At some point in the not-so-distant future, one or all of The Big 2.5 will go bankrupt. It will not be the end of American automaking. The company or companies involved will finally be free to jettison terminally ill brands, abandon onerous union contracts and trim their bloated dealer network. It will be a new dawn for the U.S. car industry. Or not. The same bureaucratic forces responsible for Detroit’s current decline and inevitable fall may continue to cling to power, until, like TWA, even the company name disappears into the mists of time. To avoid that ignominious end, management must use bankruptcy to change the 2.5’s culture. These are the principles they must live by.
Obviously, this isn’t an original or particularly insightful thought. But it is true. A car company exists entirely at its customers’ pleasure– so it better make damn sure every single interaction with its owners is entirely pleasurable. To that end, the situation down at the dealership must be sorted out once and for all.
At the moment, car dealers’ profits increase in direct proportion to their ability to screw their customers and bilk the manufacturer. The more a dealer charges a customer for their purchase, financing and service, the more money they make. The more they can extract from the manufacturer, the better their bottom line.
This paradigm must be turned on its head. Dealers should be rewarded in accordance with their [proven] ability to give company owners the best possible deal, finance and service. If healing the wound requires “no haggle” pricing or the elimination of franchised dealerships, so be it.
As an owner, the customer also requires complete transparency and accountability from his or her employees. Anyone who draws a paycheck should be ready, willing and able to provide honest and accurate answers to any customer inquiry about any aspect of the business.
Meanwhile, management should use the new media to supply relevant information about the company and its products to its owners. If a problem arises, it should be reported to the owners immediately, so that corrective action will follow.
Customers are a car company’s greatest– some might say only significant– asset. To use the expression of the day, car company employees must “take ownership” of their customers. The words “this is a customer satisfaction issue” must trump any other bureaucratic concern, triggering urgent and unlimited action.
To achieve this goal, management must foster a culture of paranoia. All employees must believe that their customers are about to defect to the competition. All employees must measure their performance against the goal of preventing that unhappy occurrence.
“Lost” customers must be wooed back into the fold at all costs. A defection must be analyzed in a timely fashion and appropriate customer reacquisition initiatives launched. Again, there can be no bureaucratic impediment to this process.
At the same time, the company must actively engage its customers in a never-ending conversation. This dialogue should not be restricted to customer service specialists. Employees throughout the company should be required to engage in frequent and direct customer contact. Information derived from these conversations should be actively disseminated throughout the company.
A car brand is an automaker's raison d'etre. It's a solemn promise to its customers/company owners. If an automaker commits a brand to “building excitement,” then excitement must be built. Everything a company says, does and thinks must be aimed at fulfilling the brand proposition. Everything.
Viva La Evolution!
To foster complete customer-oriented consistency, no product should ever be considered “finished.” Product improvements must be made constantly and quickly. Design teams and support services must evolve in accordance with this goal.
If an automaker removes a model from production, the company must remain fully committed to owners’ ongoing satisfaction.
To assure corporate creativity and flexibility, no product, policy or practice should be considered sacrosanct. While maintaining a seamless customer service, management must constantly seek to introduce chaos into the design, engineering, manufacture, sales, marketing and service process.
To foster a culture of constant change, employees must be encouraged to establish a portfolio of skills across a broad range of disciplines– before they settle on a suitable area of responsibility. Term limits should apply to the head of any department.
All employees must become product specialists. Every employee should know everything about the company’s vehicles AND all competitive products. They must drive both the company’s lineup and the competitor’s products for at least seven days.
Yes, all of this is common sense. But as Voltaire said, common sense is not so common. While The Big 2.5’s union straight jacket prevents this kind of cultural shift, bankruptcy removes that particular piece of attire. While the domestics’ current management is antagonistic to large scale change, bankruptcy will remove them from office. And while none of this is happening, it will.
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American manufacturing will continue going under for as long as short-term profit motives are allowed precedence over long-term profit building.
Jim Press, of Toyota, was in Japan and had a wonderful corn soup. He asked the waitress for the recipe, and she asked the chef – who said there was no recipe; it had been handed down by his mother.
