Its The Dealers Stupid

Writen by C Judge

An Open Letter to Mr. Ford. pt 1

As I sat watching Autoline Detroit a few weeks back, I listened to the usual parade of marketing ad execs, industry analysts, and division managers talk endlessly about branding, shifting market segments, and well, at that point my brain went numb and I don't recall anything else that was said. I do remember saying out loud as I had done a thousand times before, "None Of You Get It!"

You see, while domestic car companies try to out design, out tech, out brand, and out source market share from each other, they are all completely disconnected from the one problem the industry has never fixed: The dealership.

The next time you find yourself driving alone in your car, I want you to do something you've never done before. Turn off the music and scan the stations in search for car dealership ads. I know that's like asking Streisand for one more encore but do it anyway. Do you hear your dealers saying how well they treat their customers? Are they stressing high customer satisfaction ratings, reliability, honesty, integrity, or building relationships? I doubt it. You're probably being yelled at about interest rates, the highest trade in values, the number one volume such and such, and guaranteed financing even if your on parole. Ahhh, there's that brain numbing sensation again.

All the millions you spent on r&d, technology, marketing, union contract negotiations, state of the art plants, and so on, was all blown out the door by your dealers "No Money Down" mentality. If you want to know why the domestic auto industry is in the toilet, look no further than your local dealer point.

Let's be honest. Almost anyone can get a job selling cars. The ability to fog a mirror is about the only qualification necessary to be hired at most dealerships these days. Communications skills, math skills, product knowledge, education, a desire to help customers make informed decisions? Rarely if ever are these qualities sought after or screened for. How many units can you push over the curb this month? That's what General Managers and General Sales Managers want to know from their applicants. There's nary a word about character, integrity, professionalism or even a simple criminal background inquiry. Twice I worked side by side with salesmen wearing ankle bracelets.

Is it the fault of the salesman? Perhaps partly, but the blame really lies with the manufacturers and dealers themselves. To find the root cause we need to follow the money or lack of it in this case. The attitude of most dealer principles, and sales managers is "if we can sell 100 cars a month with 10 salespeople, we should be able to sell 200 cars with 20 ". That thought process doesn't work at McDonalds, Home Depot, or anywhere else. Yet most dealers will hire salespeople until they literally run out of desks and telephones.

Why not? Since most salespeople make a paltry $100 to $300 per week base salary it costs the dealers next to nothing to add bodies. If each sale person was salaried at $80k per year I guarantee you'd see empty desks. $300 a week may seem appropriate for the type of service you get but that's the point. The system breeds poor service. Why is this mentality so harmful? Salespeople have very little power to bring in new business to a dealership. Each dealership is only going to bring in so many potential customers each month. Those customers are going to generate the same profits to the dealership if there are 15 or 50 salespeople. The difference is the commissions will be spread over a larger workforce, meaning each sales person earns less. That's why customers feel so pressured by salespeople. The salespeople are desperate to make the sale. And every dollar the customer negotiates off the car takes money right out of the salesman's pocket.

For their $15k yearly base pay what do salesmen get? They get the privilege of working 60 hr weeks including Saturdays and Sundays, most holidays, late nights, get very little formal training, have little chance for advancement, and earn ever decreasing commissions based on shrinking profit margins. Demo vehicles are pretty much a thing of the past and benefits are dwindling yearly. And above all they get the distinction of being labeled the lowest form of life in the eyes of most consumers. So, it's pretty easy to see why there aren't many dealerships with a professional sales force. So, blame the dealer, right? Not so fast.

Remember the theory that states twice the salespeople should sell twice as many cars? The manufacturers started that type of demented math. Twice the dealerships-twice the cars sold. Ask any domestic dealer principal who his number one competitor is and I bet the most common response would be another dealer of the same manufacturer. Why? The simple answer is there are too many dealerships. The core failure lies within the dealer network itself, which is the responsibility of the manufacturers. Manufacturers should set up a distribution network where their dealers compete for market share with competing manufacturers, not with each other. Yet, in the car business that's seldom the case. Most often the Chevrolet representatives (the dealer and salesperson) are competing for the sale against another Chevy or GMC Dealership in the next town or the same town and not the Ford, Dodge or Toyota store across the street. The customer has already decided which product suits him best. So now the sale is no longer about product virtues, resale value, or features and benefits. It's about price and price alone.

All the effort and expense put into the aforementioned R&D, marketing, and labor contracts, worked. The customer, your customer, wants your product. Now, it's about to be tainted by your dealers lust for customer blood. He's about to sick his underqualified, underpaid, overmotivated, somewhat sketchy, sales vulture on your prized customer. The end result? That's been well documented. The buying public considers the car buying experience similar to root canals and prostate exams. When it's all over their left feeling numb and somewhat violated.

I'm sure I've already lost most auto execs but those of you with your heads not completely surrounded by sand think of this example. A buyer is looking for a high-end performance sedan. He's done his research both over the Internet and by test-drives at respective dealerships. After careful consideration he's eliminated the Audi S4 and decided on the new M3. He's made his decision based on product features, status, fun factor, whatever. Do you think this buyer is likely to drive to 4 BMW dealerships and start a bidding war? Not likely. First of all, his time is too valuable, second, the dealers probably wont play ball, and most of all it's not practical. Is saving $200 worth driving 2 hours to hit the nearest 4 dealerships? Not likely. Now, substitute BMW and Audi with Chevy and GMC. Chances are, this same buyer has 10 dealers within an hours drive. He knows it and so do the dealer, manager, and salesman at each dealership. What ensues is a form of capitalist cannibalism too graphic for the discovery channel.

Manufacturers can blame customers, dealers, the Internet, or even President Bush for the current situation, but the blame is squarely with them. It's a simple case of supply and demand. You've simply got too much (dealer) supply for the current demand. As a result, prices and profit margins must fall. And along with them so does the quality of the experience millions of American car buyers must endure every year. Where does service fit into the equation? Lots of dealers have started to push service after the sale as a benefit. Great! Does that mean buyers get poor service if they buy elsewhere? As a manufacturer you better hope not. Customer service standards, sales department standards, and customer experience standards should be set and enforced at the manufacturer level. In theory that should be happening now. In reality, I worked for a domestic brand dealership that went over a year without a manufacturers sales rep. That meant there was no direct connection between the manufacturer and the dealer. None.

Sales people should be treated as employees of both the dealership and the manufacturer deriving income based on the profits generated for the dealership and the customer satisfaction generated for the manufacturer. If either of these standards is not met, pay suffers. If manufacturers want to maximize their returns they should look no further than their dealer points and their sales departments. Once there's some standards established and enforced, the experience may change. Until then, we'll all suffer.

C Judge is an expert in commercial trucks and equipment and a 15 year veteran of the car business. Cuurently owner of the Work Truck Warehouse.