August 2016 SDADA Column

I believe the next fight coming between the automobile industry and federal regulators is on the fuel economy front. The battle will be over whether to relax the Obama administration’s future mileage targets. While the direct combatants may be the feds and the OEMs, the dealers (and our customers) will be in the crossfire.

The Wall Street Journal reported last month that government regulators said that U.S. auto makers aren’t on track to meet the administration’s fuel-economy standards, but added that the "industry does have the technical ability to meet them" even in the face of cheap gasoline prices.

Last November, the New York Times suggested the reason there aren't more electric cars on the road is because that car dealers won't sell electric cars. We have not hit Obama's goal of 1 million electric cars on the road because of the nation's car dealers.

I'm guessing that you're like me in that you just want to sell whatever your customers want to buy. If there was an overwhelming demand for electric vehicles, dealers across the country would be stocking more of them and selling more of them. But there isn't and we're not! We know that the competitive forces among OEMs compel them to do the same thing - build the vehicles customers want to buy.
My real concern in this upcoming fight is the plight of the light duty truck - specifically the pickups our South Dakota customers drive on a daily basis.  They need a full size truck to do their work. It is work station, an implement, an office and perhaps, even their family vehicle.

While I hope I'm wrong, I don't believe we will see a full-size pickup that will get 50 miles per gallon anytime soon. If we do, I just hope that the OEMs that I represent can offer one!

In the mean time, we do not want the federal regulators to handicap ag producers, working people, outdoorsmen and other truck buyers by downsizing and depowering their pickups.

Your Actual Mileage May Vary!

It is fair to say that fuel consumption is a significant factor when Americans are on the hunt for their next vehicle. Recognizing this, automakers go to great lengths to tout fuel consumption in an effort to convince car buyers to buy their product. Competition is fierce, especially in a $4/gallon fuel environment. Little wonder then that car buyers are incensed over news on November 2, South Korean automakers Hyundai Motor America and Kia Motors America announced that they had overstated the fuel economy on nearly a million late model vehicles.

In June, acting as the poster boy for fuel efficiency, Hyundai petitioned the U.S. government to declare August “National Fuel Efficiency Month.” Hyundai North American CEO John Krafcik made this comment, “As America’s most fuel-efficient car company, we want to inspire people and show them how fuel efficiency can help their wallets and the planet at the same time, no matter what kind of car they drive”.

There is no shortage of hand-wringing among the automotive press. They are quick to fawn over these fuel consumption figures (without verifying them in many cases I might add), and then among the first to chastise the automakers when the truth comes out.

Apparently this is a case of asking for forgiveness rather than permission:


“I sincerely apologize to all affected Hyundai and Kia customers, and I regret these errors occurred,” said Dr. W. C. Yang, chief technology officer of Hyundai/Kia research and development. “Following up on the EPA’s audit results, we have taken immediate action to make the necessary rating changes and process corrections.” 

Hyundai said “procedural errors at the automakers’ joint testing operations in Korea led to incorrect fuel economy ratings for select vehicle lines.” 

“Given the importance of fuel efficiency to all of us, we’re extremely sorry about these errors,” said John Krafcik, president and CEO of Hyundai Motor America. “When we say to Hyundai owners, ‘We’ve got your back,’ that’s an assurance we don’t take lightly. We’re going to make this right for everyone, and we’ll be more driven than ever to ensure our vehicles deliver outstanding fuel economy.”

Hyundai blames procedural errors for the problem. Really? Anyone who took sixth grade math can divide the miles driven by the fuel used. It didn't take Hyundai/Kia owners long to figure out that they weren't getting the fuel mileage the manufacturers claimed they would! Is it possible that Hyundai/Kia stretched the truth?

From the Detroit Free Press:

Sung Hwan Cho, president of Hyundai's U.S. technical center in Michigan, said the EPA requires a complex series of tests that are very sensitive and can have variations that are open to interpretation. The companies did the tests as they were making a large number of changes in their cars designed to improve mileage. The changes, such as direct fuel injection into the cylinders around the pistons, further complicated the tests, Cho said.

Who the hell verifies these "EPA Fuel Economy" figures anyway? These inflated mileages were discovered during an audit by the Environmental Protection Agency. One would think that, since the EPA has their name on them, they would require some proof of the claim.

How would the consumer press have reacted is this would have been Chevrolet or Ford rather than Hyundai or Kia? How about the main stream media? Do you think this would have been in the news for one night and then fallen out of the news cycle? Just wondering...