The next morning, the waitress came to Press’ hotel room; she had found a cookbook with a recipe for the soup.
Press, apparently, was still her customer.
“That blew me away,” Press said when recounting the story.
The difference between short-term profit motives and long-term profit building.
For twenty years, at least, Detroit has suffered from the first.
Stein X Leikanger:
Of course I agree with the main thrust of your argument, but I am puzzled by the propagation of Press' soup story (which originated in the recent New York Times' Sunday magazine love letter/feature).
Call me a nit-picker, but the waitress gave Press "a" recipe for soup, not "the" recipe used by the restaurant.
Just sayin'.
great article, a 3 minute MBA course, really. and i agree with the first comment except that these issues are not restricted to the manufacturing sector. our whole &$%# business establishment has spent the last 200 years trying to increase short term profits by hook or by crook. but as the pace of change has increased in the past century, the blatancy of it all has gotten absurd.
and that’s the part i would add to the discussion. not all of the issues above are ethical, but a bunch are and those that aren’t directly can still often be traced to that source.
since the whole column was based on ‘ideals’ that are admitted to be far-fetched, i would add to it that dealers should not WANT to screw the customer simply because it’s WRONG. and that culture needs to stop not only in car sales but all over. as charles schulz once said, ‘greed makes people do strange things’.
on the plus side, i live on long island where things are hyper competitive. but as far as car dealers go, some of the best ones are starting to get the customer service/relationship thing. not all, but a few. we now use dealer service for 2 of our cars, something we never would havce thought of a few years back.
but bottom line is that these ideas apply across the board, not just to cars. and while the bankruptcy thing is likely, i’m not hopeful about the sea change it attitude happening as well.
The only thing that a car manufacturer hates more than those bloody customers with their nit-picking warranty claims are the dealers who double dip.
Charging the customers for repairs after persuading them that the failure was their fault and then sending an invoice to the manufacturer as well.
The idea of eliminating dealerships entirely and staffing tech centres with engineers who understand and are interested in their product, has been floated before.
If all that RF suggests came to pass, we may as well close our independent shop and go home. Because at least half my customers are fugitives from bad, double dealing service at a dealership.
This article claims that Ford’s asset mortgaging is about as close as bankruptcy without calling it one. I don’t know enough about financials to comment, but someone want to take a stab?
RF- Call me a nit-picker, but the waitress gave Press “a” recipe for soup, not “the” recipe used by the restaurant.
Whether it was “a” recipe or “the” recipe isn’t what impressed Press – it was the fact she did everything she could to try to satisfy “her” customer. Can you think of any American company – large or small – where an employee would have done something like that?
The first company that takes this article and substitutes “shall” for “must” everywhere it appears, making this a contract with their customers, will be the survivor.
starlightmica:
That's some scary stuff. Without running the numbers, I'll simply say that reinvention is the point of bankruptcy.
Avoiding Chapter 11 protections means avoiding the cultural upheaval that must occur for Ford (or GM and Chrysler) to thrive now and into the future.
Frank Williams:
Great landing, wrong airport.
Robert, very asute comments about the dealer. i am an ex dealer who tried and for the most part succeded to operate the way you described. It is extremely difficult to do, because of the factory and the number of dealers of the same brand in each market are. basically Ford, GM, and Chrysler are so over dealered, it is extremely hard to make a profit. I dont see any way out , except for the scenarios you describe. Thanks
Both Ford and GM owe too much money to go bankrupt. Several years ago the figures on bonded debt was $108 and $350 billion respectively. The US economy cannot tolerate a default of this size without disasterous consequences. On the financial front you can expect some form of US Govt help, whether we like it or not. The financial community will insist on it. So look for some form of continued existence with just cosmetic changes.
@ RF
There’s a very good reason why this story deserves to be propagated, restated and exponentially spread.
As to your comment:
Press asked for the recipe, not the soup.
The waitress felt obligated, as her customer had made a request — and she sought him out the next day with a corn soup recipe.
It is precisely this sense of obligation, when it comes to the needs of their customers, that the 2.5 have been deaf, dumb and blind to. And that has landed them in trouble.
When “product innovation” comes down to how heavy, ungainly and souped up you can make a vehicle there’s bound to come a point where the product will disconnect from its buyers.
