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Juggling Chainsaws

SandyI was spellbound. I was in a state of disbelief. I was totally mesmerized. I was one of the 5,000 people in attendance at the National Speakers Association’s annual convention. This year’s event was held in Phoenix, and on the main stage were two men dressed in tights and tutus. They were 15 feet apart, dancing a comedy ballet while juggling gasoline-powered chainsaws. One false move meant somebody could lose an arm.

The act is called “The Passing Zone,” and these two guys hold five Guinness World Records for juggling everything from live chainsaws and flaming torches to bowling balls to razor-sharp sickles and daggers. I decided to kick off this month’s column by relaying this experience because, well, I feel like I’ve been juggling chainsaws for the last three months.

See, I’ve been to Las Vegas seven times this year. My most recent trip was in October to deliver a keynote address to the 500 auto accountants, controllers, office managers and industry execs in attendance at the AICPA Auto Dealership Conference. And, well, you know that feeling you get when you nailed it? Well, I was feeling exactly that as I walked off the stage.

The good feelings didn’t last long, though, as I returned home to discover that a drainage pipe inside the wall of my home office had ruptured and flooded the inner walls. All the walls needed to be torn out, which meant my built-in bookcases were destroyed, my fireplace was dismantled and my beautiful office was gutted.

Then Hurricane Sandy struck the Northeast on Oct. 29, 11 days before my Internet Battle Plan Conference was scheduled to happen in Atlantic City, N.J. Of course that wasn’t going to happen, so Debbie and I scrambled to get the date rescheduled for Dec. 11 and rebook 15 speakers, the event’s sponsors and the 150 people who registered to attend.

Thank God for Thanksgiving, right? Debbie, our dog Sadie and I were able to travel to Savannah, Ga., for a pet-friendly getaway and dining experience over the holiday weekend. I never was into taking vacations, but I needed this one.

I thought the bad stuff was behind me at that point, but then a jury duty summons showed up. It said I had to report the week of Nov. 26. So, yes, like the jugglers, I do have a lot of balls in the air, which requires total focus and concentration to keep it all in balance. I am operating at a Zen level right now and I’m just going with the flow. But enough about my personal circus, let’s get into the issues affecting you.

Goodbye Suzuki
I was saddened to hear that American Suzuki Motor Corp. filed for Chapter 11 bankruptcy in November and is shutting down its U.S. automotive division. It wasn’t a huge surprise, actually. Most industry insiders would agree the writing’s been on the wall for some time now.

Many Suzuki dealers are friends of mine and most agree that it was never about the product. Suzuki builds a quality small car and should have been a contender in that segment, especially at its price points. Being a victim of the economy was only a minor part of the company’s problems, though. My opinion is that this is more about a lack of vision coupled with a flawed business model.

The biggest mistake Suzuki made early on is it positioned the cars to appeal to the subprime, credit-challenged market. The company even went after independent dealers in the buy-here, pay-here business to take on the franchise. But that strategy gave its vehicles more of a subprime stigma than a purple PT Cruiser. In fact, driving a Suzuki was like having “BOGUE” tattooed on your forehead.

And unfortunately, you could stick a fork in Suzuki when subprime nosedived with the economy in 2008. The carmaker was done. But there’s no sense in flogging a dead horse. The real question is how the company intends to buy out the 220 or so dealers who had their franchise contracts terminated. Evidently, the company plans to borrow about $50 million to pay its auto franchisees and another $100 million to reorganize its marine and motorcycle divisions.

With that said, I am scratching myself at both ends trying to figure out just how in the hell Mitsubishi is still hanging on. They have good dealers and good U.S. management, but the parent company in Japan is clueless, visionless and out of touch with the U.S. market.

Of course, that’s just my opinion, and I could be wrong. The way I see it, if Mitsubishi doesn’t make some dramatic shifts in market strategy, which I don’t see happening, then they’ll be gone, too.

John Krafcik

John Krafcik

Catch a Falling Star
It’s looking like that hero-to-zero syndrome that has plagued Hyundai’s U.S. management since the beginning continues. Let me go on record here by saying I am a huge John Krafcik fan, and nothing I am hearing about Hyundai/Kia’s fuel economy scandal is going to change my opinion about the company’s chief executive.

Krafcik, in my eyes, is one of our industry’s superstar visionaries. Unless something unforeseen develops that links him directly to the company’s overstated fuel economy claims, he’ll remain on the short list of manufacturer executives I admire. That being said, Hyundai’s top management in Korea has, historically, had a quick trigger on U.S. executives, firing their top people in sudden, public and humiliating demonstrations of authority. My perception is that blame-shifting is an ingrained culture at the top.

Two scenarios are possible: Krafcik will either remain with the company to sort through this disaster or he’ll leave the company. The right move is to keep Krafcik onboard. No doubt it’s going to cost both Hyundai and Kia a lot of money and somebody will ultimately have to fall on the sword. If it’s the latter, I believe — and you read it here first — Krafcik will be picked up by another major manufacturer in no time. Personally, I’m thinking he’d fit right in with the progressive top management team at Ford Motor Co.

The bottom line is Hyundai/Kia have six nameplate models that the brands claimed in advertisements get more than 40 miles per gallon, but, as we all know, the company fell well short of those claims. And we’re talking about more than 900,000 units with overstated fuel economy. What’s worse is the brands felt compelled to spend a billion dollars rubbing those false claims in the faces of their competitors through aggressive and overtly sarcastic advertising.

