Don't Buy the Whole Cow if You Just Want a Glass of Milk!

So you think you know what car you want. Now you have to decide whether to buy the car or lease it. For some, there is no dilemma because they either don't think leasing is right for them or they don't understand leasing. Either of those may be true, but you owe it to yourself to learn more about leasing before eliminating the leasing option.

Used vehicle prices have been very strong for the past eighteen months as I noted here. Manufacturers have used the shortage of late model used cars to their advantage in offering lease payments on relatively short leases (less than 30 months) knowing that the vehicles will come back off lease into a strong used car market. So the residual values (what the car is worth at the end of the lease) are higher which means a lower lease payments.

Here are some factors to consider as you make your next vehicle decision:

Leasing Advantages

• Lower Monthly Payments - because you only pay for the portion of the car or truck that you actually use, your monthly lease payments can be up to 60% lower than for a purchase loan for the same car and same term. You get more car for your money. 
• No (or low) Down Payment - when the lease begins, you'll just have to pay the first month's payment, title, taxes, registration, banking fees, and a security deposit. Some promotional lease deals require a down payment to get to the advertised payment. But because car leases require little or no down payment, your cash is freed up for other things. 
• Warranty throughout Ownership - because the lease term is shorter than a purchase term, your vehicle is likely covered during the entire time you drive it.
• New Vehicle More Often - drive a new vehicle every two to four years, depending on the term length of your lease.
• Lower Tax Bite - you don't pay sales tax on the entire value of a leased vehicle as you would if you purchased. You're only taxed on the portion of the value that you use during your lease.
• No Used-Car Hassles - the headaches of  negotiating a trade value or selling a used car are eliminated. When your lease ends, you simply turn it back to the leasing company and walk away.
• Gap Coverage Included - Most car leases automatically include free "gap" protection in case your vehicle is totaled in an accident or stolen, which pays off your vehicle even if insurance doesn't cover the full loss. Loans do not generally come with automatic gap protection.
• Option to Buy - you have the first option to purchase your leased vehicle at the end of the lease at a price that is determined at the time you lease the vehicle.
• Reduce the Risk of Car Ownership - South Dakota has a damage disclosure law which requires that you disclose any damage to your vehicle exceeding $5,000 at the time you sell it. This typically diminished the value of the car significantly. Some states consider SD Damage Disclosure a "Salvage" brand on the title when the vehicle is titled in their state. If you are leasing the vehicle, though you are responsible for carrying insurance and repairing the vehicle, you are not liable for any diminution of value.

Leasing Disadvantages

• Early Termination Cost - if you must terminate your lease before the end of your contract, the cost is usually very high, much higher than might be expected. However, cost can be minimized by making the right termination choices. But because the leases are so short (under 30 months). Most people end their lease on schedule and do not end early, which avoids all early termination costs.
• Little or No Ownership Equity - because monthly lease payments are so low, you typically do not build ownership or trade-in value in your leased vehicle. It is possible, however, that the market value of a vehicle at lease-end is higher than the purchase option price specified in the lease contract — which means you may have some equity trade value. You could end up with a few thousand dollars of unexpected equity.
• Excessive Mileage Charges - here in the Midwest, we tend to drive more miles annually than people do in other parts of the country. If you exceed the mileage allowance in your lease contract, you will be charged for the extra miles at a specified per-mile rate, usually a reasonable $0.20 per mile. A large mileage excess could result in a hefty charge, even at a reasonable per-mile rate. You can reduce your exposure and build the excess miles into the payment if you "buy" the extra miles you expect to drive at the time of lease signing. You avoid the higher end-of-lease charge this way. But be assured on one thing - you pay for those miles whether you lease or buy. The lease can offer a tidier way to incur those charges.
• Excessive Wear-and-Tear Charges - If you return a leased vehicle at lease-end with excessive dents, scratches, or unrepaired accident damage, you will be charged — because those damages reduce the vehicle's value. Most lease companies clearly specify what is considered "excessive" so that you'll know if you should get it repaired before returning your vehicle. Get the repairs done yourself before you return the vehicle and avoid being charged.
• If you have the option to buy the car at the end of the lease (as is often the case), you'll have to make that decision as soon as the lease ends, whereas if you owned the car you could decide exactly when to sell it.

Leasing isn't the right choice for everyone, but if you can take care of a vehicle properly, and can adhere to the mileage restrictions, it may be the best choice for you!

