Monday, October 20, 2014

October 2014 SDADA Column

General Motors is in the third consecutive month of their current “stair-step” incentive programs. As you know, if the dealership meets its sales quota, they get a per-car bonus, retroactively, at the end of the month.

Ask a factory representative where the objectives come from and he/she will backpedal faster than a defensive back on a Peyton Manning bomb. The truth is that the objectives are completely arbitrary and not based on anything that makes sense. In fact, there is no way for any manufacturer to set a reasonable objective in any market because they do not know the market.

Do GM's current dealer objectives reflect the current agriculture commodity prices in those small, rural markets dependent on the farmers’ business? Do they reflect the plunging price of oil in those markets dependent on oil? Do they reflect inventory disparities between stores or regions? Do they reflect changes between last year’s local economy and this year’s?

They don’t because manufacturers do not have that information. They do not understand local markets. Dealers do. That is what we do.

This article lays out the issue quite well. Dealerships may have a lot of money riding on selling the last few cars at the end of the month. So they may cut some deals that they might not otherwise cut. Customers have this annoying habit of talking to each other and comparing what they paid. When the customers who bought earlier in the month find out what a bargain the customers who bought later in the month got, they’re pissed.

I have discussed this issue in this space before. I've also pointed out that our South Dakota law supposedly prevents this kind of factory activity though no one seems to give a damn about that. NADA has pointed out that it's bad for customers, bad for dealers and bad for manufacturers, yet that seems to matter to no one.

Bill Fox, Jeff Carlson Elected

I recently returned from the NADA Fall Directors meeting in Phoenix where we held our annual elections as part of the agenda. Bill Fox was elected Chairman for 2015. Bill and his family have Chevrolet, Chrysler, Dodge, Honda, Jeep, Ram, Scion, Subaru and Toyota brand vehicles in the upstate New York cities of Auburn and Phoenix. He is a good friend and I know he will do a great job as chairman. I look forward to working with him next year.

Jeff Carlson was elected NADA Vice-Chairman. Jeff, who is from Glenwood Springs, Colorado, is a Ford and Subaru dealer. He is a South Dakota landowner and loves to hunt pheasants (I have had the good fortune to hunt alongside him and his wife, Nancy). I think South Dakota dealers will find him to be one of us. Jeff and Nancy are great friends and wonderful people.

McConnell, NADA Defend the Dealership-Franchise System

Forrest McConnell III, chairman of NADA, recently addressed the Automotive Press Association in Detroit. He discussed NADA's solution to the Consumer Financial Protection Bureau's fair credit concerns. He also spoke about competition in automotive retailing and how it is the cornerstone of the franchised new-car dealer network, benefitting both car buyers and automakers. You can read more about McConnell's remark's here.

Friday, October 17, 2014

South Dakota's Super Bowl - The Ring-Neck Kickoff!

This weekend, South Dakota will grow by almost 10% as pheasant hunters from around the world converge on our state for Opening Day. At least 75,000 hunters are expected to join the more than 50,000 resident hunters for this annual ritual of shooting our state bird.

There may be no greater migration, as a percentage, into one state for a single event - and it happens every year. This would be the equivalent of 3.8 million people coming to California, or 180,000 coming to Nebraska, or 1.2 million coming to Illinois for a single event. That's not the attendance, THAT'S people coming from outside the state.

This week, luggage claim areas at the airports in Sioux Falls and Rapid City fill with kennels and gun cases. The smaller airports around the state need air traffic controllers as private planes from around the country approach long concrete pads set between corn fields hundreds of miles from motels and car rental agencies.

Sporting goods stores sell enough blaze orange clothing, shells, gadgets and snacks to appear as though they have been looted by the end of the weekend. Some stores may do as much as 20-25% of their annual business in the next 20 days. Hunters will inject as much as $150 million into the South Dakota economy.

Locals will be ripping feathers and guts from the carcasses of dead ring-necks after hours, making a little extra money for the holidays or to pay tuition. It's likely that over 1 million pheasants will be shot this season in South Dakota.

This is our Super Bowl. This is our Final Four. While there are no blimps or sportscasters covering the action, that doesn't make it any less significant. God built our stadium - and He made it as wondrous as any of the monstrosities you can find in metropolitan areas across our country. He didn't include any luxury boxes, but we didn't spend a boatload of public money to build an arena for some ego-maniac owner!