As you, I am actually looking forward to the changes about to happen in US automotive. They are necessary, and they would not come about if it wasn’t for a “cataclysm” threatening. We’ll end up with better and more relevant cars.
Can you think of any American company – large or small – where an employee would have done something like that?
Nordstrom’s department store pretty much hits the mark. Starbuck’s also does pretty well at being customer focused, though they are struggling to keep it up as they grow. Hmmm, both are Seattle based companies. Trader Joe’s is another example of a customer focused, well run consumer contact company. Maybe Ford needs to change it’s name to Ford’s :).
In the automotive world, the Lexus division of Toyota USA has got it mostly right.
You can tell if a company has it right by the passionate loyalty of their customers, which customers become advocates. Mercedes used to have this and so did Cadillac going further back. Both brands squandered customer loyalty by delivering substandard products.
I don’t believe the feds will bail out the 2.5 on the too big to fail hypothesis, unless of course the next presidential election sweeps an all-union-loving group into power.
Unlike the Japanese, North American business does not focus on long range goals. Capitalism here concentrates on generating near term profits.
At least one of the Detroit auto manufacturers may go private, bought out by private investors. With stock market players eliminated the ability to engage in long-term planning and decision making will be restored.
Manufacturers have been pushing dealers to focus on customer satisfaction for over twenty years. In most cases large bonuses are tied to CSI scores.
Problem is, the system is corrupt. How many people here have been pressured by the dealer to give them top scores on the CSI survey?
Of course, this could only happen if the OEMs weren’t trying all that hard to eliminate such corruption. There’s a lot of going through the motions.
I spent a year-and-a-half inside GM, and wrote a thesis on what I saw as the core problem with that company. The executive summary of the report I submitted to GM:
http://www.truedelta.com/execsum.php
My fieldwork was a decade ago, and GM has taken some steps in the right direction against then. But as far as I know the career system in all of these companies remains unchanged. There’s still a culture of rapid promotions, not a culture of expertise.
Gardiner,
One of the companies has always been essentially privately held: Ford. The family owns 40 percent of the voting shares.
Which you’d think would give Ford more of a long-term perspective. But they’ve had much more trouble than either GM or Chrysler in picking a direction and sticking to it. It seems that, instead of serving as a stabilizing influence, the family has served as a politicizing influence. Must be like a European court in there, with executives fighting for the family’s favor, and this favor never secure and frequently shifting about.
Capitalism here concentrates on generating near term profits.
I agree that there are many American companies that do this but this seems to excuse the big 2.5; “They’re American. What are you going to do?” There are plenty of examples of well run American businesses and poorly run Japanese ones. These companies are responsible for their problems.
The idea of eliminating dealerships entirely and staffing tech centres with engineers who understand and are interested in their product, has been floated before.
I believe that this would work very well.Its something I’ve been saying for a few years.Placed in areas were G.M. or Ford sales are really weak along with a few in areas of moderate strength.
Let the proof of these”centers” shine through–at this point in time what do either of these companies have to lose.
craigefa:
I agree: it’s simple Darwinism. If companies that concentrate on near-term profit do well, they will survive. If not, they won’t.
The customer decides.
The ‘deal’ mindset is a big problem. I mean, I like to get a deal as much as the next guy, but I hate constantly have to guess a) if the deal is really the best deal presently or b) if the deal will be better in a month. I think all the car manufacturers do it to some extent, but I do think the Big 2.5 are the worst offenders. That is due in part to an outdated way of thinking. Price negotiation is one thing, deals incorporating financing rates, incentives, etc are another.
I always tag along with friends when car shopping, and I don’t know how many times my friend(s) were offered a deal that was only good for that day, or that weekend. I even had one say ‘If you come back on Monday, we can’t offer you the same deal’. So, my friend quite rightly said ‘Well, I guess there’s no point in me coming back.’ Ooops! As my boss once said, there’s always another deal coming, and any supplier who thinks they can pull this ‘act now’ crap is dreaming.
Another example of how bogus the deals are is this famous employee pricing crap. A friend of mine who is an engineer at Ford checked out the best deal he could get through employee pricing, and then went to a dealer (as an ordinary citizen) and swung an even better deal.