UPDATE November 21: Others pass tests that tripped Hyundai, Kia

September 2012 SDADA Column

An adjective used to describe people who are environmentally aware (flower child, tree-hugger), open-minded, left-winged, socially aware and active, queer or queer-positive, anti-oppressive/discriminatory (racial, sexual, gender, class, age, etc.) with an organic and natural emphasis on living, who will usually refrain from consuming or using anything containing animals and animal by-products (for health and/or environmental reasons), as well as limit consumption of what he or she does consume, as granola people are usually concerned about wasting resources. Usually buy only fair-trade goods and refrain from buying from large corporations, as most exploit the environment as well as their workers, which goes against granola core values. The choice of not removing body hair (see amazon) and drug use are not characteristics that define granola people, and people, regardless of granola status, may or may not partake in said activities. This definition is sometimes confused with hippy.
-- Definition of a "Granola" according to Urbandictionary.com.

The "granolas" got a big win last month and almost no one noticed. The main stream media was so wound up about the Republican Convention and hurricane Isaac that they totally missed this one.

The Obama administration enacted the new corporate average fuel economy standards. Automakers will be forced to double the fuel efficiency of their vehicles to a fleet average of 54.5 miles per gallon by 2025.
Please don't get me wrong. Like most other car dealers I know, I am all for increased fuel economy and less dependence on foreign oil. But I want, and need, to be able to sell vehicles that my customers want to buy.

South Dakota is truck country. Our customers are farmers, ranchers, outdoors men and small business people for whom their vehicle is more than just a means of transportation. It is a tool with which they go about doing their work. They cannot get the job done in some bubble-shaped plug-in hybrid.

Not only will these new standards reduce the availability of trucks (if not eliminate them completely), you can expect the average price of vehicles to go up by $3,000 to $5,500 per vehicle as well. If the consumer cannot afford the new vehicles, they will not buy the vehicles and all the "fuel savings" is lost anyway.

The "granolas" will tell you that people will save that money in fuel. One problem, banks don't lend on fuel savings. They lend on equity and payment to income data. In 27 years, I have never had a bank contract buyer as me how much to factor into the equation for customers’ fuel savings. So if the customer can't buy the vehicle, he cannot save the fuel cost!

This will also cause a loss of jobs in the automobile manufacturing segment as customers are eliminated from the market. But then the Obama administration has never shown a great deal of regard for jobs.

The "granolas" will tell you that some thirteen automakers agreed to these new standards. Well, let's see, who those might be? Should we start guessing with those who do not have an entry in the full-size truck or SUV market?

So the "granolas" push us toward smaller (less safe), more expensive and less utilitarian vehicles.

I wonder if the "granolas" have ever considered where the electricity for those plug-in hybrids comes from. 54% of the electricity in our country is produced by coal - but then they want to rid us of that as well!


NADA Launches National Ad Campaign Against Stair-Step Incentive Programs

As most of you know, NADA Chairman Bill Underiner appointed me to the Industry Relations Task Force on Facility Image Programs and Multi-Tier Pricing. Our Task Force has found that a legal challenge against the manufacturers on the stairi-step pricing issue may be a tall mountain to climb. So we have chosen to mount a public relations effort against the manufacturers on this issue.  
To that end, we kicked off a national print ad campaign in September detailing the many negative aspects of manufacturer stair-step incentive programs.

The full-page ad, “Stair-Step Incentive Programs are Bad for the Auto Industry,” below, began running in Automotive News.

The ad points out that “stair-step programs create too many negatives to justify their use.”

Stair-step programs “harm brand credibility; hurt dealers of all sizes; undermine relationships between dealers and their customers; have an adverse affect on CSI scores; and destroy consumer confidence in dealers -- and in manufacturers’ brands.”

February 2012 SDADA Column

I am just back from the convention in Las Vegas. It was truly a great convention. You’ve heard of the idiom of someone wearing their heart on their sleeve – well, that’s the automotive industry. Dealers were there in huge numbers tipping off their view that the automobile industry is well on the way to recovery.

Workshops were well attended, the Expo floor was buzzing and there were great comments about the general sessions. I saw several South Dakota dealers at the convention and I know there were several others there that I did not see. I hope all of you had a great convention.

However, I believe one of the primary functions of the NADA convention is to stay close to those issues that threaten dealers and to fight for those of them who cannot stand up to fight for themselves. We, as dealers, have a great many serious challenges barreling toward us. So, despite the jovial the mood at the Convention, we must be vigilant.

On a personal note, I was really moved by Aron Ralston, who had to amputate his right arm with a knife to free himself from a boulder after a hiking accident. His autobiography “Between a Rock and a Hard Place” was the subject of the film “127 Hours.” I highly recommend both.

I really enjoyed former President George W. Bush’s speech as well. He told several humorous anecdotes about himself, even poking fun at his tendency to mangle certain phrases. But it was his compassion, sincerity and his love for our country that really struck me. It will be interesting to see how the historians treat “W” in 20-30 years.

Facility Image Programs Study Released

Glenn Mercer’s report on facility image programs was released shortly after the convention opened. You can find an executive summary and the full report on the first page at nada.org.

