I guess the point is, how many of those units would have been sitting on dealers lots? Not that many- sales were rolling along before the employee stuff started, but they blew up the used car market (it's still recovering) and pulled a lot of business out of this model year.

Three big Ford stores in metro Portland got sold during the F&F promotion- draw any conclusions from that you like.

 

I don't really feel sorry for Ford or GM though, maybe the dealerships. It's about time their business model was "corrected". Die-Hard Ford and GM customers have been paying through the nose for Trucks for YEARS due to the manufacturer's HIGH operation costs. They both need to be leaner and they both need to streamline and be more efficient and take a good hard look at their union contracts.

 

Why don't we hear these same comments in relation to our governments (local, state, and federal)? The civil-service unions just a little too strong to take on right now? Those currently with all the power in Congress hand out enough pork to their constituents to keep 'em all fat and happy, and therefore quiet? And what about the entire health-care industry? We just keep paying 15% annual price increases to all the HMOs, because we're told, "that's the way it is." I've asked my HMO why their expenses (like utilities, taxes, construction, etc...) are so much higher than the rest of the nation's economy. I get double-talk, but I don't get a real answer.

I'm sorry, but this topic has been beat to death in the press for AT LEAST the past 5 years. Everyone's an expert when it comes to the ailing domestic car industry, and those within the industry just get REALLY tired of hearing the same harping, day in and day out. It gets old after awhile, you know?

 

Personally, I don't think costs have anything to do with the current problems. If Ford, GM, et al had been offering the correct products...eg, those folks wanted to buy, this wouldn't even be conversational.

 

I agree with both of ya guys.

I know how Washington works for the most part.

The Unions are changing now. It's a symbiotic relationship. If Ford or Chrysler dies the Auto Unions die. They realize this. Someone putting together transmissions on the assembly line shouldn't be making upwards of 70G's and have all the nice Healthcare benefits to boot......It's just not feasable.....

Healthcare is another story. It's part the drug companies (lobbying, special interest etc.) and part our reckless reliance on drugs to "FIX" everything. We as Americans are spoiled. We have a tooth ache and we go to the Emergency Room because we are so pampered and fragile.....

Then there is the product issue. Have you seen the rear tail lights on the new Dodge Durango? EWWWW.. Chevy I think has product problem more so than Ford but both need fresh ideas.. Ironic though how the Japanese manufacturers stay pretty conservative with their styling but yet sell the socks off of accords and camry's etc. etc. Can't seem to figure that one out.

 

I don't blame them in the least. Here they are giving the customers a great price. What are they doing for the dealers to help off-set the low margin?

 

I agree.
Hummer H3, Ford Mustang, Chevrolet Corvette sure seem to sell without rebates and with minimal discount from MSRP/sticker.

 

I'm surprised that a dealer or two haven't challenged one of the big three yet with price fixing under the fixed pricing program of employee pricing.

With today's lawyer driven society, you'd think someone would have tried to draw together the elements of the Robinson-Patman act with the car manufacturers' price fixing tactics through the EPP?

EPP in effect changes the complexion for the dealer... from one of being the manufacturer's representative to one of being their agent... one size one price fits all? As has already been commented, if the fixed dealer mark-up is x% under employee pricing, and all dealers recieve x%, but dealer A down the street needs y% [which is more than x] to break even based on their cost structure, then EPP causes them to go under???

[I guess all the lawyers are too busy lining up for the Vioxx opportunity... ]

 

"if the fixed dealer mark-up is x% under employee pricing, and all dealers recieve x%, but dealer A down the street needs y% [which is more than x] to break even based on their cost structure, then EPP causes them to go under???"

I guess my first question is why can't a dealer make a profit at 4.5% margin? Is his cost of sales too high? Building to fancy? Thermostat set too high? Too many sexy secretaries? Where is the problem? If other dealers can make money at this margin rate, then maybe the business model for the car dealers should be modified to reflect the new business environment. OOOPS! Here I go fitting into MarkII's post-non car people telling people in the car business how to survive! SORRY! But seems to me it is similar to the changes taking place in the agriculture industry (my business). The margins are so thin that economies of scale come into play big time. When you spread the cost of a $200,000 combine for instance over 4,000 acres vs 2,000 acres, simple--right.

Maybe this simple pricing strategy spells the death song for the simple Ford or Chevy mom and pop dealership. Maybe the future will be mega transportation stores, where you walk into a large show room full of several different makes and models and prices to chose from. And a service department that works on several makes of vehicals, not specializing in any. And new charging rates for customer service personel interaction. I know now my John Deere dealership inniated a flat $60 service charge for just talking to a mechanic about a problem you are having and corrective action you can take. the theory behind this charge is when you talk to a mechanic about your problem, you are taking him away from a billable service job in the shop, while he helps you for free.

Or maybe total elimination of the dealership/ show room as we know it and simply going to service centers located strategically around the country for warranty work, and all car marketing takes place over the i=net or walmart. Don't know for sure, but significant changes are coming and I am afraid none of us will be a liking them.

Sorry Mark II and Polar bear for getting in your back yard!

 

Well, not being in the car business, but being a salesperson let’s do some rudimentary numbers…

If a mom and pop dealership sells just new cars and they sell about 30 cars a month and have 2 sales people and a service department and a building and a back office, lets say all told -13 people for a total of 15 people on staff. [Jeff and PB...If I'm way off in my assumptions, I'm open for correction]

And let’s say each of the new cars they sell average at 25k. So at 25K for 30 cars, that would give a revenue of 750k a month.