The proliferation of dealers presents some unique opportunities for deals (for customers) and an opportunity for a race to the bottom for dealers. One of my profs was car shopping and had a particular Ford in mind. He found virtually identical cars on three lots, went to the salesman at each place and said ‘I’ve picked three cars at three dealers. Here is my cell. The deadline is an hour from now. Whoever calls with the best deal before then gets the sale.’ He didn’t specify the particular cars or the dealers, making it difficult for them to collude. I don’t know if I’d recommend this approach, but it does make the dealer keenly aware that competition is ferocious and that the ball is completely in the buyers court for virtually any vehicle you can imagine. (And yes, he got a screaming deal before the deadline.)
Problem with companies going bankrupt is as follows:
Creditors will come first and retired employees last.
What the above means is that pension fund goes underfunded and all of a sudden a senior will see his monthly income significantly less.
It happened to steel workers of the past and might happen with software companies in the future. This scares me.
Wegmans, the NE supermarket chain is a great example of a business that does it right. I once bought a video at the store and somewhere between checkout and my car it vanished (I’m sure I just dropped it). I asked the Front End Manager if someone had turned in a dropped video and he said no. I went off to go buy it again and he stopped me and sent one of his people to get me another copy free of charge. He didn’t ask to seem my receipt, he just believed me. And made a customer for life.
Believe the customer, treat him right, empower lower level people to make decisions that might cost in the short run- that’s how you build customer loyalty. Why can’t the car companies get this?
Here’s another problem (and I could go on and on for hours about this subject).
Years ago, 60 Minutes sent a female and then a male producer into a dealership to buy the exactly same car.
After two hours of negotiation, the female came up with a final price.
The males’ initial starting price was lower than the females’ negotiated one.
When faced with the hidden camera tape, the sales manager said that it was essential to get more money from women, because they are notoriously troublesome in the service department, or words to that effect.
Which in my experience is simply not true.
It’s us men who think we already know what’s wrong with our car.
Women, if they trust you, trust you, which may be the problem the sales manager was referring to.
Many dealerships still advertise exclusively in the sports section of the newspaper.
The mind set continues.
I absolutely agree about Wegmans, Nordstrom, and Trader Joe’s. Nordstrom in particular amazed me when the person in line in front of me returned a shirt without a receipt or tags that was the Macy’s house brand. Whether or not the customer realized it, the Nordstrom employee certainly did, and made no mention or fuss about it at all. That’s customer service.
I really feel the same way about the problem of dealers, and quite honestly cannot imagine what the business case is for having independent franchised car dealerships, except as a way for a company to have a distribution network without spending money on it. Beyond that, independent franchised dealers are horrible for the automobile industry.
By the way, there are sociological and economic studies (and if I have time today I’ll dig one up) that people must feel as though they negotiated or got a good deal or tried to feel satisfied in big transactions, even if that means realizing they got ripped off as “part of the game.” This would cut against everything I think, but might be worth something anyway, in a “perhaps there is no feasible way” sense.
Finally, I should mention Jim Dollinger. For those of you who haven’t run across “Buickman,” he’s a former salesman from a midwestern Buick dealer. He was what a car salesman should be: best price up front, delivered cars to buyers’ homes (and signed the final paperwork there, too), and so on. He sold 500-1000 units per year himself. You can read about him here:
http://www.jdollinger.com/Buickman/index.cfm.
I would make an important point that Mgmt must satiate the actual customer’s needs and wants – not the share holders. Deliver products to the customers not guaranteed dividends to share holders. Make the growth of the stock the reward not kickbacks and dividends an occurance only when business is doing well.
R&D needs to be the determined focus. Management needs not be soley comprised of accountants and sales / marketing “yes” men/women. Have engineers at many of the highest posts in the company to reduce the big careless messes – such as Ford’s cc fires that takes major news and NHTSA firm word to even recall (I read some 16M of Ford’s have this potential fire problem).
