Some area bloggers like to criticize the content of this site as pushing a “share the wealth” mentality.  In reality the writers of this blog more than anything else work to bring a local focus to national and world issues.  Often when you talk about larger issues on a local scale — especially in  relation to a local area like Central Louisiana where poverty is still rampant and wages are considerably lower than the national average those discussions do tend to lean toward a progressive or “share the wealth mentality”.  It’s just the nature of our local situation and at least the writers of this blog are honest enough in their views to discuss the true realities of our region’s situation rather than purporting that things aren’t that bad.  Well, I want to take a few minutes to dose out a bit more honesty and discuss another national issue on a local scale.  Consider this “share the guilt”.

It’s been no secret that the American auto industry has been failing for some time; it’s only been recently though that the true absolute failure of companies like GM and Chrysler have become open to us all.  Certainly the impetus of the failures of these corporate behemoths lies with their corporate management.  A chosen failure to react to consumer demands, improve company efficiency, and offer innovative products is by far the major reason we are in this mess today.  Of course the greed of the United Auto Workers and affiliated unions is also to blame.  I am in favour of unions as I feel they are overall a very positive force and without them we would still be in the era of Robber-Barons and impoverished factory workers.  But in the case of the UAW’s relationship with automakers the creation of an impossible situation with overly inflated wages, redundancy protections, and workplace rules that actually discouraged productivity had placed an economic burden on all parties involved that was simply destined to explode into failure; and it did.  But there is another party to blame…

Thus far most coverage of auto industry ills has been focused on the corporate level with all stories aimed squarely at Detroit.  There is however somewhere else we should be focusing our ire — right down the street at our local dealers.  Whether they be Hixsons, Walkers, Wards, Leglues, or any of the rest, our local Central Louisiana auto dealers are just as much to blame for an ailing auto industry as is Detroit.

Why you may ask?  Greed really.

I could say dishonesty, but to call these business owners dishonest would be a stretch.  Certainly some are.  I worked for Allstar Toyota once for about 3 days before my conscience got the best of me.  During those three days of “training” myself and the rest of the new hires spent hour after hour watching video seminars from something called the Cardone Method (get it “Car” “Done”?).  These videos were a series of tactics and roleplay situations that showed salespeople how to carefully exploit every aspect of the customers’ visit to the dealership.  They covered anxiety, psychology, need for acceptance, family guilt, and every other possible thing that could be played upon to pressure someone into a deal that was good for the dealership but not necessarily good for the buyer.  The training involved shadowing the “star salesmen” and observing how they moved customers away from the car they came to see and over to one with a higher markup, how to choreograph the entire sales process to know when to “clear something with your manager”.  They taught salespeople how to convince buyers to spend more per month than they could afford and how to get them out the door before they realized what hit them.  Needless to say, after a few days of this “training” any illusion I had that you could in fact be honest in that business (at that dealership) was done and I quit.  Now that was in 2004 and maybe All-Star has changed to more honest methods since then, I don’t know.  And, maybe (hopefully) the other dealerships in our area behave in a more ethical fashion.  We can hope.

Beyond this experience though is a set of practices that are common across the board and universal among our local dealers.  You see, a car dealership is like any other retail business.  The owner of a dealership buys his inventory (cars and trucks) from a manufacturer at a wholesale prices (usually called invoice price in the industry).  That same car comes with a recommended MSRP or retail price at which they are supposed to sell the car to consumers (me and you).  The difference between MSRP and Invoice is the dealer’s margin and once they have deducted their operating expenses what’s left is their profit.  It’s not a huge profit.  For some brands like Lexus it’s around 15% but the industry average is actually 8-10% (but 10% of a $20,000 car is still no small chunk of change).