I found Mercer’s methodology to be sound and the report is written in a manner that makes it interesting to read. (I took it to bed one night thinking it would put me right to sleep and ended up reading the entire report in about 45 minutes.) His conclusions can be boiled down to three primary issues.

He believes that it is incumbent upon OEMs to provide dealers with more persuasive business cases for investment in facilities. The cost of these programs is needlessly high and he recommends individual OEMs and their dealers to work together to tackle cost issues and he encourages OEMs to revisit again how they “tier” their programs to make them more affordable for the smallest rural stores. And finally, he recommend to both OEMs and dealers alike to jointly tackle the issue of whether the dealerships we are building today are going to be the successful dealerships of tomorrow.

Whether you have recently done a facility upgrade, are currently engaged in one, are considering one or have no plans for one, I encourage you to read at least the executive summary. It is a very in-depth analysis of a topic that very directly affects every new car dealer.

Arizona Repeals California Fuel Economy Rules

You’ve probably seen the photos of an angry looking Arizona governor Jan Brewer having a “discussion” with President Obama recently (would have loved to have been a fly on the Air Force One wing for that “discussion”). She recently has taken on the public workers union in her state with a package of legislation that is more extensive than similar efforts in Wisconsin last fall.

NADA praised the Arizona governor’s move last month to repeal its adoption of California’s fuel economy program, which duplicates existing federal mandates, calling it “a victory for consumers.” Arizona is the first state to repeal adoption of California’s fuel economy law. “These duplicative rules would have made it more expensive for working men and women to find affordable transportation,” NADA said in a statement to the press. “Duplicative state-based fuel economy programs like those in California hurt consumers by limiting vehicle choice without providing commensurate environmental benefits. With two distinct federal standards already imposed by the Environmental Protection Agency and the Department of Transportation, these rules were unnecessary. Auto dealers in Arizona and across the nation support fuel economy increases under a single, national fuel economy standard.”

Mark Your Calendar: NADA-Google Learning Hub Series at No Charge to Members!

NADA University and Google are presenting a series of four webinars, offered at no charge to NADA and ATD members only. The first webinar, “The Smartphone Revolution,” is activated on-demand for members in Learning Hub, in the Internet category. Next up is “The Google+ Project for Dealers,” to be presented live on February 29. Other dates and topics to be announced later.

January 2012 SDADA Column

You may have seen NADA in the news recently at a public hearing on proposed fuel economy rules for model year 2017-2025 passenger cars and light-duty trucks. NADA urged federal agencies (EPA and NHTSA) to properly consider the rising consumer cost of new vehicles.

According to EPA and NHTSA, the cumulative cost of all of their fuel economy rules will raise the average price of a vehicle by $3,200. Initial analysis from new research, conducted by NADA, indicates the federal government’s estimate of $3,200 may be substantially underestimated and the actual cost to consumers may be as high as $5,000. NADA’s study will be released in several weeks.

I think most dealers agree that we just want to sell the vehicles that our customers want to drive at the best possible prices. The vehicles that will conform to these proposed new rules WILL NOT be the vehicles that our South Dakota farmers and ranchers want to drive and certainly the prices will be much higher.

We all want fuel efficient vehicles but our customers have to be able to afford them. If they can’t, they won’t buy them and will continue to drive the vehicles they have. Stay tuned. There will be much more to come on this topic.

IT Committee Highlights Important eContracting Information for 2012

As you probably know if you visit this column on a regular basis, I have had the privilege of chairing the NADA IT Committee for the past two years. It has been a very interesting and educational two years for me. Our final IT project as a committee was to compile a summary of common features and frequently asked questions about eContracting that dealers can review as they evaluate the services available from third party vendors and lenders.

eContracting is the electronic exchanging of documents between a dealer and lender. It provides an opportunity to enhance the customer sales experience while reducing the time and effort of completing the sales contract. More and more lenders are initiating efforts to offer dealers eContracting alternatives and soon it will be the standard by which dealers complete the sales process.

Questions included in the summary are: "What additional equipment and computer applications would be needed for the F&I office?" and "How long will it take for the dealership F&I team to become proficient with the eContracting process?" You can access these resources at http://www.nada.org/Technology/eContracting/. I encourage you to check it out!

Three Reasons to be Optimistic about 2012 Sales

Last month I read a story that made me even more optimistic about this year. It was about a young woman in Bakersfield, Calif., who recently got a job as a cashier and receptionist at a Mazda/Mitsubishi dealership. Within a few months Jade Tolentino was promoted to an accounts payable position and – after putting it off for quite some time – bought a new SUV using her employee discount and today’s incredibly low finance rates. When asked why she did it, the 24-year-old said “it was a step I felt I needed to take.” Translation: this is one example of pent-up demand – and it’s pent-up demand that’s expected to drive up sales this year.

