The Auto Bailout

One of the most controversial discussions over the last few years has been about the bailout of General Motors and Chrysler Corporation. I’ve heard arguments from those supporting the bailout as well as those strongly opposing it. Both sides of the aisle present valid points. But here’s my take.

In a truly capitalistic society, some businesses thrive, others fail. And the government stands on the sidelines and allows the free market to balance itself without intervention. If a company makes the right decisions and prospers, they are rewarded by earning a profit. Conversely, if a company makes poor decisions, they fail and are usually dissolved. This is a cut and dry policy.

However, once in a while we are presented with extraordinary circumstances that force us to reevaluate our policies. Such is the case with the auto bailout. Technically, the federal government should have required that both General Motors and Chrysler Corporation file Chapter 11. Another company or investor should have acquired their assets and made a decision whether to dissolve the companies, break them up, or try to bring them back to profitability.

Initially, I was totally against the bailout. My feelings were that neither GM nor Chrysler should have anymore privileges than Joe’s Pizzeria. A corporation has the right to succeed or fail, and the government has no business sticking their nose where it doesn’t belong. But then I took a step back and looked at the situation from a different angle.

If you know anything at all about how our country operates, you know that the automotive industry is the backbone of the economy. It isn’t just about building and selling cars. Think about the number of industries that rely on the auto industry to survive. The automobile industry touches so many other industries that if we had let GM and Chrysler fail, the consequences would have been devastating. Think about all the auto dealerships across the country that would be out of business. How about the glass industry, the plastic industry, the steel industry, the tire industry—just to name a few. If the federal government would have allowed GM and Chrysler to go belly-up, it would have been a crushing domino effect. Thousands upon thousands of Americans would have lost their jobs and the recession could have easily turned into a depression.

As they say, hind sight is 20/20. Based on the fact that both GM and Chrysler are now profitable, and that GM has paid back the bailout money a few years ahead of schedule, I think we made the right decision. Hopefully, we won’t be faced with a similar situation anytime soon.

A Helping Hand

After 10 years of service at San Diego Gas & Electric, I retired from my “day job” to pursue other interests. As you might imagine, over the decade I worked for SDG&E, I got to know hundreds of other employees. Through daily chitchat, it didn’t take long for them to find out that I spent 18+ years in the retail automotive business and that I wrote, How to Buy the Most Car for the Least Money. They also discovered that I truly enjoyed offering suggestions, answering questions, and giving friends and colleagues some basic guidelines when buying a car. In some cases, I actually shopped with them and negotiated the deal.

I’ve offered advice and helpful hints to blue collar workers, accountants, engineers and even high level managers and directors. The one thing that always intrigued me was the fact that many highly educated and intelligent people knew less about the car buying process—and bought into more misconceptions—than everyday people. It seems that there is little, if any, relationship between education and car-buying savvy. Some of the most intelligent people made the biggest mistakes.

Here’s an example: I had lunch with an ex-colleague the other day. She’s a very bright woman, extremely streetwise, and she doesn’t let anybody push her around. As I’m sitting in the parking lot outside the restaurant waiting for her to show up, I turn my head and see her sitting in a late model Mustang GT. I asked her where her Honda Civic was.

“Bought this car on Sunday. Isn’t it a beauty?”

I asked, “Why didn’t you let me know you were interested in buying a vehicle. I might have saved you some money?”

“Oh, I appreciate that, but I did really well.”

When we sat down for lunch, my curiosity got the best of me so I asked her some questions about the transaction. Without getting into the nitty-gritty financial details, I estimate that the dealer made about $4,000 profit on the sale of the car, $1,500 on the extended warranty they sold her, and probably another $400 on the alarm system she bought. In addition to this, they gave her below wholesale for her low mileage, trade-in, and will likely make another $2,500 to $3,000 when they sell it.

So, you do the math. Here’s an intelligent, streetwise woman who just walked out of a dealership happy as a recent lottery winner and she probably paid $5,000 more for her new wheels than she should have.

I, of course, never even hinted that the dealer scored a “homerun”. While struggling to choke down my lunch, I congratulated her and told her that I hoped the new car served her well. The sad thing is that in a couple of years when she tires of her sports car, she’ll probably waltz into another dealership and once again get taken to the cleaners. It’s an American pastime.