Care about your customers and their health / safety. For the last 30 years I’ve only seen the Big 3’s greatest concern was their stock and their stock holders. This is a poisonous focus of only looking in the short term to make a quick buck or spend as little as possible to just fill a gap with a failure from the start. This is Mgmt failure at the highest level and they need an enema to pass out these self entitled malignent tumors.
At the risk of sounding cynical, let me offer the observation that car makers are the size of small countries, and need leaders with a strong vision, like a Taichi Ohno or Soichiro Honda, to overcome the “same bureaucratic forces.” RF’s editorial is a sample of current management theory for consumer-based manufacturing, which boils down to the need to inject humility into the company culture. I don’t see that happening in any of the existing dinosaurs, even after Armageddon.
But the combination of chaotic forces in the marketplace and unyielding demand for personal transportation should lead to some surprises in the future – say, ten or twenty years out there. I would wager that the American company that will be able to take on Toyota will look more like Tesla Motors than some reincarnated GM.
Re Seth’s comment…
What the above means is that pension fund goes underfunded and all of a sudden a senior will see his monthly income significantly less.
It happened to steel workers of the past and might happen with software companies in the future. This scares me.
You shouldn’t be scared.
Few, if any, software companies offer a retirement-to-grave benefit of stable income and health benefits. The fact that unions (and management) in the steel, airlines, and auto part industries couldn’t/wouldn’t see the demographic and fiscal nightmare that such promises implied shows where the 2.5 are headed.
A bankruptcy mandated re-org that dumps dealers, cans idiot management, and straight-jackets UAW insanity can pave the way for a Ford and/or GM re-birth. Maybe even a hedge-fund owned Chrysler would work with DCX picking up some pension cost.
This “customer owns the company stuff” sounds ideal. It may work with Apple Computer Stores, and Nordstrom, but my guess is that the “owners” would demand such unreasonable things of automotive companies that they would tank even more quickly.
I have seen highly educated people carp about stuff with their cars that is clearly, obviously, slam-dunk either the result of abuse, neglect, or normal wear, then brag about running all the gas out of the loaner they didn’t deserve and abusing it while they had it. Meanwhile being entirely unpleasant and ugly with the auto dealership employees through it all….just because they are in the position to do so.
If you’ve ever been a waiter or a service sector employee, you know what I’m talking about…the customer who enjoys feeling that you are there as their servant, and expects you to devote your entire being to them in a situation where it is obvious that you are serving several other tables simultaneously.
If you have never been in a subserviant role at some point in your life, you should experience it. When you empower these types of folks to this extent, I wouldn’t want to be on the front lines. Statistically, there are enough of them to ruin it for everybody.
As always, it will end up somewhere in between the extremes. Decent honesty, fairness, transparency and responsiveness; yes. Total customer control; no way.
Would love to see the Dealerships give consistantly good service–in all departments. A few years ago I bought a brand new Nissan in Georgia. The dealership and sales staff were great. Called to make sure I was still enjoying the new truck, sent small gifts at my birthday and Christmas, etc… BUT the truck had a lot of gremlins out of the gate. Computer problems, a defective tailgate latch, and a few other moderately annoying issues. Which led me to deal with their service department. I will NEVER buy a new Nissan again because then I’d have to deal with the service departement or Nissan’s national office (recalls and such, which has been an issue on a couple of used Nissans). Kind of sad that had they been reasonable on about 3 grand of warranty work I’d still be a loyal customer, they certainly did everything else right. When the truck was totalled I went back to Ford and GM.
Jaje I would argue that management of the big three actually has not made the shareholders needs or wants a true concern. Their stock performance has been historically abysmal with the exception of Chrysler before the takeover. I believe this stems from the fact that the board of directors is as RF call them a board of bystanders. With no threat of a change of management, GM and Ford’s upper management simply present a veneer that they are shareholder oriented but the reality is that those companies in my opinion are run not for the benefit of the customer, not for the benefit of the owner/shareholder but they are run for the benefit of the management. The unions are the beneficiaries as well.