So for the year, lets’ also assume that this would be 360 cars a year and that this dealership reaches a population base of about 12,000 people, based on servicing 3% of the population each year… So this dealer’s revenue for new cars is about $9M.

Not bad so far, right?

Now with the employee purchase program, lets’ say that the 25k is the employee purchase pricing. At 4.5% margin to the dealer, that would mean $405k a year or 33.8k a month in workable capital to pay bills from and then profit…. Now just looking at new car sales, if you have 15 people on the payroll, then 33.8 / 15 == the median monthly salary for each employee, or $2250.00 each, and no money for rent, for advertising, for heat, for….

So, as far as new cars go, if every dealer receives the exact same dollar, those who have a profitable service business, or used car business, of whatever will stand the course. Those who cannot sell a car at what the market will bear will stand to lose.

Walmarting a car dealership into a superstore can work if population supports it, but unless there are efficiencies within the infrastructure, these too can fail. But the real need by a dealer is to broaden its reach. The Delling of the dealer through using virtual show rooms and inventory [much like what Jeff and Polar do], is a today’s response to a price sensitive world. Big problem -- as the goal of the manufacturer to pump into inventory more steel… Today a very razor edge balancing beam to stand on…

And farming, and computers, and many other staples all have the same issues, for sure. Some based on outsourcing at a lower cost, some based on market position. Personally, I think I see about 45 different manufacturers of cars within the world all competing for our attention. There will be consolidation… just a matter of time…

 

4wd "if the fixed dealer mark-up is x% under employee pricing, and all dealers receive x%, but dealer A down the street needs y% [which is more than x] to break even based on their cost structure, then EPP causes them to go under???"
Fair enough, that's actually a reasonable question.

I guess my first question is why can't a dealer make a profit at 4.5% margin? Is his cost of sales too high? Building to fancy? Thermostat set too high? Too many sexy secretaries? Where is the problem? If other dealers can make money at this margin rate, then maybe the business model for the car dealers should be modified to reflect the new business environment. OOOPS! Here I go fitting into MarkII's post-non car people telling people in the car business how to survive! SORRY! But seems to me it is similar to the changes taking place in the agriculture industry (my business). The margins are so thin that economies of scale come into play big time. When you spread the cost of a $200,000 combine for instance over 4,000 acres vs 2,000 acres, simple--right.
The largest single expense in operating a dealership is the cost of money itself. Our two stores sit on a 14 acre facility. If you were going to buy the dirt and build today- $20Mill would be about right, if you did it on the cheap. We're 15 miles out of town- go closer in, double that number. In California? Double it again (yes, markups are higher in the west coast- there's your answer why.)
We average about 300 cars/trucks a month out of both stores. At an average transaction price of about $30K, that adds up to....a lotta money. Two service departments, tires and accessories, etc- annual dollar sales volume runs over 9 figures. Well over. In a little town of 4500 people, that's an eye-popper.
Payroll for 156 employees. Want good service? There's a dollar value attached to that. Advertising? A utility bill that would power a small town (the shops). Insurance? don't ask. the list is pretty long, and the costs astounding.
Maybe this simple pricing strategy spells the death song for the simple Ford or Chevy mom and pop dealership. Maybe the future will be mega transportation stores, where you walk into a large show room full of several different makes and models and prices to chose from. And a service department that works on several makes of vehicles, not specializing in any. And new charging rates for customer service personal interaction. I know now my John Deere dealership initiated a flat $60 service charge for just talking to a mechanic about a problem you are having and corrective action you can take. the theory behind this charge is when you talk to a mechanic about your problem, you are taking him away from a billable service job in the shop, while he helps you for free.

Or maybe total elimination of the dealership/ show room as we know it and simply going to service centers located strategically around the country for warranty work, and all car marketing takes place over the i=net or walmart. Don't know for sure, but significant changes are coming and I am afraid none of us will be a liking them.
If we were selling groceries or a commodity, you could be right. but cars and trucks have heavy emotional baggage attached- very few people make purchase decisions based on actual need. One look at all the empty pickups and SUV's travelling down the roads tells you that. If emotions didn't play a role, we'd probably never sell a Corvette or a Mustang- you get the idea. This is a "see, feel, and touch" business. But you are right about one thing- the costs have eliminated the small mom and pop stores. Unless they have been open for decades, and paid off the mortgage eons ago, you can't survive on 15 or 20 cars a month.


Sorry Mark II and Polar bear for getting in your back yard!
Don't apologize- it's a business understood by very few- including those on the inside.

 

Yeah, what polarbear said.

Let me add this: my rant wasn't that people should never criticize this business, it's just that I can't go ANYWHERE without hearing how GM and Ford should do things different. You're all correct: they SHOULD do it differently, it's just that hearing it on a non-stop basis is wearing VERY thin for me at this point. Second, the sales end of this business is headed for a major overhaul, but when and where is the big question. Ford tried it a few years ago with their "Auto Collection" stores, and everyone involved (yours truly was one of them) will tell you it was an unmitigated DISASTER. Great idea, horrendous execution. It set back the "dealer of tomorrow" idea by at least 10 years, and we figure it cost Ford a minimum of $50 million.

 

Ford just proved what dealers knew all along- the manufacturers don't know squat about retailing. I could take them to advertising school as well- and hold the class, methinks.

 

I got a 2005 $38,000 SuperCrew Lariat for 14,000 with the trade in (a 2002 lariat) and the employee pricing together. Now I'd say thats alright for taking off $24,000 from the sticker.

 

I purchased a 2005 F150 FX4, listed for 33,400.00, paid 23,000.00, Thats a deal!