Ed Wallace

Situation Normal: Max Chaos

By Ed Wallace

A couple things make the automotive industry fascinating to cover. One is that it always seems to be trying to reinvent itself, spending billions upon billions to do so; and, when all of that fails, the corporate hope is enough time has passed that the public has forgotten that the industry just spent billions to reinvent itself, to no avail. The second most fascinating part is that it always seems to be an industry in the depths of crises, separated by brief periods of prosperity; these periods allow the automotive journalists to write about how brilliant the management is at “Auto Company X.”

Let’s start why the auto industry is so much fun to cover in a crisis. If one travels back 24 years in time, you may remember, President Bill Clinton was holding a gun to the head of the Japanese over unfair trade practices, even though his original campaign promise was to get tough on the Chinese. Apparently confusing who was the victim and who was the aggressor during the war for Nanking, or maybe in spite of that, Clinton held Japan hostage by threatening to put a 100 percent import tariff on Japanese luxury cars unless Japan Inc. purchased more American-made parts and cars.

Even the CIA was involved in this; they bugged the rooms of the Japanese delegation so we knew what they were discussing during the hard-fought negotiations. In the end Japan agreed to buy more American parts — just in time for Ford and GM to sell their in-house parts divisions — and purchased a boatload of Dodge Neons and Saturns. And when the term “a boatload” is used, it means one ship full. On the other hand, Toyota purchased around 20,000 Cavaliers, and the world was then made safe for the sales of Lexus vehicles to Americans without any fear of doubling the price by tariff. Unfortunately, we do not hold ticker-tape parades for successful foreign invasions carried out by our trade negotiators. But in the end, what did it accomplish? Precisely. Nothing.

But that same year came the introduction of Autobytel, the first of the proposed online car buying services; absolutely no one remembers its being the first to advertise its hardly used service during a Super Bowl. Of course, the very name suggests automobile buying on a telephone, which seemed surprisingly outdated even then because the Internet was coming online. Again, as stated before in this column, the Internet has changed nothing. Prior to its introduction, those interested in purchasing a new vehicle would go to their local 7-11 and buy a copy of Car & Driver to read the reviews and specs. More important, one could purchase a copy of an invoice book at the same location and know what the dealer paid for any given automobile. On the day before you went out to actually drive the vehicles you were interested in, you called your credit union and they faxed over the page out of the NADA Used Car Guidebook to show you the wholesale value of your trade. Then, if the salespeople were doing their job correctly, one might spend 3 – 4 hours at a dealership looking at vehicles, taking a test drive and demonstration and negotiating the purchase. Well, here’s the new reality. People are still spending 3 – 4 hours at a dealership, but the front part has been sped up online. That doesn’t mean anything has changed. It hasn’t; it’s just faster.

And please, to those in the media, quit writing that all of these outside online buying services are changing the auto industry. Because they’ve changed nothing. The only reason any of them exist at all is because America’s new car dealers signed up for their services and pay them a fortune to send customer referrals their way. So if anything, it’s the new car dealers who are changing the landscape, not the outside vendors. And if one doubts that: If tomorrow every last dealer in America dumped Truecar.com, do you think they would still exist? Of course not.

Shortly after the launch of Autobytel, the Internet took off, just in time for the advent of the national dealership chains. To be fair, decades ago Hull Dobbs, a hardcore selling system dealership out of Tennessee, grew in time to own nearly 90 franchises before realizing, in the days prior to computers, that it was just too hard to keep up with that many stores. Additionally, most manufacturers didn’t like chain ownership believing that one great dealer should own one great store. All that changed with the national chains’ buying up dealerships left and right at almost obscene amounts of money, all the while promising they would “teach” everyone else in the auto industry how to run things lean and right.

Well, that was just over 20 years ago, and those national chains have had no impact on the industry in terms of changing the process. On the other hand, their arrival opened the doors legally for the best dealers to go out and purchase many franchises, becoming mini-chains in their own right. So all of these promised changes over the past 25 years have amounted to faster, maybe cheaper, but ultimately the same process.

Musical Cars

Which brings us to the chaos, which is always much more fun to discuss. It’s also more common; in the first 20 years in the industry before going into broadcasting, I had a front-row seat to two major oil crises, runaway inflation, a 21 percent key rate from the Federal Reserve, the collapse of many banks nationwide, and three recessions. And, for an industry that is a huge user of working capital because it is based on large, expensive consumer manufacturing, things going wrong often scare their potential buyers into inaction. Keep in mind that just a decade ago gasoline jumped to $4 per gallon, followed immediately by the entire world’s financial system melting down. And so interest rates went to zero, junk on the books of our banks were purchased by the Fed to keep their doors open, and for eight years we recovered our economy.

Even now we actually purchased more new vehicles last year than we did the year before, although it was so close that it would be thought of as statistically insignificant. Makes you wonder why so many car manufacturers are in bunker mode to try and find ways to make money. Here again, General Motors paid Peugeot to take Opel and Vauxhall off its hands. And, after being kicked around by its British owners, then to BMW, Ford, and finally Tata Motors of India, Jaguar Land Rover sales hit record numbers worldwide, climbing from 241,000 sales in 2011 to 604,000 six years later. Yet this week the Automotive News has a story on how Jaguar Land Rover is again losing money, though Tata is claiming it is there to support the business. In this case, sales have fallen backward, mostly due to the uncertainty of the British economy because of the realization that it’s not bright to let the public vote on one’s economy. Note to Washington: Pay attention to that last line.

Then too, the Chinese car market fell backward slightly, which some automakers are blaming for lower profits worldwide; only Ford seems justified in that position, as its sales have literally cratered in that country.

Meanwhile Carlos Ghosn — considered the most accomplished automobile executive in the world, chairman of Renault, and former chairman of Nissan Mitsubishi — remains in a Tokyo jail as of this writing for alleged breach of fiduciary duties in both underreporting his Japanese income and using company funds to cover his debts. And, because bad news just loves company, Jose Munoz, Ghosn’s right-hand man in America, has been put on leave to “assist” the company in validating its claims against Ghosn. Funny, one would think it would be easier to do that if one wasn’t out on leave. Oh, and on Tuesday AutoNation announced a $50 million national reorganization, including combining their three national regions into two.

On the home front one of the larger chains in West Texas, Reagor Dykes, is in bankruptcy, with Ford now demanding that the entire operation just be shuttered. And another dealer, Danny Sauro, owner of Nissan stores in Maryland, seems to have fallen on hard times. At least, hard enough that he’s alleged to have sold a great many vehicles without paying them off at his lender. This follows on the heels of the All-Pro group of Nissan, Hyundai, Kia stores in Michigan and Pennsylvania, which also stiffed its lenders for payment of vehicles long since sold. It’s hard to remember the last time overall national sales for new cars were this strong while this many dealers were headed to bankruptcy court or about to be disenfranchised for non-payment on vehicles they’d already sold.

Other than that, it’s just another day in paradise of the auto industry. Changing nothing, negotiating with trading partners for political points, dumping valuable properties and car lines, and a fair number of court cases, from a CEO’s alleged thefts to those of some American dealers. What a fun start to 2019.

Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA, and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. Email: edwallace570@gmail.com