured, analytical mind can only quiver in fear.

I just signed a contract for the biggest, most expensive home I’ve ever dared to dream of. The little house where I was raised with two parents and three children wouldn’t fit in a corner of my basement. We just aggressively expanded our offices to more than 6000 ft. of luxury high-image office. It scares the hell out of me and makes me stronger.

2003 is a cloudy enigma...nobody really knows what the future holds. It looks like all of the players are realigning and, truthfully, nobody can really say where it’s all heading. There are so many wild cards in the deck. While everyone seems to be anticipating a catastrophic slowdown in the industry, my personal business plan is to aggressively attack the market.

Nissan and Hyundai are the two wild card teams headed for the Super Bowl.

If I had to place my bets, I’m still very high on Nissan to emerge as a top contender. If you’ve followed my columns, you’re aware that I starting getting excited about Nissan long before they popped up on the popular media radar screen.

Blowing away analysts’ projections, this corporation is on fire. It’s hard to say a discouraging word when you study the success Nissan is enjoying...like the Phoenix rising out of the ashes...in bankruptcy just three years ago. I see where a down market or a slowing economy will work to Nissan’s advantage and the detriment of their competition.

Coming off a dramatic 84% increase in operating profit for the first half of this year, Nissan’s operating profits are at an incredible $2.8 billion...most of that growth coming from sales in the United States.

As I predicted in this column at the beginning of the year, most professional analysts, with the statistics to back them up, are now safely saying that Nissan is poised to take major market share and profits away from Honda. As I write these words Nissan and Honda are within decimal points of each other in unit sales, both approaching 3 million in annual sales, and Nissan is actually ahead of Honda in annual profitability projected. (No wonder the way Honda has shamelessly whored up pricing and margins...personal opinion) There is a more than odds on possibility that Honda will fall and Nissan will gain the title as Japan’s number-two automobile manufacturer. Many of my personal friends are Honda Dealers and I don’t wish bad fortune on the franchise BUT these people (the factory) have been on a collision course with fate for years. They got caught up in some spirit of delusion regarding their brand image...a superiority complex with a shaky foundation. I knew when they started dictating the sales processes to their dealers and getting in bed with survey companies they were in for a hard fall.

Not only is Nissan flying high BUT here’s one I didn’t see coming...the Infiniti product is also incredible. I always thought of Infiniti as a niche market sort of birchenstocks-with-suits-wearing- intellectual geeky car. Not now! The word “wow” is appropriate when you are talking about some of their recent product offerings.

Every executive in the corporation is reciting the mantra of “Profitable Growth”. In the meantime, their stock is up 40% while Honda and Toyota are both seeing share prices fall.

You know what really hits me hard about all of this? They’ve done it with product. Nissan has 12 new, fresh product introductions just this year. Sure, they went through an initial cost-cutting phase BUT that wasn’t their marketing strategy. They have attacked the market with excitement and high-energy, tuned-to-the market, new products. When you look at what they have in the pipeline, it’s incredible. The reintroduction of the 350 Z is a masterful marketing centerpiece that will help create brand credibility. Cars and trucks and SUVs, full-size and entry-level, they’re gonna be all over the map, dominating every segment.

The one down-side stumbling block I see for Nissan is they’ve got to back off of their dealers and let them breathe. They have had a history of managing the sales process through these asinine stair-step programs that promote cutthroat marketing. My advice to Nissan...let your dealers make money and you will soar through the stratosphere. They stuck by you when your product was crap and the future was bleak...now reward them with participation in the profitability.

One theme we’ll be seeing with Nissan is an emphasis on factory-authorized after market performance accessories available on both Nissan and Infiniti products...probably more commitment than any other manufacturer.

Everybody’s Afraid of the Koreans!

Holy Hyundai Batman! Talk about stepping up to the plate? Hyundai is gearing up for one million units sales by the end of this decade. Spurred on by the fact that Hyundai has outperformed the entire industry in terms of growth and product improvement. BUT, they need to remember that every player in the market is going to be gunning for them.

