Auto Industry News & Opinion : eDealerNews.com

After a little over a year of neglecting this blog, I’m back to post on a regular basis. I got a little busy with things over at UpBus.com but updating this blog is a priority for the new year. So I’ll start out this year with some ramblings.

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What will 2007 bring for the domestics?

Ford should pair up with somebody…anybody. This company looks to me to be in some deep water and while I hope they can somehow pull it together, I don’t believe they can without some outside help.

How does Chrysler keep losing market share. IMO, they have the best looking product of all the domestics yet they keep going backwards. A good start would probably be to stop pissing off your dealers.

GM - I’m not as pessimistic about GM as I was a year ago. Quite frankly I don’t see a huge turnaround for them any time soon but they seem to be treading water for now.

What’s hot for 2007

1) BDC’s - stores with high turnover NEED a bdc..period. The lack of good sales training at the store level has resulted in sales people who do not handle the phone well and do not follow up with any consistency. If you don’t have a bdc you should get one. BUT, don’t just slap one together…hire an outside company to assemble it, staff it, and moniter it. If you do it right, it will be the best investment you can make. If you cut corners, it will be the same mess you have on your sales floor.

2) Saturation Mail - this is real simple. As your market contracts from 2.5% to 2% (or less), more then over it becomes a numbers game. If your local newspaper reaches 50% of your market and radio/billboards even less, how will you get your message in front of 100% of your market? Saturation mail. There simply isn’t any other medium that gets that job done. And, if your ad is right, it attracts every level of buyer from 800 beacons to sub-prime.

3) Email - you need to continue aggressively building your email lists. This is the least expensive way to get in front of people that are receptive to your offers (parts/service/sales).

4) Management training - The number one thing you can do for your current staff is provide opportunities for managers to get good training. If you’re committed to keeping your current staff then do yourself and them a favor by getting them professional training so they can be more efficient and better managers. It’s a great investment.

That’s it for now. Happy New Year.

Over the next couple of weeks I’ll post my predictions for Auto Business related events for the year 2006. Stay tuned…my 2005 predictions were pretty accurate if I do say so myself.

1) New Models don’t help GM. Plagued by UAW, Delphi, introduction of poor selling models etc…they file for bankruptcy protection. A few months ago, before anybody started talking about the possibility of a GM bankruptcy, I wrote an email to a relative telling them that I would be amazed if GM didn’t file next year. This email was a response to their telling me how my predictons for the domestic auto industry (that I had shared with them 2-3 years ago) were spot on.

I’ve read the “come back” plan for the new year and it’s not impressive. Selling off the financial arm that has been keeping a poor business plan afloat is a fine short term solution but in the long run I don’t believe they are capable of rebuilding into an effective (and sustainable) business model before the cash windfall comes to an end.

It’s possible that they may stumble through the year without filing but in the end I believe it’s going to happen sooner or later at this point…sooner might be better.

Some welcome relief. It’s just the beginning but it is good news.

Reuters / December 14, 2005
DETROIT — The United Auto Workers said on Wednesday the deal with Ford Motor Co. will cut the automaker’s annual health care expense by $850 million.

UAW President Ron Gettelfinger, who gave details of the deal that was made public last week, said its national Ford council had unanimously endorsed the agreement.

Gettelfinger, who expects the tentative deal to be ratified by the union’s rank and file by Dec.

Not so good for GM

By David Wigan

LONDON, Dec 13 (Reuters) - Bonds of General Motors fell on Tuesday after Standard & Poor’s cut its credit rating on the loss making U.S. auto maker by two notches and said bankruptcy was not “far-fetched”.

The rating agency, which has lowered GM’s rating three times this year, left financing unit GMAC unchanged on review with “developing implications”, ahead of the possible sale of GM’s stake in the company.

“In the past, we might have felt at different points that the concerns about bankruptcy risk were way overplayed,” said S&P auto analyst Scott Sprinzen. “At this juncture, it’s our conclusion that this isn’t a far-fetched possibility if the kind of deterioration in results we’ve seen over the last few quarters should continue.”

General Motors’ (GM.N: Quote, Profile, Research) 8.375 percent euro bond due in July 2033 traded about two points lower at 70 percent of face value, traders said.

GM spokeswoman Gina Proia said late on Monday the automaker has no strategy or intention to declare bankruptcy. S&P estimates the company had consolidated debt on Sept. 30 of $285 billion.

“GM is falling but its hard to be surprised by bad news,” said a trader in London. “Still the market is a bit weaker because of it.”

The rating agency cut GM’s corporate credit rating by two notches to “B”, five steps below investment grade, from “BB-minus.” The outlook is negative, meaning the rating is likely to be lowered again over the next 2 years.

GM has lost nearly $4 billion this year as it battles high health care and commodity costs, eroding U.S. market share and slumping sales of its once-profitable sport utility vehicles.

Five-year credit default swaps on GMAC traded 30 basis points wider at 440 basis points, a trader said. That means it costs 440,000 euros a year to insure 10 million euros of the company’s debt against default.

