The January 23 Miami Herald ran a story under the headline, “Would You Buy Your Next Car at Wal-Mart?” Around the same time, the Fiscal Times ran a story by Reuters headlined, “Wal-Mart is Getting into the Car Business.” And CBS Sacramento’s headline spun this story to a whole new level: “Wal-Mart to Begin Selling Cars Inside Stores.” They all cited the Automotive News article that first made these claims, but didn’t follow up using the article the Automotive News ran two days later, correcting its original story. Apparently, Wal-Mart comprehensively denied either getting into the car business or partnering with any new car dealers to sell cars at its stores.
Every time another story reveals that some entity other than a franchised new car dealer is getting into the car business, I just roll my eyes. The Miami Herald story’s first line was, “Wal-Mart is jumping into car sales with the help of a South Florida auto giant and a tech startup.” What does that tell us? Wal-Mart is not getting into car sales at all. Its stores won’t be stocking new vehicles for sale, won’t be financing them for customers, won’t be bidding on trade-ins. And, most assuredly, when something breaks on any car sold, your local Wal-Mart won’t be doing any warranty work, either.
The real story is that it’s just another referral program, with this tech company receiving $350 for each sale. The article didn’t mention how much America’s most popular discount store would get, but it did quote someone with CarSaver as saying that customers saved more than $3,000 off the sticker price. Wow. Bragging about how much more you will likely pay for most new cars by using their program over going to your local dealer is not smart —unless the reporter won’t question your PR statement. Since not one of these stories did that, I will.
In this day of super-incentives, saving $3,000 on most vehicles is no big deal. My friend Charlie Gilchrist of SouthWest Ford, and other Ford dealers, often run specials on certain models of their F Series truck — $10,000 to $11,000 off list. The same is true of Chrysler dealers on their Ram Lonestar Crew models. And last week I saw an ad offering around $9,000 in discounts and rebates on the Chevrolet Silverado, which then mentioned another $2,000 – $3,000 in rebates for Dallas/Fort Worth buyers. Likewise, it’s not hard to find hundreds of models of vehicles with a superlative incentive and a reasonable discount that, combined, would easily exceed the savings mentioned in these erroneous articles.
But no one outside the auto industry is actually selling new cars; they just claim they are. Even this newest company, CarSaver, is just hooking up with local dealers to get a cut of the action. Which means the dealer is still doing 100 percent of the work — ordering the car you might want, doing the pre-delivery clean-up and inspection, delivering the car and explaining all the options on it (many customers who use these referral programs have already looked at the car or truck they want to buy at their local dealership) — and then, if something breaks on the vehicle, it’s the local dealer who will be fixing it for you.
And for doing nothing other than pointing out the address of a nearby dealer, with the nebulous promise that you’ll magically save more money using their referral service than by simply going into that dealership on your own, that referral company gets a bigger cut of the action than the salesperson who ends up doing all the work anyhow. If you want to start understanding what’s truly wrong with America today, look no farther: Something isn’t right when someone pays more money for information, which may not even be of any value, than the person would earn who actually does all of the work to make you happy.
Last year, speaking to the Texas New Car Dealers Association, I told the assembled crowd that when I retired from my other duties, I would be interested in getting back into the car business — under certain conditions.
First, I needed the dealer to pay me $80,000 – $100,000 per year, but for that money I would never go into the store. Instead, I would send customers into the dealership, and some salesperson there would have to demonstrate and pick out the car for them. I added that I would make it uncomfortable to make a penny’s profit after their known expenses, and I would be furnishing the financing for these customers from a lending source that would pay me a percentage of the interest they charged. Oh, and even if I liked the bid they made on the customer’s car, I would likely sell it to another wholesaler and try to pick up a few bucks on that, too.
I told them, I’ll never give a legitimate accounting of how many real customers I sent into the dealership, but you’ll have my word for it there will be lots of them. Or maybe not. At that point I reminded them of my salary demand, $80,000 – $100,000, and asked for a show of hands who might be my future employer. Oddly, not one hand went up in that audience, and many dealers looked at me like I’d lost my mind. So I added, “Guys, I just described any online car buying program for you.” Then they got it.
