Big 3 economists: Industry outlook is dicey

This year will be the worst automotive market in a decade, economists from Detroit's Big Three automakers say, but they add that they do not believe the bottom is about to drop out, The Detroit News reports. A moribund housing market, continued fuel-price concerns and worrisome consumer sentiment are expected to lead to declining auto sales this year. But economists representing GM, Ford and Chrysler who spoke Tuesday at a Society of Automotive Analysts conference said monetary and fiscal policy adjustments, a stabilizing overall economy and consumers buying more fuel-efficient models should mitigate the sales decline. General Motors Corp. expects annual sales to hold flat at last year's 16.1 million unit level, while Chrysler LLC projects 15.5 million to 16 million units sold, and Ford Motor Co. 15.7 million.

from: the Detroit Press
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The Dealer Made Me Do It

By Steve Finlay
WardsAuto.com

First off, I’m not excusing auto dealers. Or lenders.

They have a moral and business responsibility to try to stop their customers from doing something stupid, such as buying a vehicle with a sticker price that will stick them with an oppressive debt.

But customers have responsibilities, too. It is their purchase, their money and their car payments. It is up to them, more than anyone else, to know their financial limitations and not cross them.

Yet, so many consumers today buy too much vehicle. Then, when the financial squeeze becomes eye-popping, they look for someone to blame. The dealership and lender make nice targets. Seldom do the debt-ridden blame themselves.

I pondered that while reading a Los Angeles Times article headlined, “New Cars That Are Fully Loaded – With Debt.”

The story tells how some Americans of average means roll over an existing loan on an expensive vehicle in order to get another expensive vehicle. They end up with two loans in one, when they couldn’t afford one.

That is childish behavior, like wanting a pony, no matter what. Only back then, at least you had your parents telling you “no.”

Also infantile is the finger pointing that ensues when consumers without self-control fall deep into debt.

“Not one dealership ever said this was a problem,” a vehicle buyer told the Times. “Ever.”

She owes $43,000 on two trucks. Combined, they are worth $28,000. She got in deep because she rolled over debt after debt during three car purchases in five years.
Fooled once, shame on you. Fooled twice, shame on me. What about the third time?

Did she need to be told that might be a problem? My office is on the 27th floor of a high rise. Do I have to be told that if I jump out of my window, I might encounter a problem 27 stories later?

The article is accompanied by a photo of the woman and her husband looking sad while standing beside one of their two vehicles. It is a Ford Expedition. She is a secretary. Should a secretary have bought a $46,000 SUV as a second vehicle?
Perhaps she is the one to answer that.

As noted, I’m not holding dealerships harmless. Dealers should help people find vehicles priced within their means, not aid and abet them in reckless purchases.
“It is up to us to explain options to customers,” says Kelly Mankin, a vice president at Chrysler Financial.

Frank Bennett, business manager of S&L Motors, a Chrysler-Dodge-Jeep store in Pulaski, WI, prides himself on trying to keep over-eager customers out of trouble by recommending financing alternatives, such as leasing.

That way, a secretary can drive a Ford Expedition without being driven into debt.

But another dealer, Marshall Friedman of Dartmouth Motor Sales in Newport, NH, tells me if you stand too firmly between what customers can afford and what they want, you can counsel them right out the door and to a competitor.

Whatever happened to personal responsibility in car financing? Did it disappear, along with the quaint practice of putting a big down payment on an affordable vehicle and paying it off in a few years?

This is the age of the so-called “empowered” consumer. Car shoppers supposedly use the Internet for research, then march into the dealership knowing more about the product than the salesperson does.

That knowledge should include understanding the pitfalls of assuming an 84-month loan on a high-priced product with a rapid depreciation rate.

The extent of consumer financial ignorance is so bad, even the National Automobile Dealers Assn. is trying to help. An important NADA initiative is AWARE (Americans Well-Informed on Automobile Retailing Economics).

“Our goal is to help educate consumers, so they are as aware about their financing as they are about the vehicles they are buying,” an AWARE spokesman says.
They have work to do.

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How Much is Eddie worth?

A fantastic article worth a read
from: Doug Manly
www.DumbDealer.com

HOW MUCH IS EDDIE WORTH?

It is always a challenge to determine what the right amount is to pay management. Too much pay and the comfort zone sets-in, too little pay and the manager takes a hike. There has to be the right mix where the dealership is maximizing profits and the managers are given an opportunity to earn mega-bucks. The monetary worth of a manager to the store is usually determined by departmental profit. The catalyst that determines departmental profit is the pay plan. A properly structured pay plan will bring out the worth of the manager. It’s the bucks that motivate.