The problem is that our local dealers are a bit greedy.  They could buy their cars at invoice pricing and sell them at the MSRP and make a comfortable profit.  But instead they employ a series of tactics that greatly increase their profits at the expense of the consumer (you and me).  For one thing, they pad the MSRP price.  Because local dealers tend to be the only ones selling a certain product (or one of only one or two other peers selling it) they employ a sort of price-fixing by which they set the price they offer a car for sale at the highest amount they feel the local population will pay for it.  Added to that they charge “dealer preparation fees”.  Often these are listed on the window sticker along with things like “paint protection” (aka car wax), “rust proofing”, etc.  The fact is that most dealer preparation involves peeling off the protective shipping stickers, stenciling on their dealership logo, washing the car, and moving it to the lot.  At anywhere from a few hundred to several thousand dollars, consider this the most expensive car wash you’ll ever pay for.  This sort of thing is purely a money maker.  If you doubt that, try ordering a car from a dealer and telling them you’ll take care of the “prep” .  They’ll probably not be very willing to take off that fee.

Add to these price increases the fact that dealers actually make a commission off of financing and you have a bad recipe for problems.  How many times have you gone into a car dealership and had the salesperson ask you how much of a monthly payment you can afford?  It’s one of the first questions they are supposed to ask you.  Why, because it gives them a range of how much they can plan to stick it to you.  Salespeople are trained to know that if you say you can afford $300 per month that you are probably really willing to go as high as $500 and with enough coaching they can probably get you to sign off on a $700 per month note.  What really irritates me about this is that math doesn’t work in that direction.  This is like starting with the answer 12.7578 and then creating a formula for long division that will work in reverse to get me back to a whole number.  These dealers use the monthly payment approach to reap maximum profit from the sale.  They are very well versed in how to pad the prices and manipulate the interest rates and fees to get their numbers right where you’ve said your maximum will be.  Once you’ve given them a “monthly payment”, you’ve lost.  Walk away.

A little comparison if I may to bring some of this home:

A simple click on Walker Automotive’s website reveals their new car inventory.  The first car I got to was a 2009 GMC Sierra 1500 SLE truck.  Here’s the link:

http://walkergmc.com/New-Inventory.aspx?InventoryId=25401399

Walker Lists this truck with an MSRP of $36,440.

That price would not include prep fees and other dealer add ons.  But it’s the base at which you would begin the process if you visited their dealership.

Autos.yahoo.com allows you to view the GM invoice and MSRP pricing.  Here is the same truck, same color, same engine, transmission, trim and everything:

http://autos.yahoo.com/2009_gmc_truck_sierra_1500_crew_cab_2wd_sle1_short_box/

Now they list the MSRP as $31,515.

What?

That’s nearly a $5000 difference between the price GM says the truck should be sold at an what Walker is offering it to you for here in Alexandria.  Yahoo lists the invoice price (what GM sold it Walker for) at $29,151.   That would have given the dealership a $2,500 profit in raw numbers.  Instead they’ve decided to go for a $7,500 profit (at your expense of course).

Again, these are the raw numbers.  Incentives and rebates are also given.  There are two types, dealer incentives and consumer incentives.  Dealer incentives and rebates are given directly to the dealer by GM or other automaker and result in the invoice price being lower for the dealer — thus increasing their profit margin at the MSRP price.  In addition the automakers offer incentives to the buyer (on this particular truck GM is offering $1,500 -2,000).  There are often other promotions and sometimes even government programs that give consumers discounts on new cars.  That is, they are meant to.  But, often times when you see or hear a car ad there is a little line in there that says “All incentives and Rebates to Dealer”!  Whoa!  What’s that mean?  It means that money they have promised to you the buyer is instead going to the car dealer.

Is this a big deal?  Yes, sometimes these incentives and rebates equal up to $5,000 -10,000.  When was the last time you walked into Wal-Mart and handed them a check for a few grand just because it made you feel warm and fuzzy?  If you went into the grocery store and used a coupon for a dollar off a case of Coke would you be cool with the cashier pocketing that dollar and charging you full price?  Probably not.  That’s what is happening in this sort of case.  Now I don’t know whether, if you went into Walker GMC and tried to buy that truck whether they would try to keep the consumer rebates and incentive or whether they would give them to you.  Hopefully it would be the latter.  But what I can say is that those incentives are given by the automakers to YOU so that you can more easily buy one of their cars and when the dealers keep those incentives for their own pockets they are taking money from you that was intended for you.