I'm fortunate to live in the heart of the best pheasant hunting in the world. This is my favorite time of the year. I look forward to taking to the field with family and friends. I love the colors in the trees and the chill of fall in the air. I love spending the day in the field with my dog. I love the tradition of teaching the next generation about hunting. I love pheasant hunting.

Bring on the wiley ring-neck!

Tuesday, October 7, 2014

Minimum Wage - Hurting Those It Is Supposed to Help

South Dakotans face a minimum wage question when they go to the ballot box in November. The measure, if passed, would raise the state minimum wage from $7.25 per hour to $8.50 per hour. Perhaps Initiated Measure 18's most significant change, however, would be to require inflationary increases each year based on the Consumer Price Index.

While I do not agree at all with the increase in minimum wage, I think the most dangerous aspect of the measure is to tie an ongoing, annual increase in wages to a national inflationary gauge that reflects economic conditions in California or New York rather than South Dakota.

This idea may sound like a good idea in a growing economy when times are flourishing, but think back to the economic meltdown of 2008-09. Would it have made sense for employers to be forced to give raises to workers in a time when they were struggling to keep their doors open? Mandatory pay raises FOREVER! If it sounds too good to be true, it probably is. Where do businesses sign up for ongoing, increased annual revenues to be able to pay these perpetual raises?

So if raising the state's minimum wage is really a good idea, why do we stop at $8.50 per hour? Supporters suggest that workers would receive more than $46 million in new wages, providing a economic stimulus across the state.

If that is true, think of the economic impact an increase to $50 per hour would have. Why not go to $75 per hour; or even $100 per hour? Think of the new houses, cars, boats and appliances that would be sold. Retail businesses would go wild!

Why that is ridiculous you say. Why? Will $50 per hour have a negative effect on employment and on the economy? How do we know? Why would this wage be any different than $8.50 per hour?

What $8.50 really represents is the politicians best guess at what will make him look like he supports the "little guy" or "underdog". The politician can legislate a raise for the low end of the wage scale. He can buy votes.

Meanwhile, the "little guy" takes the potential raise at face value. He does not consider that he may lose his job. If he is not providing $8.50 per hour of value, his employer may choose to eliminate his job. And if that happens, will he blame his employer or the politician that advocated for a raise in minimum wage?

Business owners will have to raise prices to pay for these raises. The "little guy's" raise does not buy as much as it did. So we must raise the minimum wage again. And so the vicious circle continues.

In Los Angeles, the city council recently passed a $15.37 minimum-wage law for large hotels. However, the law contains a provision that allows unions to waive the requirement in collective bargaining. So if you're a hotel, you have a choice: pay an uneconomic wage necessitating increase in prices to compensate or partner with the union to force your employees into a collective bargaining agreement that will see them earn less and force them to pay union dues (which will end up in the coffers of Democrat politicians).

We have a very good, nearby example of how wages can be increased in a much more efficient way. If we look to our neighbors to the north, we see a perfect laboratory for how to really increase wages.

We hear stories about signing bonuses and $13 per hour starting wages in fast food restaurants in western North Dakota. This is simply a response to the demand for workers being greater than supply. More job opportunities will raise wages every time. Employers are forced to compete for workers and the best way to compete is to offer a better wage or better benefits.

Perhaps we should consider asking small businesses what we can do to help them grow their businesses and create a greater demand for workers. Most of the small business owners I know would say that one of the greatest drags on their business is government regulation.

It is a great risk and a lot of work to start and run a business. If one takes on that endeavor, they should have the right to hire whomever they please and at a wage they can afford. They should be able to give raises to employees who really deserve them. Let us allow the market to dictate whether or not that happens.

I can tell you that I haven't paid minimum wage to an employee for longer than three months for 20+ years. Those minimum wage workers were all summer help who were allowed time off for all there baseball games during the summer (that was a significant number of games!). They were paid minimum wage but they had a very accommodating job!

I hope the voters of this great state make a logical rather than emotional decision in November. Don't throw a wet blanket over the economic engine of CNBC's Top State for Business for 2013.