I recall three instances where the dealer realized the worth of the managers, two positive and one too late.

THAT’S A LOT OF MONEY

The dealer decided it was time to review and revise all managers pay plans. The current pay plans had been if effect for years and were outdated. New pay plans were developed and implemented. The new pay plans provided the managers an opportunity to increase their earnings 25% to 50% without substantially increasing sales. Good pay plans can do that.

When it was time for monthly bonuses and commissions, it was the dealer’s practice to go to the Controller’s office to sign the checks. If there were any questions, the dealer didn’t have to chase down the Controller. After the new pay plans were implemented and it was check signing time, true to form, the dealer went to the Controller’s office to sign bonus and commission checks. As the dealer was about to sign the first check, he dropped his pen on the desk looked the Controller in the eye, pushed his chair away from the desk and said, “That’s a lot of money.” The Controller answered, “Yeah, but look at the bottom line.” The dealer looked at the bottom line, smiled and signed the check. Well, guess what happened when the dealer went to sign the next check. You got it, he dropped his pen pushed his chair away from the desk and said, “That’s a lot of money.” Again, the Controller told the dealer to look at the bottom line.

After the dealer finished signing the checks, he shook his head and went back to his office. The dealer was not accustomed to paying the kind of money the managers were earning from their new pay plans. Nothing more was said until the next month, when it was check signing time. Yep, “That’s a lot of money.” Yep, “Look at the bottom line.” That was the last time the dealer questioned the amount of the bonuses and commissions. One look at the bottom line explained it all. Bottom line profits in a year’s time went from $282,000 to $897,000 annually. And the following year the bottom line was $1,300,000 annually.

The dealer realized what his managers were worth and was more than happy to pay, “A LOT OF MONEY”. The annual profit increases year over year more than justified what the managers earned.

RIGHT PERSON

Two dealers were linked by a partnership to one store. Between them there were seven stores and thirteen franchises. The partnership store was a new acquisition and the dealers were looking for “Right Person” to bring the store up to speed. “Right Person” was found and in a short period of time the partnership store was firing on all cylinders. Over the next 18 months the dealers acquired more stores and franchises. After acquisitions there were a total of nine stores and nineteen franchises. Guess who was chosen to oversee the dealerships? You got it, “Right Person.” Now “Right Person” told the dealers that more compensation should be forthcoming because of the additional responsibilities and workload. Well, you know how dealers are. “We’ll talk about it.” Two months later and still nobody was talking. “Right Person” gave notice that he was leaving. Then and only then did the dealers want to talk. Too late, “Right Person” took a hike to a single point store for less money, less grief and less headaches. Talks cheap, it takes money to buy whiskey. Evidently, “single point store” recognized the worth of “Right Person” to his organization. I have often wondered why the worth of a person increases when termination notice is given. If one is worth $5,000 a month at 9:59AM and gives notice, how’s comes the dealer counters at 10:00AM? Why is that?

So Mr./Ms. dealer when was the last time you looked at the humans you employ and reviewed their earnings and worth to your company? My best guess would be NEVER. In my years in dealerships, I have yet to see a dealer call one his humans into his/her office, tell the human he appreciates them, and give them a raise. Usually the human has to ask or beg for a compensation increase. Why is that? One word can sum that up but we will get into that in a future article on pay plans.

SLEEP TIGHT

The dealer decided that it was time to slow down and start smelling the roses. He had worked hard and had a nice store that was running smoothly. Not having a junior in his clan, it was necessary for the dealer to go outside the gene pool and find someone to run the store. The chosen one was a guy named Eddie. Eddie was in his late sixties, not ready to give it up, and still going strong. Kind of. Eddie wasn’t there for the money. He was there because of his passion for the business. In his day Eddie was one of the best.

Time, however, had taken its toll on Eddie. Time does that. Eddie was old school and had paid his dues. Eddie just kind of hung out and piddled with numbers in his office most of the day. On occasion Eddie and the dealer would sit around and swap lies.

The dealer was paying Eddie $80,000 a year. At times Eddie was more like a security guard. Eddie was there at 6:00AM every morning and stayed until close every night. Sometime during the day you usually could find Eddie in a conversion van taking an afternoon nappy nap for about a half-hour to recharge his battery.

One day while in the dealer’s office, I asked the dealer why he was paying Eddie $80,000 when it was obvious his best days were behind him? The dealer leaned back in his chair, took a puff on his cigar, smiled and said, “Because I know he is there.”