________________________________________________________________________________

OK, maybe none of this is news to anyone.  But, the point I want to make is that sure, GM and Ford and Chrysler are to blame for the auto industry failure, but so are our local dealers.  They are to blame because they have systematically made the car buying process more difficult.  They have inflated the local prices that you the consumer pay.  They are profiteering when a reasonable profit is already given.  And they are defeating the proactive efforts of the automakers that are meant to encourage sales by pocketing money Detroit has given to buyers.

Again I am not saying all dealers or salespeople are corrupt.  I’m not saying Walker is dishonest.  I could have done the same comparison with every other dealership in the area and encourage anyone looking for a new car to do just that.  But what I am saying is that we as consumers need to be proactive in our dealings with businesses we give our money to.  And, as taxpayers who will be paying for hundreds of billions of dollars that is is taking to prop up this industry for generations to come, we should remember when we drive past those car lots on MacArthur and Coliseum Boulevard that our tax dollars, the check we will write in April help put the owners of those buildings in nicer cars than we can ourselves afford.

Don’t just blame Detroit.

14 thoughts

  1. I don’t think you can blame the dealers for the industry’s problems. However, there is no question that the lack of competition has made local dealers charge more. That’s what a lack of competition does, and lots of folks go out of town for that reason. With the reduction in dealerships nationwide, and locally, that is going to get worse. If you really want to take advantage of competitive prices, go to Houston or Dallas, where there are tons of dealers competing.

  2. I think for the fact that they have been such unethical players in this whole mess that you in fact MUST blame the dealers. They are a broken part of an entire broken system. Just because there is a lack of competition doesn’t mean it’s OK to stick it to everyone for an extra buck.

  3. Well said. Last car I bought I played about six dealers in Louisiana, Texas and Mississippi. Ended up buying in Natchez.
    Local dealer here was about $4,000 off the price. Would not deal.
    I find that most local dealers have the idea you are too stupid to go elsewhere.

    1. Yup, ain’t that the truth?? And, especially if you are a woman, they think you are a walking ditz. I have walked out of several dealerships when I told them what I want and at what price and they said they didn’t have anything…..whatever. When I walked, they told me I would not find a better deal…guess what?? I did. As I said in a recent comment, you need to do your homework and think for yourself. Don’t trust these guys to do it.

  4. Drew:

    I think that part of this is an outgrowth of Cenla being such a small market, and many people here are very provincial, and are unwilling to shop outside of the area. These people are, to a large degree, imposing these extra costs (and consequent dealer profits) on themselves.

    I’ve generally known my dealer, personally, and have not been “ripped off” on my last several car purchases. I am an obsessive researcher, and try to go in knowing as much as reasonably possible about a particular model, including available options, trim packages, and what vehicles are selling for nationally. However, I know that some area dealers definitely have a reputation for charging higher than national rates. With incomes and cost of living in Central Louisiana being what they are, this is counter-intuitive.

    Now that the whole system (at least for domestic brands) has partially collapsed, things will likely change in the future. Also, as people research prices on the market rates of vehicles (Samuel Colt’s revolver design and the internet are the two greatest equalizers in history), local dealers will not continue to have success with the mark-ups that you have illustrated. At a certain point, people from Cenla will drive to Shreveport, Lafayette, Baton Rouge, Houston and New Orleans (and Natchez and Jackson) to buy their cars.

    1. “Samuel Colt’s revolver design and the internet are the two greatest equalizers in history”

      Ace that is Brilliant!

      Sadly though the things I discussed are not just a phenomenon associated with Central Louisiana dealerships (and I definitely didn’t mean to infer that in the piece). It’s endemic to the industry as a whole.

      Certainly some of our local dealers have at different times been quite unethical. I was sold a truck once by John Decker Lincoln Mercury on Jackson that had been badly wrecked before I bought it (and they knew it). The truck looked fine to me, but after having repeated problems I took it to Richard Kyle’s and before the inspector even got fully into the parking lot he tells me “whoa that truck’s been rolled”. It was apparently that obvious to someone in the industry. This was pre car-fax and I had been very clear to ask if the car had any known problems or previous accidents. When I confronted the sales manager first they told me they had had no idea. Then later they admitted they knew all about it but that they were not legally required to volunteer such information. Basically they let me know that they got me and there was nothing I could do (and under Louisiana law they were right).