Total customer control; no way.
weir,
In my experience, I have never bitched or moaned at any store/dealer. Still I got shabby treatment. I mean those guys dont care. Even at a hotel, the waitress doesnt care. Nobody in North America is subservient anymore. It’s like I am being subservient to get the money and am subservient while I give the money as well. this is ridiculous and happens only in here. I know why too. You see the front line person is on an employee of a company and to companies you are just one small source of income. If not you, then there are others who will pay. For companies who pay you, its the same.. if not you there are others. So when you get money, you are subservient since you have only one client. But while you pay money, you can still be treated like shit since you are only one among a zillion clients.
This is exactly why GM’s potential purchase of Chrysler from DC might be a shrewd idea, if one can even use that term to refer to GM management. One of the not-so-big 2.5 has to leave the marketplace. There is not enough room in the US marketplace for 2.5 domestic manufacturers. If GM and C merge, Ford is history.
While bankruptcy might be “good” for the Big 2.5, taxpayers could possibly foot at part of the pensions…
From the Pension Benefit Guaranty Corporation (PBGC):
Dispatch from the Trenches
“The pension insurance program is there to protect workers’ benefits,” said Mr. Belt, who took over the agency [PBGC] in April. “It shouldn’t be used as a piggy bank to help companies restructure.”
Can you think of any American company – large or small – where an employee would have done something like that?
I used to work for a small family owned lumber retail / hardware store. We serviced a small but highly loyal customer base because we routinely provided service like this. We thrived, unlike some of our local competitors, when big box retailers The Home Depot and Lowe’s came to town.
Where else could a customer walk into the store and seek immediate satisfaction from the CEO? Many of our employees had actually worked in the building industry and had first-hand experience using the tools and materials we sold – unlike the typical red or blue-vested morons employed by the Big Box retailers.
Yet, this business model is destined for failure or limited success. In the final analysis, most people are cheap, despite noble proclamations that they are willing to pay for good service and quality products.
It goes back to that line from one of GM’s past CEOs: “We’re not in the business of making cars; we’re in the business of making money.”
It may be factual, but it’s probably the most poisonous statement a CEO could make.
Robert Farago:
…management must use bankruptcy to change the 2.5’s culture.
That may well be true.
However…
From the American Enterprise Institue (June 2006):
“In 1961, Nat Weinberg, director of the Special Projects Department of the United Auto Workers (UAW), informed union leader Walter Reuther of a big new idea: have the government guarantee pensions in a way similar to deposit insurance.”
“Thirty-two more years have passed. Today, the [Pension Benefit Guaranty Corporation] PBGC reported liabilities exceed its assets by $23 billion.”
The problem is, according to Newsweek (via MSNBC):
“Bailing out the airlines would not be the end of the world, says the PBGC’s former chief actuary Ron Gebhardtsbauer. In the worst case, the agency’s $10 billion deficit might rise to $40 billion—small scale compared with the S&L debacle, he says. But behind the airlines lurk autos and other weak industries. If the PBGC can’t collect enough to pay benefits, who’s on the hook? Friends and taxpayers, look in the mirror. We are.”
While Congress reformed the PBCG in the summer of 2006, the jury is still out as to wheather this fix will work. While people have frequently predicted doom and gloom for this program, it’s certainly something that bears watching…
From Wiki: This is not likely to happen again:
“When Enron went bankrupt, many workers lost not just their jobs but also most of the value of their retirement plans.”
But just in case:
“Congress inserted trust law fiduciary liability upon employers who did not prudently diversify plan assets to avoid the chance of large losses inside Section 404 of ERISA. However, if the fiduciaries are broke when the plan fails, there are no deep pockets to make the employees whole.”
And while:
“PBGC is not funded by general tax revenues. PBGC collects insurance premiums from employers that sponsor insured pension plans, earns money from investments, receives funds from pension plans it takes over, and often recovers a portion of the unfunded pension liability from the plan sponsor’s bankruptcy estate.”
Keep this in mind:
“PBGC is headed by an executive director, who reports to a board of directors consisting of the Secretaries of Labor, Commerce and Treasury, with the Secretary of Labor as chairman.”
RF Great Editorial, I think you hit it the nail on the head. First in that satisfying the customer is what is important and second that the culture has to change. Bankruptcy might legally get the automakers off the hook to contractual obligations to dealers and unions but I don’t necessarily see that automatically changing a culture that needs changing.