I told the dealer that I didn’t quite understand. The dealer explained that he slept better knowing that someone was watching the store. You see, Eddie was always there. Even on weekends, he would cruise the lot at odd hours, like midnight on Sunday, to make sure everything was all right. Eddie was one of a kind.

Even today I ask myself was $80,000 overkill? Maybe. But not in the dealer’s eyes. So the next time somebody asks why you pay “your” Eddie $80,000, lean back in your chair, light up your cigar, and smile. There aren’t a lot of Eddie’s around anymore.

“We do not see things as they are, we see things as we are.”
Talmud

Red-Flag Rules Worry Dealers

By Steve Finlay
Ward's Dealer Business

Auto dealers want to fight identity fraud as much as any upstanding citizen, but they're reluctant to become quasi-investigators for the federal government.

So say lawyers trying to limit dealer involvement in proposed “red-flag” regulations mandated by Congress and being developed by various agencies, including the Federal Trade Commission.

The regulations would require creditors to report identity-fraud suspicions from customer-loan information. Dealers are considered creditors because of their auto-financing activities.

“It has caused an uproar,” says Michael Benoit, a Washington-based attorney and partner in Hudson, Cook LLP, a law firm that represents dealers.

Some requirements would be fairly simple, such as making sure a would-be borrower looks like the photo on his or her driver's license. But others are beyond the detection talents of typical dealership personnel, Benoit says.

“I don't know many dealers or (dealership) F&I (finance and insurance) offices that can look at credit reports and identify unusual activity,” he tells the 2007 Auto Finance Summit. “I'm hoping for more flexible standards.”

Benoit says lending institutions already have processes in place to detect identity theft and other frauds. It is superfluous to expect dealers to do the same thing, he says.

Andrew Koblenz, the National Automobile Dealers Assn.'s general counsel, agrees.

If General Motors Acceptance Corp. uses an anti-fraud system to check social security numbers, death lists and the like, a dealer handling a GMAC loan application shouldn't be legally required to duplicate such efforts, Koblenz tells Ward's.

“We want to fight identity theft, and dealers have a tremendous self-interest in not selling a car to an identity thief,” he says. “But the real-world impact is that it would burden dealers. One estimate is that it would add five hours to the credit-application process.”

Only dealers who run “buy here, pay here” financing operations — in which dealers are direct lenders — should be expected to take active roles in the red-flag activities, Koblenz says.

Red-flag proposals that NADA considers egregious are “beyond the scope of the statutory mandate, unlikely to achieve the anti-theft goals of the statute, ambiguous and exceedingly burdensome,” Paul Metrey, NADA's regulatory affairs director, says in a letter to the FTC.

One of the proposed 31 red flags that would trigger government-mandated action is incomplete information on a credit application. But Metrey says that's common and not indicative of identity theft.

“Identifying such attenuated occurrences as a trigger for additional compliance activity only serves to elevate an already high regulatory burden without producing a corresponding benefit in identity-theft prevention,” he tells the FTC.

“To avoid this unintended result, the agencies should narrow the delineated red flags to those that indicate a reasonable likelihood of identity theft,” he adds.
Metrey says a “more prudent approach” and one more in line with the congressional intent would be for regulated entities to demonstrate how their existing policies and procedures can combat ID theft.

Benoit says that makes more sense than imposing strict government regulations.
“We're looking to find out if creditors will be allowed to adopt their own processes,” he says.

The red-flag effort is part of a trend that since 2000 has resulted in dozens of government regulations affecting dealers, says NADA Chairman Dale Willey, a Kansas dealer.

“The new regulations come at a steep price,” he says. “Dealers must devote more time to compliance.”

But some regulations offer dealers certain opportunities, he says, citing the adverse-action notification requirements of the Fair Credit Reporting Act and the Equal Credit Opportunity Act.

Those acts require dealers to send formal letters to people who have been denied auto financing.

“An adverse-action notice is an opportunity to educate people about credit awareness 101,” Willey says. “We hope some of our customers will come back to us when their credit is better.”

As for the red-flag proposals, Willey says it is up to trade organizations such as NADA “to help regulators understand the real-world results of their actions.”

The regulators acknowledge dealers have raised legitimate concerns, Willey tells the 2007 F&I Management and Technology conference. “The better information we can provide to people who regulate us, the better they can adopt rules that Congress intends and that we can comply with.”

Participate in designing your dealership's 'Red Flag Rule' policy and procedure manual by going to: http://www.AutoFinanceInsider.blogspot.com