Perspective

If you’re old enough, you probably remember when gas sold for $.29 a gallon, milk was $.25 a quart, and you could buy a loaf of bread for a nickel. Things sure have changed. But what strikes me most isn’t the incidental items; it’s the big ticket purchases.

Back in the sixties, when I lived in Upstate New York, you could buy an older 3-bedroom home in a decent neighborhood for $10,000. That same home today is around $125,000. In 1976—my first year in the car business—the Chevrolet dealer I worked for was selling C-10, short box pickup trucks for $2,995. Have you checked the prices of pickup trucks lately?

Here’s a personal story that you might find entertaining. In the mid sixties, I worked as a mail carrier for the United States Postal Service. Relative to most jobs that didn’t require college degrees or special skills, I made a pretty good living for a young single guy. I still lived at home with my parents, my expenses were limited, so I had money to burn. In 1966—totally on a whim—I walked into Heinrich’s Chevrolet and placed an order for a brand new, factory fresh, candy apple red, Corvette. When I told my fiancée about it, I thought she’d be thrilled. Instead, she told me I was out of my mind. The price for the new Corvette was $6,600, which by today’s standards is chump change. But back then, it was a small fortune.

My fiancée sobered me up when we crunched the numbers and the reality of my recklessness sunk in. If I had gone through with the purchase, between gas, insurance, maintenance, and a whopping $150 a month payment, the new Corvette would have owned my soul. Besides, for a young couple planning a wedding, the last thing we needed was a shiny new Corvette. But I still had the hots for a sexy car. So, using my incredible persuasive skills, which included lots of whining and begging, I “negotiated” with my fiancée and convinced her to give me a thumb’s up on a used Corvette.

I had heard about a dealer that specialized in used Corvettes—I think they were called Palmyra Motors—so naturally, I didn’t waste any time. They had an incredible inventory of nothing but Corvettes. After searching the entire lot, the car I really wanted was a midnight blue, 1963, split-window coupe. This car was gorgeous. It was the first year that Chevrolet had introduced the Sting Ray and it was the most sought after sports car in the free world. Unfortunately, when there are more buyers than availability of any product, you either pay the price or walk. I had to walk.

Understandably disappointed, I walked away from the Sting Ray, feeling let down. I wandered the lot, halfheartedly looking at cars, but I couldn’t get the Sting Ray out of my mind.  But then, I was completely taken by surprise when a fire engine red, 1962 Corvette caught my eye. It had a 327 cubic inch, 350 horsepower engine, and there wasn’t a mark on the car—not even a fingerprint. It was love at first sight. So, I bought the Corvette for $2,200. Twenty-two-hundred dollars! Two years later, when my then wife announced that she was pregnant, I painfully sold the car for $2,300 and bought a more practical car—a boring Chevy Impala. But for two wonderful years, I burned lots of tires with that little red Corvette.

Considering that I drove the Corvette for two years and sold it for $100 more than I paid for it, I felt like the greatest salesman on the planet. Little did I know that a few decades later, the car I paid $2,200 for would sell for over $80,000. Now that’s perspective!

A Stunning Success Story

After moving to California in 1993, my first objective (after finding a place to live) was to find gainful employment. The retail automotive business has always been strong on the West Coast, and with my years of experience as a General Manager, and a folder stuffed with letters of recommendations, I felt reasonably confident that I’d secure a suitable position. Quite to my surprise, I was unable to land a General Manager position in San Diego and really had no interest in taking a giant step backwards and accepting a lesser position. So, I considered relocating within the State of California if I could find the right position.

I checked out the help wanted section of Automotive News (the quintessential publication for car dealers, manufacturers, or anyone wanting to stay in tune with the latest news in the car business). I couldn’t find anything suitable in San Diego County, or even in L.A. County, and this really puzzled me. So, with a dwindling bank account and no income, I hit the panic button and realized that I might have to expand my search to central or even Northern California.

I spotted a classified ad soliciting a General Manager in the Bakersfield-Fresno area. Not the most exciting place to live, but I had to remain objective. The dealer who ran the help wanted ad was searching for someone to run a Hyundai dealership and two stand alone used car lots. Although I was not particularly excited about the Hyundai product, I thought if the money was right, I’d give it a whirl. The dealer paid for me to fly north, put me up in a decent motel, and I spent two days with him, examined each of the three facilities, and met nearly every employee. Well, we came to terms and I accepted the job with the understanding that it would take me a few weeks for me to vacate my apartment and relocate.