General Motors, with some $103 billion of bond debt denominated in all the major currencies, is a bellwether for the credit markets.

The company’s downgrade to “junk” status in May sparked a widespread sell-off, and led to pressure for the auto maker to spin off its profitable financing operation.

The iTraxx crossover index traded around 1 basis point wider at 279 basis points.

The focus will now switch to GMAC, and plans to spin off the unit.

If GM does not sell a majority stake in GMAC, GMAC’s ratings would be lowered to the level of GM’s, Sprinzen said. S&P has long rated GM and GMAC the same because of the control GM has over GMAC and because their businesses are intertwined.

A GM bankruptcy would ultimately lead to one at GMAC, Sprinzen added.

Well…it’s just not good. I’m a proponent of the domestic auto business…I don’t personally like the products and typically don’t drive one. But they employ many Americans and quite frankly the auto industry in this country accounts for a nice piece of the overall economy.

But let’s face it. These guys have been on borrowed time since the energy crisis of the early 70’s. Thye have consistently failed to capitalize on the huge profits they were taking in during good times, to develop products that will meet the needs of the country. They have squandered the opportunity to capture more share by chasing larger profits on gas hungry vehicles when they should have focused, at least in part, on developing vehicles that people see as competitive in quality with the imports. They have blown the re-sale value of their products with their “fire sale” mentality. They have lived on the fat of the Fed’s record low interest rates. They continuously do damage to the average retail auto dealership by focusing on today’s business instead of developing a long term commitment to HELP

the dealer

Now they want a bail-out but they don’t want to call it a bail-out. And they want a “level playing field”…the mantra of the defeated.

The crazy thing is…for years now, I have been saying that this day was coming. I’ve been telling everybody I know. If it was so obvious to a regular retail car person like myself, what was it about these companies that kept them from seeing the hand writing on the wall?

A) Arrogance?

B) Pride?

C) Profits?

D) All the above?

I’ll take D, all the above, for $1000 Alex.

What choice do we have now? These companies need to downsize in order to survive. But one glance at the current balance sheet, the legacy contracts, and the current workforce will tell you that it’s not going to happen soon and it probably won’t happen without some sort of aid (federal).

Well then…Let’s get the party started. No time like the present to start a bail-out restructure agreement.

Some other thoughts:

1) Mercedes: What a fall. If they weren’t Mercedes I swear they would be close to following the domestics into bankruptcy. I can’t recall another company that developed so many products with problems in recent history. I was speaking to a tech at a Mercedes store recently. He worked at a Lexus store for 6 years before moving over to Mercedes. He shared with me that the techs at the Mercedes store constantly stood in line waiting for the diagnostics machine to check for electrical problems on the newer Mercedes in for service. At the Lexus store he typically used the same tool less than once per month.

I suspect though that Mercedes will get it’s act together for the new year. It’s been tough adjusting to the breakneck speed at which Toyota puts out refined products and a large part of Mercedes problems probably stem from trying to keep even (or ahead of) with Lexus in perceiived technology. But they have been in the business for a long time and I don’t doubt they will get it together.

2) Kia/Hyundai - This is a strong company getting stronger. I would say that their current products are better quality than the Honda’s I was selling back in the early-mid 1980’s. I think that says a lot about where this company is going. I have one piece of advice for them:

Keep it simple. Who cares if Honda has a power sliding door on their van. You should be working on developing a more fuel efficient engine for your van…don’t get caught up in the game until your product is rock solid in all the areas that really count.

I’m out of time so I will have to finish this tomorrow.

A couple of years ago BDC’s got hot…at least in theory. People were talking about them and a handful of dealerships were actually trying to get one started.

( I worked for a dealer in Massachusetts - Mark Ragsdale - who, IMO was out on the bleeding edge of the BDC crowd about 6 years ago. Unfortunately for him, all of us “car guys” were fairly ignorant when it came to setting one up, operating one effectively, or even, quite frankly, willing to put in the required effort to make it work..sorry Mark.)

But I am a convert. No offense meant to new guys in the retail side of the business, but MOST of the people in the business now are not the same quality as when I got in the business…not as human beings but as car people. This is not of their doing primarily but more about the advancement of people into management who are not good managers and the lack of a daily training plan for employees…but that’s another article so I won’t get into those reasons here. I will just say that if you don’t have a well managed BDC in place I guarantee you are losing business that should be yours. And quite frankly, money spent on a BDC will be the best money you can spend to help grow your business in 2006.

To me, there are two major components of a BDC - a solid CRM and a solid manager. Not necessarily a manager familiar with the car business but one who can manage people, is results oriented (and paid accordingly), and understands the CRM and the reports a good CRM develops .

If you need effective, results oriented, help in getting your BDC up and running, I would recommend you give Lawson Owen a call. He’s been a little busy running a BDC training program with ProMax but he and his people can fit you in and make your BDC sing next year.

Make a commitment to get a solid BDC up and running for 2006 and put some distance between you and your competitors in your market.