An uprising needed | Fort Worth Star-Telegram

For years I’ve heard the concerns of friends who own dealerships across Texas. While many may read that sentence and think it’s hyperbole because most great dealers continue to turn profits, those complaints’ scope affects everyone reading this column. Most dealer organizations have not been forceful enough in pushing back against manufacturers’ sometimes ridiculous demands; because they haven’t, manufacturers have come up with even more rules and expenditures that have nothing to do with selling a car or ensuring that customers have a great ownership experience. They just say that’s what motivates them.

Case in point: The Automotive News carried a story on August 12th saying Ford is pushing Lincoln dealers in its top 30 markets to build new standalone stores. But let’s put this in perspective: Ford just bought a hollowed-out, 100-year-old train station that was abandoned 30 years ago and will restore it as the “claimed” newest tech center for the auto industry. When it comes to selling Lincolns, though, they want dealers to spend untold millions for all new stores not knowing whether this franchise can justify that expenditure.

Furthermore, this is the second time Ford has made that exact same demand in the past 20 years. And those lookalike Lincoln dealerships that failed can be found littered across the Metroplex and America.

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Buildings Don’t Sell Anything

My friend David Williams once owned Regency Lincoln Mercury on Northwest Highway in Dallas. He was one of the key sponsors of my radio show, and that’s why I still have the database containing every ad he ever read. Now, on Northwest Highway in an older dealership with lower expenses, Williams and his staff still had fairly phenomenal sales volumes — as did other dealerships on that road.

In March of 2002 his ads still read Northwest Highway, but by October of that year the location was a very expensive new store in Mesquite off of LBJ — one of those new lookalike stores created to the model Ford was demanding of its Lincoln Mercury dealers. Five years to the day after that move was Dave’s last ad on my show or anywhere else. He was forced to sell because at his new location he never once had the traffic and sales volumes he’d had in Dallas. And his dealership failed despite the fact that in the summer and fall of 2007 there was a $9,000 rebate on Lincoln Town Cars and $7,000 on Mercury Grand Marquis.

All the Lincoln Mercury dealers were pushed to build these new stores because Ford promised that the brand was about to unleash a whole new line of exceptional luxury cars, and dealers needed to do their part to make their success a reality. The dealers did their part, but the vehicles never arrived. Today one of those stores is a Kia dealership, another is a Nissan store, and who knows what’s occupying the rest.

See, buildings don’t sell cars. True, no manufacturer wants its vehicles being sold out of a dump, and rightfully so. Subaru’s exceptional comeback in America over the past 10 years is a great object lesson in the fact that buildings don’t matter. Subaru went through a very long period in which first-rate dealers weren’t interested in the franchise and volumes per store were thin. But during the Financial Meltdown and its aftermath something amazing happened: Subaru’s sales kept rising, in a period when virtually every other manufacturer’s were headed downhill. Suddenly top line auto dealers like Randy Hiley, Sam Pack, and Carl Sewell took a second look at what Subaru had to offer and grabbed those available franchises. Two of them are today in old Hummer stores; one has matched the volumes of a nearby Honda dealership.

That story proves my rule right two times. Hummer’s unique-looking dealerships all failed with that vehicle line. Yet Subaru couldn’t have cared less about what its stores looked like; it cared more about the fact that top line car dealers now wanted to represent its vehicles.

You see, it’s not the buildings; it’s who owns and works at those stores that either give customers a superior experience or don’t.

Don’t Read the Fine Print

Other manufacturers this month changed advertising rules. First, they informed their dealers that they can no longer advertise a vehicle below invoice, even if they accepted those deals in the past. (Many dealers do just that in order to achieve volume bonuses, which they hope will get them back to a net profit.) Maybe it’s not a bad thing to change that ad rule; but, when you force a dealer to disclose his or her exact discount and the exact amount of the factory incentive, things get a bit dicier. Why? Because the dealers involved have an inexpensive vehicle that they often advertise for below $17,000, but the MSRP mark-up is only $203 for the base model. Really. Now, if you heard an ad in which the dealer said he was discounting a vehicle only a couple of hundred bucks, would you respond?

Keep in mind that those dealers now cannot advertise below invoice, and that’s the real mark-up they have to deal with today. That moves automobile advertising into the TV realm; now you can make that same disclosure in small print at the bottom of the screen, where no one can read it.

And now the bigger issue. A gentleman recently wrote me about a car he had leased, one of four leased vehicles from the exact same manufacturer’s leasing operations, and that vehicle was totaled in an accident. Only he had an automobile insurance policy that would pay for a brand new car, one year newer. (You may have seen the Liberty Mutual ads for this type of policy, but his insurer was Amica.)

Well, the payoff on that lease was just over $19,000, while the insurance check was closer to $26,000 — and the lender kept all the money, claiming he was insuring them against a total loss because the lender owns the automobile in lease. OK, legally that’s a true statement and the law is on the side of the lease funder. However, these insurance policies are relatively new and no one has thought through this scenario.

To be fair, for years leased vehicles that were totaled often fetched insurance checks that came nowhere near the payoff amount. This damaged leasing in the first few successful years back in the Eighties, because totaling a leased car might leave the driver owing thousands of dollars on the lease. So companies started offering GAP insurance to cover the negative equity in the case of a totaled vehicle; and finally many, if not most lenders, starting with American Honda in the early Nineties, made a GAP insurance policy part of every lease, and paid for by altering the acquisition fee slightly. Effectively, this practice meant that whatever check the insurance company wrote for a totaled leased vehicle was all a lender needed to satisfy the terms of a lease. The GAP insurance covered all deficiencies. With that new protection the lenders all told their employees that whatever check they got on a totaled vehicle was fine. Nobody ever stopped to think what would happen if the check was far in excess of what was owed. So, they are using the same rule today: “It’s (all) our money.”

Of course a very clever attorney would make the case in court that the basic insurance policy still covered the lender’s outstanding balance, but the supplemental policy that guaranteed the policyholder a brand new car a year newer was purchased to protect the lessee. Meaning, the policyholder took care of both the lender and themselves at the same time.

That’s the best story I know of to demonstrate how manufacturers actually treat the owners of their products in contrast to how a dealer would respond. You see, I’ve told that story to every last dealer on my show; and while everyone understood the legality of it all, they were still stunned that the manufacturer’s lending arm kept the excess monies in this case. One went so far as to call the manufacturer’s regional manager for that lending arm, who also agreed that the monies in excess of the payoff should be returned — and his company backed him down.

I’ve been around the industry for nearly 45 years now. I’ve had the pleasure of working for and knowing some of the most respected car dealers in the nation, because they call Dallas Fort Worth home. And they all had one thing in common: When the customer was right, they were on the customer’s side. Again, legally the lending operation mentioned is dead to rights on their position. But I’m reminded of when I was young and more headstrong than I am today. I was talking with Gene Fondren, who at the time ran the Texas Automotive Dealers Association and is still a Texas legend, about a point of legality I was wanting to put into our buyer’s orders. Gene told me, you’re right and the law is on your side. But why do it? Public opinion of what they consider to be right or wrong will not be on your side. So, at the end of the day do you want to be known as the guy who can’t tell right from wrong, even though you’re legally correct? Or the guy whose customers like doing business with him?

Forty-one years later, the wisdom of Gene Fondren continues.