The statistical possibility of Hyundai knocking off Toyota or Honda is a very realistically doable equation. I am not saying it is ironclad but there is certainly a new kid in town. Every manufacturer in the world is afraid of these guys. Even Steve Lyons referenced the Korean imports as a serious competitor exerting market pressure on Ford in his famous FordStar broadcast.

Get this! According to the Wall Street Journal...In the 2003 Consumer reports list of recommended new vehicles Hyundai has more vehicles listed than Mercedes Benz. Quality, value and a superior warranty have been the marketing power that has catapulted Hyundai into the winner’s circle.

Aggressive growth plans include a new $30 million parts manufacturing facility they’ve announced they are going to build in Alabama just several months following the announcement of a $1 billion facility in Montgomery that will produce 300,000 units starting in 2005.

I read an article the other day that put a smile on my face...the quote simply referred to Toyota as a Japanese Buick. In other words the average age of the average Toyota buyer is climbing up into the forties so the manufacturer felt compelled to create another company...or at least that’s how the story is being told.

I am on-record as saying this going to be a disaster.

First of all, let’s dig through the bullcrap and try to get to the heart of the matter. Toyota is coming out with their new car-line...Scion. I looked up the word “Scion” in a Japanese dictionary and it referred me to “See Saturn”.  The idea of a third Toyota brand is probably a great idea and has a lot of possibilities BUT somehow they’ve gotten caught up in the world of goofy, sappy, happy-clappy, high-tech, one-price, no-sale-persons, controlled process. All of this perceived illogical insanity is probably inspired by deranged thought processes emanating from the deluded minds of mental cases who believe they are researchers.  These nice folks at Toyota are gonna have their asses handed to them chasing this psychedelic pipe dream.

Besides the fact that the cars are ugly...this market is the low-end that they’re trying to make into the high-end. Listen to this quote from one of their alleged Scion executives and see if it doesn’t sound disgustingly Saturn-like... "At Scion, we're all about listening and responding to the changing needs of up-and-coming drivers whose interests, tastes and experiences are unlike any generation before," said Jim Lentz, vice president, Scion.  "This generation appreciates a genuine approach that enables empowerment, permits discovery and appeals to their desire for personalization." Excuse me folks, the airsick bags are in the back of the seat in front of you if you feel like barfing after hearing that goofy string of new-age, clue-impaired buzzwords coming out of that animatron’s face. 

They are calling the showroom “An environment with vehicle personalization opportunities”.

The biggest theme coming out of the SEMA show was personalization and high-performance customization. You can count on almost every manufacturer getting into the game.

If you’ll recall, I pointed out in last month’s article that Toyota Camry was really trashed by the latest Consumer reports survey for poor initial quality, squeaks, rattles as well as loose trim issues. When I say they trashed the Camry, actually it was rated average, which in Toyota terms is awful.

Toyota felt compelled to issue a statement declaring all of these issues have been resolved.  They were quick to defend that their power trains, reliability and safety were never questioned.

All in all though, do you get the feeling these people have taken their eye off of the ball? About three years ago I started seeing a new wind blowing at Toyota. Right now they are seeing record profitability and record market share...actually ahead of Chrysler.

Toyota’s strength has always been the quality of their incredible dealers BUT I suspect they have begun to get caught up in their own mythology. I am seeing increasing evidence that they are interested in controlling the business processes of their dealers. Remember, these are the same dealers that brought them to the dance. Are these people about to mess everything up here? I say it’s a strong possibility.

He’s Ba-a-a-a-ack...Oh God! Say it isn’t so!

Doesn’t anyone ever check these guys’ resumes anymore? Get this; Jacques Nasser has got another job. One Equity Partners LLC has announced the appointment of Jacques Nasser as Senior Partner, Chairman of Polaroid. We’re talking about a position with Bank One Corporation as a senior partner.

It seems that One equity Partners bought the Polaroid film and camera company out of bankruptcy for $255 million and now they’ve put Jacques in charge. I would assume this is a first for Jacque being in charge of a company that’s already bankrupt before he took over.