      At the same time, a couple of years ago my mom decided she wanted to buy a Lincoln Navigator. She went around to several local dealerships and was treated like crap by just about every one of them and either not taken seriously because she was a woman or they told her they wouldn’t budge on sticker price. After being jerked around by several salespeople she eventually found 3 cars she liked at three different dealerships, called the general managers with cash offers and that same Lincoln dealership that was a jerk to me gladly accepted her offer and treated her like gold for the rest of the time they were in business. So I guess they can change and do.

      In further defense of the locals, My dad recently bought a truck for his farm and Hixson gave him a great deal and has been very very proactive on the customer service part.

      And when talking Alexandria versus other parts of the state, I have had my Jeep serviced in various places and have had the dealerships in New Orleans and Shreveport try to absolutely rob me blind. Whereas every time I have ever pulled into LeGlue Jeep they have always been courteous, quick, and fair in their pricing. Once during the run-up to a hurricane they even fixed a problem with my vehicle while I waited even though there were other cars ahead of me because they didn’t want to see me stranded during a storm. So they’re not all that bad.

      And finally All-Star is owned by a group out of Baton Rouge. So even though I referenced their pretty despicable practices, they’re not truly local.

      1. And not to brag, but I did come up with that while I was typing the post…

        And I don’t want to imply that all local dealers are bad (I’ve never left the area to purchase a vehicle), or that the problem is unique to Cenla.

        The Lincoln dealership you mentioned – My mother in law used to bring her vehicle, purchased at that dealership all the way from Atlanta for routine maintenance. They treated her like a Queen. Although my point about some “local” dealers was based on geography, and not whether or not the business is locally owned. Your father had a good experience with Hixon, and I’ve had great experiences with another local Ford dealer.

        As for out of town, the magic is not geography, but capitalism – the issue is, there are multiple dealers of each brand in Baton Rouge, Houston and New Orleans. The democracy of the dollar forces the typical price paid in those places to one closer to the national average, than in a place where there is little or no competition (like Alexandria), at least for the same buyer. (Car buyers, in particular, tend to be some of the most brand loyal customers in the U.S. economy.)

      2. Thanks to Hurricane Gustav, I bought another car last September. Hixson was honest, has great customer service and their service department wasn’t too bad either. Don’t know about the rest of the dealerships, I left out of most of them due to their rude behavior and trying to talk me into something I didn’t want. I may be blonde, but I am not an idiot.

  5. Drew,

    I won’t disagree with sharing the blame around where blame is due, and certainly can’t deny your experience as an auto dealer. Your post has been informative, and you are accurate to say that the dealers are a broken part of a broken system. That system is not just the auto industry, however. It extends to everyone that has bought into the myth of cheap gas and unlimited resources.

    The reason why Detroit went down is because they offer products that are not practical for consumers, and consumers are unfortunately most often not rational actors. While they could have been developing smaller more efficient cars for years, they kept making the big guzzlers to pad their profits. Now we are paying for their green and our collective incompetence.

    Unfortunately for people like me, who don’t own a car and have gone out of my way to arrange my lifestyle so that I don’t need one, I am picking up the bill for the industry’s mistakes through my tax dollars.

    I can’t wait for Fiat to come out with a Chrysler I’m actually interested in buying. Maybe I’ll bite the bullet and get one. Thanks to your post, I’ll be very vigilant as I make my purchase.

    1. Michael,

      Check out the Post below about the Alfa Romeos. The one in the video is pretty amazing.

      The one thing I repeatedly tell people I miss about living in New Orleans is that I almost never used my car. It was for driving across the causeway to my boat and the occasional wally world trip out to Harahan. I walked or rode my bike almost everywhere. Sometimes if I was hanging out uptown I would take the Streetcar just for the hell of it.

      The only missing aspect there from living in Europe was that there they had a more inclusive system with trams, undergrounds, and buses that made everything accessible and easy. I usually rode my bike to work (25km away in another town) via the amazing series of bike paths and greenways they had (most actually former US army tank roads). That and of course they had regional and national trains that connected you to anywhere else you wanted to go.