What I didn’t know, was that Hyundai cars were the Edsels of the nineties. If you’re too young to remember Edsels, they represented Ford Motor Company’s biggest failure. They survived only three short years: 1958, 1959, and 1960. Then, Ford Motor Company, after losing millions of dollars, pulled the plug and scrapped the car.

Shortly after rolling up my sleeves and settling into this position, I found myself living on Excedrin and antacids. The job exceeded my worst nightmare. Not a day went by without a gang of angry customers camping outside my office door, waiting their turn to yell at me about the poor quality of their Hyundai car, or the fact that it had been in for service multiple times for the same problem, or that every week introduced a new mechanical failure. I honestly thought that my service manager was going to have a stroke or heart attack.

And what made this situation even worse, was the fact that many service problems were unfixable. Not even the technical gurus at Hyundai could figure out what to do or advise us how to repair certain problems. What do you say to a customer when you can’t fix their car and not even the factory can tell you what to do? In my opinion, at that particular point in time, Hyundai Motor Group was the worst car manufacturer ever.

Well, in 1998, Hyundai Motor Group acquired 51% of Kia Motors, and very slowly, the quality of their products improved. One car at a time; one model year at a time. I’m not certain that the Kia purchase had anything to do with this metamorphosis; it may just be a bizarre coincidence. All I can tell you is that service problems were more manageable, the factory reps offered more assistance, and the entire image and design of Hyundai and Kia cars improved.

A lot has happened since 1998. Hyundai and Kia cars have done a 180 degree turnaround. They have completely changed their image, dramatically improved the quality of their cars, and esthetically, they’re among the most attractive cars on the road. And if you don’t agree, pick up the latest copy of Consumer Reports’ auto edition, or Motor Trend magazine. Or better yet, talk to someone who owns one.

I’ve been a Toyota and Honda guy for over 25 years—wouldn’t even consider driving any other car. But I have to tell you, next time around, I’m taking a hard look at the Hyundai Sonata and the Kia Optima. Whether or not Hyundais or Kias will ever live up to the legacy of Honda and Toyota as far as dependability goes is yet to be proven. All I can say is that the Japanese automobile manufacturers—all auto manufacturers in fact—better take a long look in their rearview mirrors, because if they blink too long, they might find themselves staring at their Korean competitors’ taillights.

Customer Service

After dozens of encounters with customer service reps representing every industry from healthcare to banks to utility companies to auto dealers, I have come to the alarming conclusion that with few exceptions, customer service exists only in the past tense. The typical customer service rep today can only work within the boundaries of their little company handbook. They are not empowered to think outside the box; nor do they have the authority to resolve a customer’s issues without management approval. Consequently, many customers with legitimate issues are left out in the cold.

Whatever happened to the philosophy that the customer is always right? Now I realize that many consumers are unreasonable and their expectations are off-the-charts ridiculous. However, I truly believe that this does not represent the average consumer. Most people merely want quality products and good service after the sale. Period.

Back a few years ago when I worked as a General Manager in the retail automotive business, I learned some curious things about customer service. Sitting across from dozens of customers and listening to their complaints proved to be an enlightening experience. I discovered that if a customer presented me with a problem, and I didn’t immediately comply with their request (assuming, of course, that it was reasonable), and I forced them into a debate, from the customer’s point-of-view—even if ultimately they got what they wanted—they walked away from the dealership feeling that I did nothing to help him or her. If a customer had to argue with me to get what they felt was a fair consideration, even if I ultimately agreed to fix their problem, from the customer’s perspective, I got a poor report card because the customer had to fight for something they believed was rightfully theirs in the first place.

So, my philosophy as a General Manager was simple. It followed two fundamental principles. First, when a customer presented me with an issue—whether a service problem, sales issue, or something regarding what the customer paid for a particular service or product—unless the request was outrageous or totally bogus, I smiled, apologized for the inconvenience, and graciously complied with their request. Whether the request was for a refund, discount, or service-related consideration, I did not engage in any debates or arguments, nor did I force the customer to “prove” that his or her claim was legitimate. I helped them immediately, without making the customer convince me that they were entitled to this accommodation. When a business agrees to resolve an issue right up front, with no argument and no nonsense, the customer wins and the business gets a good report card. And a good report card translates to repeat customers and referrals.