These people...where do we get these people? The Chairman of One Equity, Richard Cashin said... "Jac brings a wealth of global knowledge, experience and integrity to the One Equity Partners team,"...He went on to say... “He has demonstrated superb skill in managing global relationships and complex operations, and in making and integrating bold acquisitions."

Cashin expressed further pride and confidence in the diminutive Lebanese-Australian executive saying... "Jac will work closely with the management team and Board to develop and commercialize new, digital-printing technologies and to continue the pride that has been the heritage of the globally recognized Polaroid brand,"

In a PRNewswire press release the article said that Nasser, 54, will work with One Equity professionals to help identify, evaluate and implement direct equity investments in various industries around the world. Quit it! Are these people talking about our Jacques Nasser...Granddaddy of the Auto Collections, Internet initiatives, Blue Oval Certification, and the adept handling of the Firestone Tire scandal? Are they referring to that Jacques Nasser, the one who saw Ford Motor Company lose thirty billion in cash in less than a year under his supervision?

In a prepared statement Jacques used the same speech he used when assuming the helm at Ford Motor Company...He was quoted in the article as saying...."I am excited to join the outstanding team at One Equity. I am confident that we can continue to identify companies with solid growth prospects and strong leadership, and that together we can generate attractive returns."

I am sure he was referring to the same kind of growth prospects we have seen as a result of his leadership at Ford and the attractive returns that have become his trademark.

Reportedly Jacques said this new position accomplishes a career goal he set for himself last year - a clean break from the automotive industry. Excuse me, were there that many offers?  “I wanted to do something very different,'' Nasser said. ``I didn't want to backtrack.”

Finally there was another Nasser quote in the New York Times about his new position...“If you don’t make any mistakes, it means you’re not doing very much. I also think there are many good things and many positives I look on as well...

I’ve made mistakes. I couldn’t even start to tell you how many I’ve made.”

The headline in Detroit News read... Ford Guts Dealer Bonus Program (Mark Truby).

Of course the biggest news in the retail industry is about Ford reneging on their commitment to their dealers to pay cash bonuses for Blue Oval Certification. Now, I have decided not to use a lot of space in this article bashing Ford Motor Company, especially on this issue. So, I have written a second article on the subject which also appears in this issue of Dealer Magazine titled “Ambush at FordStar Gulch”.

You know in your hearts I’ve been telling you this was going to happen. I was all over this story for more than three months now. I’ve watched them change their approach three or four times...and we’re not sure they won’t revise it again. The program was never morally right. It was born out of bad faith and they deserve all they’re getting now. Remember Jim O’Connor promising that any changes to the program would have to be approved by 2/3 of the dealer council?

There were several statements Jim Lyons made on that FordStar Broadcast that are still bothering me. He said he met with the dealers several times. Now I know he met with the Big Influential Dealers...the power-players, in Chicago back in August. I was all over that as it was happening. AND, I know he met with the Dealer Council (see article on that in this issue) On the broadcast he alluded to offering the dealers the opportunity to take a $50 flat payment per unit and Ford would restore most of the margins back to the invoices. I think I heard that right. Which dealers did he offer that to? Was it the Dealer Council? Who is making these decisions for all of the dealers? The way it sounded to me, Ford was offering to cancel the program and somebody or some bodies took it upon themselves to turn that down without polling anybody. Maybe I just misunderstood what I heard. 

NADA Chairman, H. Carter Myers III was quick to fire off an official NADA response that read in part..."NADA is surprised and disappointed by Ford’s announcement that it is very close to finalizing a plan that would dramatically reduce the incentive payments in the ‘Blue Oval Certified’ program.

"Many Ford dealers, relying on the program’s promises, made major financial commitments to their facilities and other Blue Oval requirements. These commitments were undertaken with the understanding that the program, in its current format, would be in place for at least five years. We are concerned that the proposed financial changes could seriously impair the working relationship between Ford and its dealers going

"NADA urges the Ford leadership to reconsider this decision."