My evidence is the tone that is reflected by the GM PR hack you dealt with as well as by the tone reflected on many Internet forums by the employees of the domestic makers. If you don’t like their product and state that opinion and the reasons why then the attitude reflected back is that the problem is not with the automobile but with the reviewer.
How many times have you heard the claim that the media is biased? How many times have you heard that consumer reports is biased? How many times have they ignored the call for modern OHC engines instead of OHV, 5 or 6 speed automatic transmissions instead of the 4 speed automatics, high quality up to date small cars. How many times instead have you heard justifications for the OHV (reliable fuel economy), the 4 speed (good enough) and the response that Americans don’t want small cars clap trap? Yet these same automakers which ignore these concerns wonder why they have lost market share and are pleading for people to try their product.
The standard spelling is straitjacket, not straight jacket.
This is my first post because I usually agree with what you are saying. However I wanted to point out a few things from my point of view this time.
The “no haggle” pricing will never work in America. I am a car sales person for Saturn and the no haggle is of course or biggest point. You can not believe the amount of people that will not buy a car from Saturn or Scion simply because we don’t horse trade. Haggling a car price, especially for rednecks, is an essential part of the car buying process. They want to feel they win. The newest generation of Americans are steering away from this, but you will lose a lot of people wondering “What the hell are you doing, this is America Gawd Dang It”.
And as far as pricing goes, I don’t think it is an issue. Most little boys collected something of value when you were kids. I personally collected baseball cards. I had a mint condition Ken Griffey Jr rookie car, booking at around 300 dollars. However, the most I could ever get someone to buy it for in my home town was 60 bucks. That is because no one saw the value. I went to a car collector convention and found someone willing to pay $445. They found value in my product. It is the same with cars. You may not be willing to buy a new Tundra from me for $36,000. That is because you don’t drive trucks and don’t realize how nice it truly it. The farmer that comes in next will jump on the price because they percieve the value in the car. They know that at $36k, they willl get their money’s worth. Hell, they would get the money out of $38k the next town over.
It doesn’t matter if I sell a car for an extra $1-5k. If you don’t think it is worth it, you won’t pay the $1k. If you do love the car, you will pay the $5k and happy to do so. Don’t take pricing as dealer greed, because car sales is the only way some of us with no college education can make enough money to raise and support our family. Same way with everyone else’s job. You can easily get paid less, but if you had the opportunity to make a little more profit, I guarantee your boss would do it!
Great article. I agree with the points submitted and would ad one sentence of commentary: This isn’t that complicated, but it’s not easy to do.
I equate to the 2.5 as a drunk with a shot gun shooting at a moving target. Best advice is to get out of the way. No matter how much perfume they spray on the turd, that’s what they have become.
I disagree with ” TheNatural ” I was there. The Saturn one price process was the beginning of a new era!!!!!!!
A Saturn dealer was a financially sucessful dealership !!!
The owners has territories , dealer to factory contracts that garanteed one price selling !!
I was so jealous !
Then GM left them to rot…..
The biggest irony, of course, is that “management gurus” like Tom Peters have been promoting exactly these concepts (obsessive customer focus, thriving on chaos and change) for twenty freaking years! And no one at the big SQRT(PI) have ever bothered to listen.
Like Farago says, they need a Chapter 11 kick in the pants to pull it off, given the weight of legacy contracts and costs. Personally, I don’t see the leadership there to make the required changes, Ch11 or not.
I’m not convinced that this is all common sense as you say. Executive term limits, for example, have not been unanimously established as a good thing in all cases. For every injection of “fresh blood,” you’re also removing years of experience from a position where that experience may or may not be more valuable than where they are going after their limit. In addition, it creates the same environment seen with political term limits, where the incentive towards the end of the term is not to perform well in the current role, but to set oneself up for performance in the subsequent role. Introducing more politics into the corporate environment is not exactly something I would pursue.
Glenn Swanson:
I should just mention, a large part of the responsibility for the fiasco with retirement plans of Enron employees rests in their hands due to having invested their retirement funds in the company they worked for, a big no-no even before the string of corporate malfeasance scandals. It’s especially unlikely that this will be the case again post-Enron, and if it were, the responsibility would have to lie totally in the hands of the employees.
richard whitman wrote “The financial community will insist on it. So look for some form of continued existence with just cosmetic changes.”