      Our move away from mass transit was certainly the worst thing we ever did as a nation as far as making life less affordable. We now need cars, which take time to drive that you could spend talking with friends on a train or reading a book on the streetcar. We have to work longer hours to pay for those cars and insurance. We have to pay for the gas, we have to spend tons of money removing the lead, mercury, and other exhaust related pollutants from our urban soils.

      1. Drew,

        It is difficult and perhaps even inappropriate to use hindsight to judge our two previous generations. While I agree with you that the result, i.e. The U.S. transportation system constructed primarily around automobiles and the Interstate and U.S. highway system, is far less than desireable, I disagree that we’ve moved “away” from mass transit.

        It should go without saying that the U.S. is much younger than Europe, and larger. In the U.S., people didn’t, at least not in large numbers, stop using mass transportation, and start driving cars. They went from foot, bicycle, horse, horse and buggy, etc., to cars. The U.S. railroad system progressed both later, and in a different fashion than that of Europe. In Europe, there was always a multi-use for the railroad. They thought of it as their strategic movement system for military purposes, commercial freight, and point-to-point transportation for large groups of people.

        In the U.S., which was very, very sparsley populated outside of New England, and a few Midwestern places, the railroad drove the expansion, not the other way around. Therefore, as we moved west, following the railroad, the long, straight “mainlines” spurred development, those same railroads never adapted to meet the needs of a personal transportation system. Once you leave Appalachia, and are outside of the Chicago area of influence, most railroads are purely commercial. They were laid out that way, they were used (and profitably) that way, and that remains their nearly exclusive use today.

        New England is more compact, more densely populated, and therefore more like Europe than the rest of our great country. That is why, from the D.C. area northward along the coast, the “megalopolis” that stretches from Baltimore/Arlington/Alexandria/Washington to approximately Boston, with a little effort and experience, you can get around using mass transit only, with the occasional long walk or cab ride to bridge the gap.

        But, in the South, and the vast middle portion of the country, coincidentally, what some progressives call “flyover country”, that’s simply not an option, and it’s not one that we abandoned – it was just never available, or not widely available. Once the car culture picked up steam, and there were two pulses, the roaring 20s, and the post-War period.

        I predict the larger cities will have to adapt and craft a viable mass transit system, possibly based off of the “Park and Ride” model, either as a mid-term or permanent strategy, if only to reduce congestion. Over time, as those of us who were born and raised in the rural, car-oriented areas of the country, mass transit will become the default mode of transit in the U.S. It just may be another 50 or 60 years. I know that when I am in New York City, I take the subway everywhere, just like a native. It’s not perfect, but in a place where driving isn’t even an option, people do what they have to do.

        1. Ace while your post is well researched I fear you’ve been misinformed. I keep hearing this version of transportation history of the South that leans in the direction you’ve mentioned, but it’s not true.

          What I wonder is if this is the result of some concerted effort to make southerners believe that mass transit was actually only something big cities and yankees had so they feel some sort of stronger loyalty to car culture.

          If you look at Louisiana you would find that from the mid 1800’s to the mid 1900’s we were very much a public transit oriented place. Most cities, especially New Orleans and Alexandria had well-planned and established networks of streetcars and buses that connected to a very inclusive rail network.

          Many places had more than one train station. Alexandria had several. There was the Union station near what is now I-49, Bringhurst station which connected toward the route of US 165 south and which connected many of our military bases to Alex.

          The first railroad west of the Mississippi ran between Alexandria and Lecompte decades before Chicago had rail.

          We had a series of large and small riverboats that ran on everything from the Red and the Mississippi to Bayou Rapides and Bayou Boeuf.

          Delta Airlines (originally of Monroe) used to run hopper flights between most Louisiana cities multiple times a day at low cost.

          The fact is, that we were intermodal a hundred fifty years ago. Our transportation system took advantage of it options. It ran to big cities and to small rural stops. The systems that carried cargo also carried people and those who lived in small towns in the country could walk to their station, catch a train into the city and enjoy the day all without a car.

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