Of course, I totally disagree with that too. This thing needs to be disassembled and profit margins restored and all relationships with all outside research firms should be terminated with extreme prejudice.

Did you read where Cadillac is considering a 12 cylinder ultra luxury sedan with a sticker of more than $100,000? We’re talking about world-class luxury segment. I would like nothing better than to see Cadillac regain domination in that segment. I remember when anything of quality was described with a Cadillac comparison.

General Motors continues to innovate and attack the market with exciting new product. The theme throughout the industry seems to be trending toward performance and General Motors with Bob Lutz guidance is serious about it.

Ford is coming out with two offerings, the GT and retro-reminiscence inspired Mach I Mustang. The limited edition Cobra has been delayed and is expected on the market soon. Nevertheless Ford is introducing a number of SVT specialty cars.

Now we’re hearing that GM is coming out with a new, limited production 7.5 liter V-12 registering more than 500 hp. Look for this engine to be featured in Cadillac Escalade and other GM trucks.

Lutz is looking to restore the Pontiac performance persona with an assortment of engines and new product including the GTO. You know I sold my 67 GTO about ten years ago and I have been in morning ever since. That is what we expect Lutz to give us back, that feeling of excitement and pride of owning a car that has a heart. One of the first innovations will be the new Bonneville, "GXP"...powered by a 300 hp. V-8 engine...not some stinking whining six-cylinder. Look for it in 2004.

They’ve even got a performance Saturn on the drawing board. I don’t get that but maybe there are some “Propeller-Head Racing Geeks” out there somewhere.

I was sick to my heart when some fools pasted the Chevrolet SS insignia on virtually any piece of crap they wanted to push. Now I am hearing the SS designation will be a badass performance car. To me this is all very exciting.

As I predicted in previous issues, I believe we will continue to see General Motors market share climb into the 30%s over the next few years. Their immediate short term goal is 29% but I think they’ll blow through that to higher numbers.

Looking at the industry right now, if it wasn’t for Ford Motor Company, there’d be no news at all. Right now it’s all about product and market share and the players are realigning for a vicious street fight in the spring. Toyota moved up and Chrysler dropped to 4^th...Now Nissan’s dogging Honda and Ford just wants to see 19% again. There is a very real possibility that the former “Big Three” could drop to below 50% market share over the next decade.

The dealers I work with are working harder than they used just to stay where they were. The incentives seemed to have borrowed substantial future sales as predicted and now we have got to get on top of our business and make it happen.

As I mentioned in the opening of this piece, I am prepared to aggressively go after the market and shake business out of the trees if need be. It’s really interesting to see some of these young managers reacting to an erratic, unpredictable and compressed market. For the last couple of years some of them actually thought they were making it happen. Now is a great time to get an education.

Swirling a few drops left in the bottom of my snifter, I realize that the reflective mood is still with me. I am sort of kicking myself that this article is not obnoxious enough. Of course, if you read the article I wrote titled  “Ambush at FordStar Gulch” which also is featured in this issue, I think I made up for it.

More Food For Thought

I really hate this thing with Ford. It’s no fun watching my friends suffering through this thing. I always theorized that Ford was heading for a financial meltdown but I always thought that somebody would come to their senses long before they put the entire corporation this deep into the toilet.

Now I read where Ford Credit is selling off their retail installment contracts to Bear-Stearns at a discounted rate to raise another $3 billion. I can’t recall any major player ever doing anything like that except when Chrysler Credit did it way back in the days of the Government Bailout. This is a heavy-duty desperation play.

Recently Ford bonds even traded at “Junk Status”.

This latest move on the Blue Oval Certification money has done more to blow up those dealers who were trying to work with the program than they will ever be able to repair. It’s getting very serious and Ford needs to develop a whole new attitude because it’s down to the brass tacks and I suspect they are running out of options. Their restructuring plan is sophomoric and asinine. It is obviously more of what got them in this mess to start with... and they are in extreme denial.

Everyone wants Ford to pull it of this tailspin and restore harmony. I would be willing to do anything reasonable to support them if I ever suspected they were really operating in good faith.

This Man Means Business!