That comment makes me sad, richard.
I hope that you are wrong and Robert is right, because all one need do to look at the results of what you said, is to look at the history of British Motors Corporation / Leyland / British Leyland / Rover Group / MG-Rover.
The fiasco (if you don’t know, I’ll sum it up by saying the British taxpayers poured billions into a bottomless pit for decades) ended up with the Chinese owning what (very) few assets were left and the ruination of an entire industry in a nation.
Britain has NO automobile manufacturers of any major size owned and headquartered in the UK now. Not one. This is quite a come-down from being one of the major players in the worldwide automotive industry 50 years ago.
Chaos. at least 1 plant already operates that way already.
strike that second, already.
Provocative article.
The most successful dealers (measured in profits) DO NOT depend on their ability to “screw the customer.” Far from it. That’s a much bigger story for another article. But I will tell you that it’s a RARE industry selling inventory where the mark up is so modest. I believe the average gross profit % hovers near 4-8%. Not even Costco sells something for so little markup!
Do you realize how difficult it is for a domestic dealer to make a profit in the new car department? Of course there are some charlatan dealers –but please tell me why you think that’s unique to the auto retailing sector!
There have been statements that warranty coverage would continue despite bankruptcy. Is a company’s “warranty reserve” truly an escrowed pot of cash held by a third party trustee, or is it just an accounting entity like a payable to a supplier? If it’s the latter, car owners would be no better off than any other unsecured creditor. I suspect a major reason for declining sales at the big 2.5 is fear (reasonable or not) that warranty protection may simply vanish in the event of bankruptcy.
“Everything a company says, does and thinks must be aimed at fulfilling the brand proposition.”
As one example of this; how about this for a first test ride:
http://www.nuerburgring.de/1_nuerburgring/bmw_ring_taxi/index.html?L=1
I think that until an actual turnaround has been completed, no single high-level manager or board member of any of the big 2.5 should be considered by other companies for high-level management or boards.
Really, until the turnound can be measured, I consider the whole bunch of them to be incompetent to the point where there is a stink in the air. They’re not up to the task.
Why reward incompetence?
Stein X Leikanger:
Robert Farago’s response to Stein X Leikanger:
Well, maybe it’s possible that given an insurmountable barrier to 100% customer satisfaction, the waitress thought she would do the next best thing, and bring him a recipe that was at least “close” to what he originally wanted.
What would happen if you go to a car dealer’s service department for some basic maintenance and they didn’t have your oil filter, or your model’s specific headlight, and the local distributer was all out?
They keep your car overnight or send you home un-fixed to wait for the part or consumable.
Sure, these things happen from time to time. Insurmountable barriers. A good dealership will at least make it worth your time by either giving you a loaner or at least a free oil change or two. I use Amsoil, so I’d prefer the latter.
I’ve never known a GM dealership to do either. But in my and my friends’ experience, the local Mercedes and BMW dealerships’ll do right by you.
In my opinion, companies should always have a “Next Best Thing” plan, and it should be a good one.
Just sayin’… :)
Robert, I can’t speak of other manufacturers or dealerships, but ALL of the “rules” you propose that apply to the dealership end of the equation are in full force at the dealership where I am employed, and have been since I started there 25 years ago.
Example: A car comes in for warranty work. The customer is mailed a survey and the dealership in total is graded on the experience. There are monetary rewards and punishments for exceeding or not meeting customer satisfaction expectations. As a technician, I am graded on “Fix it Right the First Time” and “Quality of the Repair.” Advisors are graded on everything from appearance to demeanor, from keeping the customer advised to cleanliness of the car after the repair. The dealership is graded on cleanliness, waiting rooms, bathrooms, EVERYTHING.
I suspect many other dealerships and manufacturers have similiar programs in place.
This is a feedback issue pure and simple. We keep, our customers, retrieve lost customers, and do WHATEVER IT TAKES to make their car buying and servicing experience a pleasurable one.
And the beauty is…it takes no more effort to do this than just doing your job correctly. Common sense.