Thankfully, stories like hers are becoming more common these days, as dealerships begin hiring again and consumer spending picks up. Both trends are good news for our industry, and enough reason for NADA Chief Economist Paul Taylor to forecast that we will sell about 1 million more cars and trucks in 2012 than we sold in 2011. Paul is predicting sales of more than 13.9 million units this year, driven by three factors: aging vehicles, affordable credit and aggressive incentives.

Altogether, these three “A’s” have the potential to make 2012 a much better year, Dr. Taylor says. As we know, more consumers are shopping out of necessity to replace their old cars and trucks. Interest rates on new car loans are at historic lows. And both domestic and international auto manufacturers are preparing to wage an aggressive battle to capture U.S. market share by rebuilding their inventories and offering competitive sales incentives. A decline in gasoline prices could also push car buyers to consider a wider range of vehicles in different segments.

If Paul’s forecast is correct—and he has a very good track record for accuracy—dealers and consumers could be in for a very good year, with stories like Jade’s being repeated all over the country—a reminder to us all that the American dream of owning a car, one of the most important factors in sustaining employment, is still alive and well.

November 2011 SDADA Column

Do you think you could sell a full-size pickup that got 50 miles per gallon? How much could you sell a truck like for? Could you get $75,000? $90,000? Would South Dakota farmers and ranchers be lining up to buy that truck?

I believe most dealers just want to be able to sell their customers a vehicle that fits their needs at the best price possible. The Obama administration has estimated the proposed 54.5 mpg by 2025 mandate will add an additional cost of between $3,100 and $3,600 to the price of a new vehicle (that is in today’s dollars). I wonder if that additional cost will be the same on a full-size pickup as it is on a compact car.

It seems like just yesterday we were talking about the new fuel economy standards for Model Years 2012-2016. But the Obama administration, driven to act by California, is particularly motivated to get the next round of standards done three years before they are required to do so.

This latest proposal – 54.5 mpg by 2025 – is raising some eyebrows. Most automakers have, in principle, agreed to the plan. But it’s far from the finish line. And if a growing number of members of Congress have their way, the administration’s efforts could be put on hold.

Last month, NADA applauded the bipartisan efforts of Congress members who sent a letter to the chairmen of the powerful House appropriations committee and the House appropriations subcommittee asking them to give the Environmental Protection Agency a one-year “time out” from their work on fuel economy standards for 2017-2025 and prevent California from implementing its “patchwork” fuel economy regulations. Members of Congress asked for support of an amendment by U.S. Reps. Steve Austria, R-Ohio, and John Carter, R-Texas. That letter and recent oversight hearings featuring several prominent House members, including Rep. Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, have ramped up pressure on the administration to justify its cost assessment of its proposed fuel economy rule.

NADA thinks it’s entirely too early to be talking about fuel economy proposals that won’t even be acted on until 2015. We’re backing a more practical approach that will allow us to learn from the current standards and see how consumers in the marketplace react to them. That’s why we support the Austria-Carter amendment, which seeks to ensure the impact of these rules on jobs, consumer choice and vehicle costs are properly evaluated. The amendment would also achieve one of NADA’s top regulatory priorities by temporarily returning rulemaking authority to the National Highway Traffic Safety Administration (NHTSA), the only agency required by law to consider the economic and safety impact of fuel economy increases.

Since this issue could severely affect our ability to provide our customers with the cars and trucks they need and can afford, our goal is to have regulators address legitimate questions about cost and affordability. With the help of Congress, we just might get that chance.

Take a Look at What’s New on NADA University

Have you browsed through Learning Hub and Resource Toolbox lately? NADA University is constantly enriching both centers with new content. Newly added online courses in Learning Hub include “Creating a Special Finance Operation” in the “Sales/Leasing/Finance” category, and “Overcoming Obsolescence” and “Unlocking Frozen Capital” in the “Parts” category. “Phone Fundamentals: Use Them or Lose Customers” is coming this month to NADA U’s new “Fundamentals” category. In Resource Toolbox, there’s a wealth of new entries under “Industry Information,” including NADA 20 Group’s Dealership Performance 2011 vs. 2010 and a SEMA study on “Influence of Accessories on New Vehicle Sales.” There’s also a new “Tip of the Week” category focusing on building strong customer and workplace relationships. Our new Driven Management Guide, A Dealer Guide to Federal Excise Tax Compliance, is also coming soon.

Watch New ‘Dealer Pain Points’ on NADAuniversityblog.com

NADA University continues to add to the popular “Dealer Pain Points” series. Look for these new videos and accompanying information: “Supersize Service Sales,” “Process Makes Perfect,” “Are You the Best-Kept Secret in Town?” and “Magic of Disappearing Profits.” All of these videos are in the “Service” category. In “Parts,” find “The High-Wire Act in Parts,” “Hide and Seek: A Costly Game,” and “Bermuda Triangle Swallows Parts Profits.”