Here’s an interesting footnote. Although I made a sincere effort to help every customer who presented me with a problem, I was still responsible for the bottom line and could not just write a blank check to everyone who wandered into the dealership with their hand wide open. No matter how much a business strives to provide superior customer service, sometimes you have to say “no” or limit your consideration. But here’s a curious fact. After sitting across from a customer and listening to their story, the first words out of my mouth were always, “What can I do to correct the situation to your satisfaction?” This may or may not surprise you, but 9 times out of 10, the customer’s request was generally much less than I anticipated. So the customer walked away from the experience totally satisfied, and my investment was less than I anticipated. It’s called a win-win situation.

Second, as a General Manager working for several busy car dealerships, and having as many as 55 subordinates, at times, the dealership was bedlam. When a business is rocking and rolling, sometimes customer problems fall through the cracks. Recognizing this predicament, I adopted a policy I called, “You Own the Problem.” Basically, if a customer approached any employee, from sales manager to salesperson to the lot jockey washing cars, expressing a concern, that employee “owned” the problem and took the necessary steps, contacted the right manager, did whatever they could until the problem was resolved. They followed it to the ends of the Earth! I empowered each employee to resolve minor issues without management approval, and if they made a bad decision, we’d talk about it, but I never reprimanded or punished them for helping a customer. When they made a good decision, I rewarded them with a cash bonus. This policy not only helped the customer solve a problem in a timely manner, but it also created a sense of pride and teamwork among the employees.

I’m not saying that these principles can be applied to any business. What I am saying is that no matter what, the old cliché that the “customer is always right,” needs to be the focal point of any business that desires to be successful in a ferociously-competitive marketplace.

A Simple Plan

With gas prices now exceeding $4.00 a gallon, the spotlight once again is on alternative energy. Politicians are sitting on their high horses, pounding their chests, and proclaiming that it’s time for us to take measures to reduce our dependence on foreign oil. Really?  Is this something new? Haven’t we been down this road before?

The Arab Oil Embargo of 1973 to 1974, nearly crippled the United States. I remember preserving precious gasoline as if it were liquid gold. To help curb the demand for a limited supply of gas, our lawmakers implemented a program that restricted use. Basically, depending on whether the last digit of your license plate ended with an odd or even number, you could fill up your tank every other day.

During this embargo, two little known companies took full advantage of the situation. You may have heard of them. One was Honda Corporation and the other was Toyota. Domestic automobile manufacturers had no interest in fuel efficient cars. Performance was the driving force behind automobile production. Consequently, the embargo opened the door for Japanese auto manufacturers to “invade” the American market by providing no frills, fuel efficient hatchback cars that achieved 40 to 50 miles per gallon. In fact, one of the earlier Honda Civics was manufactured with a motorcycle engine.

As a result of this embargo, domestic auto manufacturers and politicians swore that we had learned our lesson, and never again would Arab oil producers hold us hostage. We vowed to not only produce fuel-efficient cars and trucks, we also made a commitment to explore alternative energy.

Needless to say, over the last four decades, domestic automobile manufacturers did keep their promise and engineer a wide array of fuel-efficient cars. We now have hybrids and compact cars that can achieve over 50 miles per gallon. But what happened to our commitment to reduce our dependence on foreign oil by exploring alternative energy?

Here we are in 2012, and we’re no closer to curbing our ravenous appetite for foreign oil than we were in 1974. The highways are still littered with four-door pickup trucks and gas guzzling SUV’s. And except for a couple electric vehicles, priced so ridiculously high that you could never get a return on your investment, we have done nothing to free ourselves of foreign oil. We spend trillions of dollars on waging war, but alternative energy is merely a political talking point.

Maybe we need to look at this situation from a different angle. Where do you think the money comes from that funds Al Queda and the Taliban? How do these terrorists groups buy weapons, train and recruit new members and continue to exist? You might not want to hear this or want to deny it, but every single time you fill up your tank, you are funding terrorism; contributing to their cause. Terrorist groups thrive because they are funded by oil-producing, Arab countries.