12/4/2012 UPDATE: Five myths about leasing a car
3/7/2013 UPDATE: Kiplinger: Smart reasons to lease your next car

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.”

Why Didn't Anyone Ask That Before?

What is anti-colonialism and what does it have to do with the 2012 American Presidential election? Dinesh D'Souza's Obama's America: Unmaking the American Dream explores that and so much more about our 44th president.

D'Souza is a political commentator, public intellectual and author who is currently the President of The King's College in New York City. He served as a policy advisor to President Ronald Reagan. He has done a magnificent job or researching and documenting this book.

It builds on his previous book, The Roots of Obama’s Rage (which I also thought was a very interesting read), upon which the movie 2016: Obama's America, the movie, is based.

D'Souza believes that another four years will allow Obama to finish the job he has started in his first term, that is to further diminish America's economy and her role in the world. He suggests Obama's ideology is global justice which, to him, means a redistribution of wealth and power away from America and towards the rest of the world.

But it is the building of the story and the documentation - with literally a tsunami of evidence - that is so compelling. D'Souza is a brilliant guy and that seems so evident as you read this book.

I wish everyone would read this, consider the questions and decide for themselves. Whether you like Obama or not, whether you'll vote for him or not, this books vets him as he should have been vetted prior to his election in 2008.

The Granolas' Big Win

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 week 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. I, like most other car dealers I know, 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. My 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!

The Willpower Instinct

The Willpower Instinct: How Self-Control Works, Why It Matters, and What You Can Do To Get More of It is an excellent self-help book based on solid research. The author, Kelly McGonigal, a health psychologist and lecturer at Stanford University, has thoughtfully interpreted into highly understandable and relevant strategies for improving well-being.

The book is a guide for improving your self-control. I learned many good strategies for increasing willpower and how to recognize when I am having a willpower challenge.

Each chapter makes use of fascinating paradoxes to dispel common misconceptions about self-control. The book explains, through science and real world examples, why people act against their long term interest. Then it goes to the next level and provides many different strategies to overcome the most common willpower challenges.

The Willpower Instinct is based on the award winning class which Ms. McGonigal teaches at Sanford University. Her writing style is very conversational and entertaining. She has a keen sense of humor which shows up throughout the book. While she is a college professor, the book was written for the general public in easy to understand language.

McGonigal provides the insight you need to understand--and more importantly, have compassion for--your personal challenges, along with the techniques, tools, and perspective makeovers you need to gain more of that seemingly elusive self-control.

The result is a refreshing understanding of how our brain works and how to train our willpower without stress in order to achieve a better way of living.

August 2012 SDADA Column

Automotive News recently reported that Chrysler has eradicated dealer incentives for customer satisfaction and eliminating penalties for dealers who don't build stores that meet the company's requirements. The automaker is leaving the customer experience and satisfaction up to the dealer.

General Motors tells its dealers that it is focused on the “customer experience” and that EBE is intended to give the customer the best possible experience. The experience is not about what color tile is on the floor, what hangs from your walls or what your receptionist desk looks like (or if you have one). The experience is about the time and care that each customer gets, both during and after the sale.

I learned a long time ago that you cannot pay people to care. GM can’t pay dealers to care and dealers can’t pay employees to care. We must hire people who have pride in their work and have the “people skills” necessary to carry out business as we intend.

I believe that you are much more concerned about providing the customer with a great experience if you sit next to your customers at your kids’ ballgames or at church or at a community function. The culture or a small rural store is much different than at a large store where customers can be (but aren’t necessarily) disposable. In a rural area, if you screw up the customer experience, that news is at the local coffee shop before your customer makes it home.

There does not seem to be anything wrong with the customer experience that GM customers are getting in the dealerships across South Dakota. They continue to reinforce dealership personnel with repeat business. According to the South Dakota Automobile Dealers Association, total market share for GM in South Dakota dealerships from January 2011 through June 2012 was 28.6% which is 68% more market share than GM’s national 18.0% YTD through July 2012. If the customer experience was poor, these customers would migrate to a different brand.

In the above referenced Automotive News article, Peter Grady, Chrysler's vice president for network development and fleet was quoted: "I believe the nature of the dealer is that the only thing better than making $1 million this year is making $2 million, and the only thing that's better than making $10 million is making $15 million," Grady said. "I think a dealer is inherently a competitive animal that wants to always strive to always be in some kind of a competition to make more money."

