We live in a country of abundance, but habitually complain that we don’t have enough. Worse, the time and resources we waste cost us in many ways we never even consider.
Take gasoline — almost always plentiful and truly inexpensive today. Why has everyone forgotten that just nine years ago it sat at $4 a gallon, and could quickly do so again? True, computerization has altered the equation for our vehicles’ engines; soon Chrysler will introduce the Dodge Challenger Demon with a 6.2-liter V-8 Hemi engine that delivers 840 horsepower. In America, though, sooner or later someone is going to ask his local Chrysler dealer when the V-12, 1,000-horsepower model will be available. And, ironically, before they purchase it, mark my words, many will ask what the new Demon’s fuel efficiency is.
We now have a full spread of four-cylinder engines that deliver over 300 horsepower, including the Porsche Boxster, Subaru WRX, Ford Mustang and Volvo XC-90; and even the little bitty Ford Focus RS delivers 350 horsepower out of a 2.3-liter engine. Yet people constantly ask me whether the V-6 option isn’t the better purchase. Come to think of it, when Mazda introduced SkyActiv™ engines in its vehicles, and one could drive the speed limit and still get fuel efficiency in the 45mpg range, that was groundbreaking in terms of engineering. Moreover, if gasoline were still $4 a gallon, it’s a fair bet you couldn’t find an unsold Mazda3 on any dealer’s lot in the Metroplex. At two bucks a gallon, how many do you want today?
But here again we show how far we disconnect from financial reality. We want all the horsepower in the world, yet also ask how fuel efficient it is. And people who honestly seem to care how efficient their vehicle is can still be seen driving it on our freeways at 80 miles an hour, which means their gas mileage falls by at least 35 – 40 percent. Later, of course, such drivers will email me, asking why the gas mileage their salesperson insisted their vehicle would get isn’t happening.
Now, this is not throwing stones at anyone. At least, not yet. After all, I have been known to drive with the flow of traffic, myself. Even while I’m doing the mileage tests on the vehicles that I review, it is hard to drive at the posted 60 miles an hour to maximize the fuel efficiency of whatever vehicle I have that week. But collectively the amount of gasoline, and therefore the amount of oil we throw away every day in America, is an outrageous waste of a limited natural resource.
Keep in mind that being stuck in traffic also wastes fuel, just not anywhere near the percentage you do driving everywhere at 80 miles an hour. And we live in a big state that encourages driving fast; some highways are posted at 80 miles an hour (and the toll road outside of Austin, 85 mph). But, except for California and Oregon, the states west of the Mississippi River allow 75 or 80 mph speeds on their freeways.
And so, while the business media debate the impact of OPEC’s oil production cuts, or whether Iraq may be violating it, or if new U.S. shale production will more than offset the OPEC cuts, no one ever brings up how much oil we might free up for ourselves every day if our driving habits didn’t waste so much. Is it a million barrels of oil a day wasted, or 1.5 million? It’s probably so much that if we all got together for one week, and drove the way we used to 20 years ago, gasoline demand would fall so quickly in America that it would panic oil buyers worldwide. It should be noted that during this winter our gasoline demand was often down by 4 percent on a four-week running average from the previous year. If that were a 10 percent drop in demand daily, traders would start shorting every gasoline contract on the futures market, and we’d be back to paying $1.25 a gallon.
Of course, that would never happen today. We don’t function as one society on big issues, the way we did many years ago.
But gasoline isn’t the only thing we squander: The modern dealerships that manufacturers demand seem to epitomize waste, too. If you’ve lived here long, you’ll remember when manufacturers bundled up some of our luxury dealerships in the late Eighties and early Nineties and demanded bigger stores as they were forced to move to the mid-cities. Next they wanted bigger stores and moved to Grapevine; then they realized that Fort Worth was short of certain luxury car brands, and they reappeared here too.
Chrysler had a decade-long plan to shut down all of its mediocre dealers, called the Genesis program. The concept was to consolidate all of Chrysler’s brands into single-point stores; and, with the mediocre dealers gone, everyone who remained would sell more cars, make more money and therefore take better care of their customers. When Chrysler was forced into bankruptcy in 2009 after the Financial Meltdown, it used the power of our bankruptcy laws to force out those dealers it no longer wanted; it could do so then without paying them to go away.
Eight years later, every last one of those closed franchises has been reopened with new owners — and Chrysler wants to add another 400-plus dealers to its mix. So, the company spent a decade to get rid of them, convincing us of the wisdom of that decision, and another decade to bring them back, convincing us of the wisdom of that decision. That’s waste.
But wait. There’s more. A local GM dealer had done a beautiful remodeling of his dealership, only to be told that he needed a flat gray slate tile on his floor, not the far more attractive and expensive flat gray with gold fleck tile he had purchased. Then he had to change the front-end fascia of his store to meet the manufacturer’s new standards, and the second that was done he had to redo it again — because now they wanted their brand’s name done a bit differently, too. One friend with a Chevy store doubled the size of the samba bar recommended for his morning service customers’ coffee service, only to be told by the manufacturer that that was not an approved design. He had to rip it out and put in the much smaller coffee service design Chevrolet had authorized.