No Harm, No Foul
According to AutoPacific’s 2012 New Vehicle Satisfaction Survey, more than 90 percent of Hyundai and Kia buyers rated fuel economy as being “Extremely Important” in their buying decision. To quote Joe Biden, “This is a big f—ing deal!”

Financial sources are diligently recalculating and adjusting lease residuals based on the new information. No small problem in light of the fact that Hyundai and Kia leases represent a monster percentage of their business. If lease residuals are substantially lowered, it will take away a huge part of their competitive advantage, which has helped the brands nearly double their collective market share since 2008.

The company has apologized, citing errors in measurement and procedures. It also gave customers debit cards to reimburse them for additional fuel costs beyond what they expected to pay. This is the Alpha Dawg speaking, and I can tell you that “ain’t gonna fly.”

I expect class-action lawsuits and perhaps investigations before the dust settles. Krafcik has been the torch-bearer, calling for more industry accountability and integrity, as well as for greater gas mileage and environmental responsibility. I don’t believe we’ll see the other side of this until someone takes a fall.

Passing this off as errors in measurement isn’t totally believable to me. As with the government, we’re back to “Who knew what when?” That being said, let’s not make this into the Ford/Firestone disaster of the ’90s. Nor do we need to relive the brain damage we suffered over Toyota’s floor mat/gas pedal problem. After all, Hyundai and Kia still build great cars with great styling, and they have a great dealer network to roll those units.

This is definitely a huge story for our industry, but I’m not sure the public is on top of it. They’re busy digesting hurricane disasters, floods, storm victims huddled in shelters, sex scandals in the CIA, a bitter presidential battle, perceived cover-ups in the Libyan embassy attacks, and people signing petitions for their states to secede from the union. Truthfully, this story about a manufacturer possibly falsifying mileage claims is on the back burner with the media, too.

You Heard It Here
The headline in the Detroit Free Press read: “Electric Vehicle Economics Don’t Pencil Out, Study Shows.” The article cited recent J.D. Power and Associates research that concluded that electric and hybrid vehicles sales are retreating. In fact, if you took Toyota Prius sales out of the mix, sales for this segment wouldn’t amount to a pimple on a gnat’s butt.

But don’t blame the economy. As I have repeatedly pointed out, you can’t pencil out a savings even after you factor in government tax breaks and fuel efficiency. So it’s only about “being green” and showing the world that you’re eco-friendly and not necessarily financially smart. The bottom line is there is only a small percentage of consumers who fit the profile of this segment of the market, and Toyota has most of them sewn up for the time being.

According to the articles I’ve read and what J.D. Power and Associates is substantiating, unless hybrid and electric cars become truly cost-effective, it just isn’t going to happen.

Springing Into Action
I was overwhelmed by the magnitude of pain suffered by victims of Hurricane Sandy. Most of the people in the country can hear it and see it on the news and read about it on the Internet, but I promise that you still won’t get a full understanding of this storm’s impact unless you’re there to see the aftermath. Entire communities were erased. People lost everything.

But I was never more proud to be in this business than when I saw and heard about the efforts put forth by car dealerships to collect food, clothes and necessities for storm victims huddled in shelters. It was inspirational and gratifying to me to see the goodness and humanity dealers and car people exhibited. I’m sure other businesses and organizations were in there, but I was moved as I heard stories from my friends and clients in the Northeast. I won’t use this subject for self-promotion, but just know that I did my part, too.

As for the impact of Sandy on our industry, well, more than 5,000 Japanese imports were lost at the ports. Experts say we lost about 150,000 projected sales. By the time sales are normalized, I believe that count will be closer to 250,000 sales.

All in all, insurance industry statistics show that total losses due to the superstorm will probably amount to a third of what was lost in 2005 during Hurricane Katrina, which was a $46 billion disaster. But not everyone was in agreement with those stats.

Carfax issued a press release claiming that the number of damaged cars on the market would be bigger than Katrina due to the flooding. But The Associated Press published an article that said initial claims about flood-damaged cars weren’t true.

It’s true the new cars damaged at the port will be crushed. No manufacturer would even dream of risking its reputation by retailing those damaged vehicles. Besides, insurance companies will pay substantially more to total those cars than to salvage them.

That fact didn’t stop Carfax from running scare ads warning the public that its product will protect them from being sold a flood-damaged car. That claim will end up being a Pinocchio story. I might be wrong, but I doubt it.

As a result of Sandy, the floods and the blizzard, used-car values should, on average, realize a book value increase of more than $1,000. Remember, a lot of dealer inventory was also destroyed and there will be a shortage of cars in general until supply is restored. Once again, transaction prices should be higher due to supply and demand issues.

The 300 Promise
I am speaking at the National Automobile Dealers Association (NADA)’s annual convention in February, which I strongly urge you to attend and support. As for my presentation, I will, as always, say things to the manufacturers and vendors that you dealers and dealership employees can’t say yourselves. And as you know, I kind of have a knack for shining a spotlight on big dealer issues. Remember, cockroaches run when the light gets turned on.

I will also once again be training on my birthday, which is Jan. 6. As many of you know, I have bench-pressed 300 lbs. or more every year on my birthday since I was 21. The most I ever bench-pressed was 450 lbs., which I was able to do through age 45. Well, I turn 66 next year and I’m going to video-record a 300 lb. bench-press again. I was able to do two repetitions at 275 lbs. in mid-November, so I think it’ll happen again this year.

Let’s all keep juggling those chainsaws. It keeps you alert. Two snifters of vintage Rémy Martin Louis XIII Cognac contributed to the content of this article and the tone of the sarcasm. Stay close until next time.

Originally posted in F&I Magazine.

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