For anyone who has spent any time in a car dealership, Grady’s comment is obvious. Dealers don't need carrots and sticks from the factory; the marketplace provides all the incentives and disincentives needed. Programs like EBE and SFE are simply artificial carrots and sticks that cloud up the real processes. Multi-tier pricing destroys the credibility of the pricing model in the customer’s eyes.

Get rid of these programs and just focus on building world class vehicles. That has much more influence on the customer experience than any facility anywhere!

NADA Retains Search Firm to Identify Candidates for President

As you may have heard, NADA President Phil Brady recently accepted an executive position with Phillips 66. His resignation was effective August 10. Phil is a good man and has built an outstanding staff at NADA. Our organization will miss him.

NADA has formed a search committee to identify candidates for consideration as NADA’s next president. Former NADA Chairman John McEleney will lead the search committee. After a round of meetings over the past couple of weeks, NADA has hired a search firm to assist with the process. I would expect NADA to announce its next president by the end of the year.

The search committee includes NADA’s current Chairman Bill Underriner; Vice Chairman David Westcott; past chairmen and current NADA board members Stephen Wade, Ed Tonkin and Annette Sykora; other board members Don Chalmers and Forrest McConnell; Kyle Treadway, past chairman of the American Truck Dealers; and Loy Todd, chairman of the Automotive Trade Association Executives. The NADA executive committee named NADA’s chief operating officer and chief financial officer, Joe Cowden, as interim president.

NADA Convention Registration Now Open with ‘Early-Bird’ Special

Online registration and housing for the NADA Convention and Expo is now open. NADA members (dealers and managers) who register by Sept. 14 will receive a $100 discount off the onsite registration rate. The 96th annual NADA convention will be held in Orlando, Fla., at the Orange County Convention Center from Feb. 8-11, 2013. The ATD Convention and Expo will once again run concurrently with NADA.

With several conferences scheduled in Orlando next February, expect hotel rooms to sell out fast. “Convention attendees should register early to avoid missing out on booking the hotel of their choice. Keynote speakers include John Krafcik, president and CEO of Hyundai Motor America; inspirational speaker Mark Kelly, former NASA astronaut and space shuttle commander of Endeavour’s final mission; NADA Chairman Bill Underriner; and incoming NADA Chairman David Westcott.

Who Do I Scream at...

...when the driverless car cuts me off!!??

Anthony Levandowski, Google's autonomous car project manager, spoke to NADA Board of Directors at our summer board meeting in Napa, CA in June. He told us that Google is ready to team up with a major automobile manufacturer.

He told us that Google has tested the vehicle over 250,000 miles and there have been only two mishaps, both of which occurred when the vehicle was being driven manually! He think the next major hurdle will be convincing governments and consumers that autonomous cars are safer than having a human being in control.

Google claims that up to 90 percent of all crashes are caused by human error. Levandowski was motivated to start this project when his wife and son were in a severe car accident caused by driver error. He suggested that the technology could be on the market within three years and could be in wide use in 5-6 years.

Nevada passed a law in June 2011 concerning the operation of driverless cars in Nevada, which went into effect on March 1, 2012. It is speculated that Nevada was targeted as the first state because of the Las Vegas Auto Show.

Levandowski explained (in as simple a terms as possible!) that the car uses video cameras, radar sensors and a laser range finder to “see” other traffic, as well as detailed maps to navigate the road ahead. This is all made possible by Google’s data centers, which can process the enormous amounts of information gathered by our cars when mapping their terrain. The process is explained deeper here.

When asked why a Toyota Prius was used as the prototype, Levandowski suggested that was what they had. The technology is compatible with any make and brand. Google is not interested in marketing vehicles, he said, only bringing the technology to the marketplace.

The emotions in the room as Levandowski made his presentation were very interesting, ranging from heads shaking in disbelief, obvious skepticism at the whole notion of a driverless vehicle and relief when he suggested that Google was not interested in selling vehicles. After feeling each of these emotions and more, I settled at excitement.

It is exciting to see the technology advance and it is very exciting to think we can help make our nation's highways safer. After the presentation, he invited us outside where he had the vehicle. I got the two photos above with my phone.

I'll Have a Carrot with That Stick

The only carrots that interest me are the number you get in a diamond. -Mae West

Automotive News recently reported that Chrysler has eradicated dealer incentives for customer satisfaction and eliminating penalties for dealers who don't build stores that meet the company's requirements. The automaker is leaving the customer experience and satisfaction up to the dealer.