So here’s my plan. If we truly want to stop terrorism, we can’t do it with guns; it has to be done by cutting their lifeline to funds. The United States government should partner with all the major auto manufacturers and oil companies worldwide to initiate an aggressive plan for research and development of alternative energy sources. They should explore electric, hydrogen fuel cells, wind and solar. Now I realize that this is happening right now. However, the amount of money our government and auto and oil companies are spending on these programs amounts to chump change. We need to kick this into high gear and pump billions into this idea. Instead of funding wars and maintaining a massive defense budget, how about pooling our resources to make the internal combustion engine obsolete. Imagine what might happen if we were all driving vehicles that did not require gasoline.

Obviously, I am over-simplifying the logistics of this plan. We must  build a complex infrastructure and must also overcome a wide array of complicated issues to make this a reality. However, how much effort did it take to land men on the moon in 1969? How difficult was it for us to win two world wars? If we’re truly serious about fighting terrorism, then we need to hit them where it will do the most damage. And that is to cut their funding. The only way to accomplish this is to make oil a nearly worthless commodity.

A Little Known Fact

Most people accept the fact that when you buy a car or a home, you can negotiate price—or more accurately—try to negotiate price. Just because you make a lower offer than the asking price, doesn’t guarantee that ultimately you will pay less. But it is an accepted practice of the car and home buying process.

Did you also know that there are many other items on which you can negotiate price? I’m not talking about a flea market, swap meet, or farmer’s market. What I am talking about is furniture, jewelry, appliances, home improvements, home repairs, electronics—the list goes on and on. I can honestly say that I have successfully negotiated price on just about every item you can think of. In fact, there was a time that I needed surgery on a broken finger and at that time I had no health insurance. Well, believe it or not, I negotiated the surgical cost with the doctor and saved about $1,000.

It is much more difficult to negotiate price with a major retailer like Sears, Best Buy, Ethan Allen, or Kay Jewelers. However, on certain items—close-outs and floor models—even national chains are willing to bargain. They don’t advertise this practice, of course, but it happens every day.

To be successful negotiating price on the items listed above, you must keep two things in mind. First and foremost, you have to ask for a discount on every major or semi-major item you purchase. One thing is certain: If you don’t ask for a discount, the merchant isn’t going to offer one. If you ask for a discount 100% of the time, the odds of getting a lower price are greater than if you only ask 50% of the time. It’s a fundamental law of statistics.

Second, how you approach the merchant is very important. Flexing your muscles or browbeating the salesperson will yield nothing. Here’s my approach.

“Boy, this is exactly what I’m looking for, but it’s a little more than I want to spend. Any chance you could talk to your manager and see if he can do a little better on price?” The salesman will likely try to convince you to buy a cheaper model, but you must insist that this is the model you really want. If you can’t get a discount, thank the salesperson for their time and say, “This is the first store I’ve shopped, so I guess I’ll have to look around a bit to compare prices.”

Now remember that this exact language won’t work for every single item on which you want to bargain. You’ll have to modify your approach depending on what you’re trying to buy. The key point is to be polite and if they won’t move on price, say that you have to shop around. It works. It really does. The more you practice, the more successful you will be.

My Goal

I’m often asked why I offer free auto-buying advice and make my complete manual available for only $10.00. Most people who have read the manual tell me it’s worth at least 10 times the price. My reasons are twofold.

First, I won’t pretend that I’m some altruistic do-gooder trying to save the world. But I am a businessman, and I have a valuable product that will help just about every car buyer in the world. So why shouldn’t I capitalize on my 18+ years experience in the car business and make a modest amount of money from my knowledge? I don’t think anyone would begrudge me the opportunity to benefit from the fruits of my labors.

Second, I think the time has come for car dealers to improve their image, and more importantly, to modify the way they do business. Some dealers have made great strides in this area. But the vast majority still plays games and makes the car-buying process a nightmare. It doesn’t have to be this way, but car dealers are resistant to change unless it benefits them. In the ever-changing auto marketplace, dealers have modified how they do business. Unfortunately, these new tactics only serve to benefit the dealers. The buyer is still vulnerable and frustrated.

A major change in any industry takes time. If enough car buyers were armed with the right information and proven negotiating strategies, it could literally force car dealers to change the way they do business or face extinction. Knowledge is power. And power can effect change—one customer at a time.