November 2012 SDADA Column

The latest assault on the franchise system comes from Ford as they place their Lincoln dealers squarely in the crosshairs. Lincoln has informed their dealers that they plan to eliminate the holdback payment which has been a standard practice for the franchise several decades. Ford indicated they made the decision in part because other luxury OEMs like Audi and BMW do not pay their dealers holdback.

Ford also says that Lincoln dealers will have an opportunity to earn additional Dealer Cash payments if they meet a variety of available programs (jump through all their “hoops”). Ford has made the programs needlessly complex. Ford will have four Dealer Cash programs for their dealers:

• Lincoln Commitment Program - Phase 1: Pays 2.75% of Invoice for Lincoln dealers who meet signage, training and customer initiative requirements - e.g. washing customer service cars.
• Lincoln Commitment Program - Phase 2: Pays an additional 1% of Invoice for Lincoln dealers who meet additional training requirements and manage to provide 70+% of their Internet Leads with a quality response within 12 hours.
• Lincoln CPOV Incentive - Pays 2% of all new Lincolns Invoiced per quarter if a dealer meets Lincoln's CPOV sales target.
• Lincoln CPOV Incentive - Pays a flat fee for each CPOV vehicle based on some other (not reported) criteria.

The “frosting on the cake” is that Lincoln's going to raise the invoice price of their vehicles 1% to pay for their new programs but MSRP pricing will remain the same.  There goes another percent of the ever shrinking Dealer Margin.

Ford indicated they've been working with their Dealer Council concerning these changes. I would love to hear the view of Dealer Council representatives who think these changes are good for the Lincoln brand or the franchise.

NADA has sent Ford a letter regarding this matter urging them to reconsider. NADA's Task Force on Facility Image Programs and Multi-Tier Pricing has taken this issue up on their agenda as well.

Do you think the other manufacturers are watching this issue closely? Do you think any of them would love to eliminate dealer holdback? Perhaps we should start a pool on which manufacturer follows suit and when it will happen. Keep an eye on this.

National Automobile Dealers Charitable Foundation Helps Victims of Hurricane Sandy

The National Automobile Dealers Association has pledged $1 million to jump-start a national fund-raising campaign for the Emergency Relief Fund of the association’s charitable foundation. The Emergency Relief Fund provides assistance to dealership employees that are affected by natural disasters.

The SDADA board of directors voted to contribute $2,500 to the Emergency Relief Fund at the November meeting in Huron. Trace Beck generously volunteered to match the $2,500 SDADA contribution.

Beck Motors and Wegner Auto had employees benefit from the NADACF Emergency Relief Fund last summer when Pierre was flooded by the Missouri River.

Since 1992, the Emergency Relief Fund has provided nearly $5 million to more than 7,700 dealership employees.
If you are looking for ways to help the victims of Hurricane Sandy, the NADACF is a great tool for that purpose. I urge you to consider contributing. Please contact me if you have questions.

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

Time to Refocus

If you are a regular visitor to this spot, you know that I have been rather critical of General Motors' Essential Brand Elements (EBE) program here. I believe the program is unreasonable and unfair.

It is unreasonable because it is an overreach by General Motors into the dealership. It attempts to strip the dealer brand from the dealership and require interior elements that may not be useful or realistic for some dealers. It forces the same system on all dealers, large or small, rural or metro.

It is unfair because unless a dealer complies with these requirements, he is at a $500-700 per vehicle disadvantage. Dealers operate in a world where customers will move on to a different store for $50. Yet, GM representatives have the gall to suggest that it is an "optional" program. It's as optional as sails are on a sail boat!

Recently, my post regarding a visit from my GM Zone Manager to discuss the exceptions to the program that I requested caught the attention of GM executives. Apparently they did not like the fact that I found the visit to be a masquerade and told me so here.

This development has caused me great distress. These posts are intended to communicate updates to my family, my friends and the dealers that I represent in my NADA Director position. I believe my reach grew as these people felt the story I told to be unfair and they saw fit to forward it on. But I am not surprised at who has read it because it is published in a very public space.

I NEVER wanted the discussion to be about MY store. I only referenced my store because it was a personal experience that I could draw upon. I wanted to call attention to a program that I believe is unreasonable and unfair to all dealers, but especially so to small and most medium sized dealers - those that I represent. I thought my experience was very typical (as I found in visiting with other dealers) and thought it would give some specific examples of how unreasonable the program was.

So I will not be discussing my store's plight against EBE here any longer. I will gladly share any experiences from my fellow dealers (anonymously if they'd prefer). I will continue to post articles (from inside and out of the automobile trade press). I will continue to be a vocal critic of EBE and an advocate for my fellow small and medium size dealers.

Does this mean GM has won? I don't believe so. It only means that this spotlight will not be on my store or my desk any more and I will keep it sharply focused where it belongs - on the GM's unfair and unreasonable EBE program.