General Motors tells its dealers that it is focused on the “customer experience” and that EBE is intended to give the customer the best possible experience. The experience is not about what color tile is on the floor, what hangs from your walls or what your receptionist desk looks like (or if you have one). The experience is about the time and care that each customer gets, both during and after the sale.

I learned a long time ago that you cannot pay people to care. GM can’t pay dealers to care and dealers can’t pay employees to care. We must hire people who have pride in their work and have the “people skills” necessary to carry out business as we intend.

I believe that you are much more concerned about providing the customer with a great experience if you sit next to your customers at your kids’ ballgames or at church or at a community function. The culture of a small rural store is much different than at a large store where customers can be (but aren’t necessarily) disposable. In a rural area, if you screw up the customer experience, that news is at the local coffee shop before your customer makes it home.

There does not seem to be anything wrong with the customer experience that GM customers are getting in the dealerships across South Dakota. They continue to reinforce dealership personnel with repeat business. According to the South Dakota Automobile Dealers Association, total market share for GM in South Dakota dealerships from January 2011 through June 2012 was 28.6% which is 68% more market share than GM’s national 18.0% YTD through July 2012. If the customer experience was poor, these customers would migrate to a different brand.

In the above referenced Automotive News article, Peter Grady, Chrysler's vice president for network development and fleet was quoted: "I believe the nature of the dealer is that the only thing better than making $1 million this year is making $2 million, and the only thing that's better than making $10 million is making $15 million," Grady said. "I think a dealer is inherently a competitive animal that wants to always strive to always be in some kind of a competition to make more money."

For anyone who has spent any time in a car dealership, Grady’s comment is obvious. Dealers don't need carrots and sticks from the factory; the marketplace provides all the incentives and disincentives needed. Programs like EBE and SFE are simply artificial carrots and sticks that cloud up the real processes. Multi-tier pricing destroys the credibility of the pricing model in the customer’s eyes.

Get rid of these programs and just focus on building world class vehicles. That has much more influence on the customer experience than any facility anywhere!

How You Can Drive a Newer, Nicer Car for Less Money

Would you like to drive a newer, nicer car for less money? Of course you would. Virtually everyone would. What's the catch you ask? There is no catch. Let me explain...

People tend to think of car payments when I pose the question above. While there is no question that car payments are a big component of your transportation costs, there are a few other very important factors.

In addition to car payments, your monthly transportation costs include insurance, fuel costs and maintenance and repair. I would like to challenge you to think beyond car payments and instead focus on all your monthly transportation costs. Let's examine each of the four components.

Car payments - As I mentioned, this is what people typically think about when we talk about transportation costs. Traditionally, a new car means a higher payment. Depending on your current loan terms, a newer, nicer car could mean lower car payments. The current loan environment is perhaps the best we have ever had in the auto industry. At Harry K's, we shop about a dozen financial institutions in order to get you the very best possible rate and terms. We use our volume credit buying strength to your advantage.

Insurance - People often think a newer, nicer vehicle means higher insurance costs. While that may be true in some cases, it is not always true. New and late model used vehicles have many safety features that may actually reduce your insurance costs. If the insurance payment does go up, often the increase is minimal. We have resources available to us that will help you determine what your insurance costs will be.

Fuel Costs - Over the past several years, roller coaster gasoline prices have made everyone more sensitive to fuel economy. Almost every new or late model vehicle will get better fuel economy that an older model of the same type. We have a special calculator that will help you determine how much a newer vehicle will save you in monthly fuel costs.

Maintenance & Repair - Obviously, a newer, nicer car should save you maintenance and repair costs. We also have a program that can help you lower or eliminate these costs.

So your monthly transportation costs are a total of these four factors. If you reduce your costs in one of these areas, it can increase by that same amount on another of the areas and your overall monthly transportation cost remains the same. For example, if you buy a vehicle that gets better fuel economy and will save you $15/month (remember we have a special calculator that will help you determine this) your car payment can increase by $15/month and your overall transportation costs remain the same.

I'd love to show you more exact data that deals with your specific information. Call Harry K Chevrolet at 800-888-0544 or Harry K Ford at 800-888-1419.

I Have a Procedural Matter!

“Law is not a profession at all, but rather a business service station and repair ship.”. ~Adlai Stevenson

After the NADA task force meeting, there is very little I can report. There is this stupid issue of "attorney-client privilege". As much as I would like to share what happened today, there is too much riding on it! But I will suggest that things are moving forward!