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:
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:
Now they list the MSRP as $31,515.
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.