Car Sales Insanity

Posted Friday, Feb. 14, 2014  comments  Print Reprints
A

Have more to add? News tip? Tell us

Selling automobiles has never been easy, at least not in my lifetime. Maybe it was from 1946 to 1952, when the pent-up demand of not having had any cars to sell during the Second World War finally caught up to retail availability with a vengeance.

One thing that has never changed about the industry is that it’s flooded with so-called experts who want to tell you how to save thousands of dollars on your next car purchase. It’s the same group that also tells you all car salespeople are out to get you. The fact is that most new vehicles don’t have thousands of dollars worth of mark-up to begin with. You can’t save money that’s not there.

On the other hand, conversations about car buying today rarely mention that, adjusted for income inflation, automobiles remarkably cost the same or less than they did 20, 30 or 40 years ago. Here are two examples: In 1990 the list price of a new Honda Accord LX sedan before freight was $14,895. If you adjust that for income inflation that same Accord today would list for $25,768. But it doesn’t; instead, it’s a mere $21,995. The same is true for the Mercedes E Class, which in 1983 with leather listed for around $33,500, or $74,885 in today’s money; today it’s priced at $51,400.

True, the opposite has occurred for many popular trucks and SUVs; but, because of factory incentives, some can be purchased at retail for less money now than 20 years ago. I’ve brought you the example before that today you can purchase a new Ram Crew Cab truck for less than GM sold its Silverado extended cabs for in the early 90s, at the height of their popularity.

Control: Markup or Rebate?

Still, two things have changed over the past 15 years. One change plays incredibly well for the public, and one frustrates dealers and customers beyond belief.

Helpfully, interest rates on new car loans have become almost non-existent. In the mid-70s an incredible new car loan interest rate was nearly 11 percent, and that didn’t change much by the late eighties. When GM ran its huge summer sell-down in 1984 and offered super low 3.9 percent financing, the millions of unsold products on its dealers’ lots disappeared almost overnight.

But the frustrating change over the years has affected how much markup dealers have in their products — how much leeway they have in which to negotiate deals that will satisfy their customers. Markup has been replaced by huge advertised factory rebates, which vary from month to month. Fundamentally, this is the manufacturer pretending they are the sales manager at a local dealership, by throwing out the first offer for sale before the customer even drives the vehicle he or she is most interested in.

That’s the exact opposite of how a car transaction should happen. Of course price matters, but the most important aspect of car buying should be purchasing the exact right vehicle — one that that fits your personal or family’s needs best — instead of the cheapest. It is defined by value over cost, not just cost.

Of course, in trying to control the-car buying process, manufacturers claim they are only trying to take the rough edges off the sales process. But apparently that’s not happening: Thirty years ago, when JD Power started his influential customer satisfaction surveys, close to 85 percent of all new car buyers claimed that negotiating for the last car they’d purchased was handled in a satisfactory or very satisfactory manner. Today, after all the manufacturers’ questionable changes to the car buying process, that statistic is almost identical.

Why? Human nature.

Tragically, one out of six people go through life unhappy with pretty much everything. They find fault where others applaud excellence. It’s true with the cars they buy, the restaurants they go to, the vacation they took. They can’t and won’t be pleased, and never understand why.

Confused Much?

None of the car-buying experience taken over by the manufacturers is adding clarity to the process of purchasing vehicles today. Doubt that?

On February 6, the BBC quoted GM CFO Chuck Stevens as saying that GM would “stick to its approach of selling cars and trucks [in America] on value, rather than price.” Stevens added, “What we want is profitable growth.” Meaning, GM had cut back on customer incentives and that would remain the plan, in order to maximize company profits from each vehicle sold.

Just two days later, a Reuters story’s opening line read, “General Motors Co. is boosting discounts on full size pickup trucks by thousands of dollars to keep pace with competitors and whittle down bulging inventories on dealers’ lots.”

Which is it? Is GM cutting back incentives to boost profits or is GM adding thousands of dollars to incentives to move the unsold merchandise? If you think it’s confusing to you, the customer, it’s even worse for the dealers; they get the same mixed message, but their livelihood and potential relationships with customers depend on mission clarity that sometimes just isn’t there.

Profits Up, Sales Down

An even more pertinent question is, in the decade since manufacturers decided they know how to sell cars better than your local dealer, why is it that their sales volumes have not improved?

Consider this. In the late 90s Ford sold 25 percent of all new cars in America. In 1998 Chrysler was the most profitable car company in the world per car sold. In 1996 GM earned $6.9 billion, compared to just $3.77 billion last year.

How can that be? Keep in mind that GM and Chrysler dropped tens of billions in debt in their bankruptcies, got rid of all of their unprofitable divisions, shuttered all of their old and unprofitable factories, sold off their parts divisions, dumped their retiree health care plans on the union, created a two-tier wage system for workers, moved most to 401K plans instead of defined retirement programs, vastly improved plant utilization, got rid of up to half of their hourly workers, and in the case of GM and Ford, opened up in China, where GM sells more cars than it does in America.

But with all of that handled, their sales dropped?

Oh, and Ford, GM and Chrysler are today building the best products in their history, world-class vehicles that are infinitely better than what they offered 15 years ago. But when manufacturers call all the shots on how cars and trucks are sold, they find they often sell fewer of these exceptional cars and trucks than they did in the 90. And still no one in Detroit seems to have spotted that simple and obvious fact and decade-long trend.

Set the Passion Free!

Given the choice between selling a new vehicle and not making much money or letting a potential long-term great customer leave, I just don’t know a car dealer that won’t make the sale. That’s the only reason people stay in the car business: They love it.

It’s the reason why even in really tough years in the industry they love selling cars the same way they do in more lucrative years. I’ve found no functional difference in dealers’ optimism and passion for selling cars from 2009 — after the meltdown, when customers were hard to find — and today. I get the same percentages of complaints [low] and praise [high] for dealers from those buying cars as I did a decade ago.

Today the manufacturers shift the goalposts on car prices constantly, month to month, which destroys most dealers’ long-term planning ability. Maybe it’s time to turn the sales process back over to those who do it with passion, certainly with the deepest commitment to selling vehicles. In the end the industry sells more cars that way, not fewer.

© Ed Wallace 2014 Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism. He hosts Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. E-mail: wheels570@sbcglobal.net; read all of Ed’s work at www.insideautomotive.com.

Looking for comments?

We welcome your comments on this story, but please be civil. Do not use profanity, hate speech, threats, personal abuse, images, internet links or any device to draw undue attention. Our policy requires those wishing to post here to use their real identity.

Our commenting policy | Facebook commenting FAQ | Why Facebook?