A new trend that wastes a huge amount of money is the sheer vastness of dealerships. Four decades ago I worked for a GM dealer, who also was the landlord for another dealer in North Dallas; and from time to time he would ask me to run next door and pick up an overdue rent check. I would, and the other dealer was very nice, always apologetic as he handed me the check for $10,000. That’s right, 40 years ago the gross profits of selling just 15 – 20 new cars in a month might well have covered the entire mortgage — the “rent factor,” as the auto industry refers to it. Ultimately the truism of the auto industry is that people inside of dealerships sell cars; the buildings, big or small, do not.
So it astonishes me that manufacturers, spending someone else’s money, believe the opposite. And proof of that comes from Moritz Kia, right here in Fort Worth. You may not know this, but for a time a few years ago, the Las Vegas Trail location was the No. 1 volume Kia dealership in America. And the Moritz family did such an exceptional job turning that store around that they were awarded new locations in both Hurst and Alliance. But the oldest store in the three-dealership chain continues to astonish everyone with its sales volumes. Again, it’s not the facilities that sell cars, it’s the people inside them.
It’s like the new demands that manufacturers place on some dealers to have Business Development Centers. Or full-fledged Internet Departments. Or both. The concept is that these new elements will help build sales volumes. Again, simply waiting on customers when they come onto your lot and giving them an exceptional experience while they are there built sales volumes 100 years ago and 50 years ago, and it still does today. Likewise, the Internet Departments have merely replaced salespeople answering phone calls in the past — except they can’t actually talk to anyone, answer all their questions completely, or supply a true human touch.
Today it seems to boil down to little chat boxes that pop up on websites, and they are often worthless. For example, a few weeks ago I read that the all-new Chevy Bolt electric car was piling up on dealers’ lots in California. One dealer mentioned was from my home town. And so, to verify the original newspaper story, I visited his website to check out his inventory. But I was sidetracked by the sales offer on his homepage. There he offered a lease for a new Chevy Cruze for only $49 a month for 24 months.
Well, I went looking for the legal disclaimer because, in my mind, the money down to get to that payment had to be a ridiculously large amount — possibly so much it would violate federal regulations on legal leases. But I couldn’t find the information. Not to fear, here comes the chat box. I ask them for the information, but they can’t find it either. (For the first five minutes, all they did was try to get my email address before they did anything.)
Never did find out how they got to that $49 payment. Then again, I’m not a buyer for that dealer, anyhow.
Still, all these Business Development Centers and Internet Departments and high-end websites cost huge amounts of money. Yet, though we’re spending more, we don’t sell as many new cars per capita today as we did back in 1986. Come to think of it, in our record year of 2016, we sold about the same number of new cars as we did back in 2000. That would be before BDCs, Internet Departments, expensive websites and huge car palaces replaced decent, cost-effective dealerships. It’s one thing to spend that much money on these things if you can prove they’re growing the entire industry and are therefore a wise long-term investment. Only, long term, we’ve proven it’s no such thing. We’re no better off than we were in 2000, before any online presence or most of these new dealership designs came along.
Finally, Harvard University and the University of Mainz in Germany did a story of the value of social media and the buying habits of individuals on the web, and the Harvard Business Review published the results in March. The universities followed 18,000 individuals in 23 tests over a four-year period. They tested whether, if someone “Liked” something online, it changed that person’s buying habits. If other individuals “Liked” what they liked, did that influence their habits? And then they targeted super-discounted ads posted for the product they claimed to have “Liked” online. Basically, does Liking something online change or inspire someone to purchase it? This from the HBR: “After 16 studies, we found no evidence that following a brand on social media changes people’s purchasing behavior.”
This groundbreaking study’s conclusion was that traditional media still worked best at bringing buyers to the table for any given product. But it did disclose the fact that once sold, social media might retain current buyers — one would assume that’s if the follow-up over years remained active.
Here is where we should point out that hundreds of millions, if not billions of dollars, have moved from traditional advertising to the Internet social media sites — and with a net effect of selling no one. As the study pointed out, 80 percent of Fortune 500 companies now have active Facebook pages; apparently, none of them have read this study’s summation. Still, ask anyone why they have a huge presence in online social media, and they will quickly respond that that’s what their manufacturer dictates, or “because everyone else is there.” One is tempted to remember the voices of your parents when you’d done something rather foolish as a teen when they asked, “If everyone else jumped off a bridge, would you?”* Apparently when it comes to the Internet, yes.
Some manufacturers are now forcing their dealers to add their web addresses to their ads. Some of us remember when we used our old-fashioned ads to ask listeners to come into our dealerships and buy something.
The word “conservatism” is a noun derived from the verb, “conserve,” which means to use with thrift and forethought. Ironically, as we’ve entered the fourth decade of the modern era of conservatism, we’ve never wasted more. Yet we claim that this is progress?
*This was a popular question asked by parents in the days prior to bungee jumping.
© 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 a.m. to 1 p.m. Saturdays on 570 KLIF AM. E-mail: email@example.com