You may remember that there was once a respected, legitimate form of customer referrals to new car dealers that didn’t cost anyone anything. That’s right, local and established credit unions allowed their members to call them and discuss what type of vehicle they wanted, and the loan officers would have the name of someone at a local dealership of good reputation to send their customer to. Everyone who got customers that way knew they had to make a decent deal for the credit union customer, had to give a fair price for the trade-in and had to let the credit union finance it.
Then that program became so wonderfully organized that the State of Texas couldn’t wait to shut it down. I know, because I was the first person listed for the notice of potential legal action. Here’s what happened. Back in the early Nineties a gentleman named Mike Wynne started organizing all the major credit unions into his new car program; his people actually dealt with the credit union customers, found the exact car they wanted and priced it out, shopped their trade-in to make sure the valuation was fair and, when everything was absolutely agreed upon, only then did they send the dealer all the information needed to complete the transaction. For this service Mike’s company was paid $350. Sound familiar?
Now, in my opinion, they actually did $350 worth of work on new car deals. Really: The only thing we had to do was get the car ready to go and have the customer sign the paperwork. While it was true the customer paid $350 more for the car because of the referral fee, I would bet that on average Mike found that much more for the customer by getting the top-dollar bid for their trade-ins. Well, paying a referral fee in Texas is against the law, which is why we were served papers signed by Carol Kent, the state’s chief enforcement officer for these matters. I quickly got our dealership dropped from this legal action by calling and pleading ignorance; but I did think it wasn’t right, simply because this was the first time an honest, legitimate referral system that created real value for the customer had ever been attempted. Not to mention every last customer they sent us was just wonderful to do business with.
Today, all these companies that do little to nothing for the customer, except get paid on the backside of the deal, operate unhindered in Texas because they charge a marketing fee instead of a flat fee per sale. Which means on average people are paying the same thing they did for Wynne’s service all those years ago and getting zip for it — other than the magical feeling that they’re somehow getting a better deal than they could have if they’d just walked into the dealer’s showroom themselves.
Remember the second story at the Automotive News correcting the first story? You know, the one that nobody seemed to want to use for fact checking or corrections to their articles? According to the Hannah Lutz-bylined story published on January 25, “Wal-Mart won’t sell cars directly, nor will it partner directly with dealers. Instead, the nation’s largest retailer will lease space in select stores to its partner, CarSaver, much as it leases space to McDonalds and others.” But the Automotive News washed its hands of the story with this line: “This clarification of an earlier Automotive News article which mischaracterized Wal-Mart’s relationship with dealership groups is the result of information provided by several of the parties involved.”
Translated, this sounds suspiciously like the tech company and possibly the auto chain were trying to build hype for this story by suggesting that Wal-Mart was the powerhouse putting these three entities together. In fact, Wal-Mart is doing nothing more than leasing store space to the tech company. That’s it. That’s like saying Target is going to change the coffee house industry in America because they lease space to Starbucks. When you put out a story hyping a better way to buy a new car cheaper, and the entire story is based on deception, can the underlying concept be any good?
Over the years, stores that I ran did business with credit unions, Costco, USAA and CarBargains out of Washington D.C. So, here’s the truth: No one ever bought a car elsewhere for less money than if they had just come into the dealership. None of these outside referral entities have fleet numbers for volume buying that legitimate corporations — for example, rental car companies or the like — have; the high volumes of cars those corporations purchase every year get them deeper discounts. And these new referral companies don’t prescreen dealers to use only the best of the best in any geographic area. When they say they are sending you to one of their certified dealers, “certification” merely means that the dealer’s check to them will clear.
This all is supposed to replace the system that worked beautifully for decades, the credit union loan officers who honestly had their clients’ best interests at heart and would send them to someone in the car business they knew and already trusted. That service was free for the asking, replaced by a very expensive one that pretends to deliver the world and actually does nothing more than a dealer’s Yellow Pages™ ad did in the past.
And we call this progress.
© 2017 Ed Wallace
Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, conferred by the Anderson School of Business at UCLA. He reviews new cars every Friday morning at 7:20 on Fox Four’s “Good Day” and hosts the top-rated talk show, “Wheels,” 8:00 to 1:00 Saturdays on 570 KLIF AM. E-mail: firstname.lastname@example.org