Is Tesla Engaging in Potentially Illegal Sales Practices in South Carolina?

Company representatives of Tesla Motors were photographed in Mount Pleasant, South Carolina this week demonstrating and displaying vehicles and possibly violating the law.

The State of South Carolina has laws in place that govern car dealer practices, including the display of vehicles and interaction with company representatives. However, it appears that the automotive manufacturer may be pushing the boundaries in lieu of building actual dealerships.

In South Carolina, a franchise dealer or manufacturer must at a minimum obtain a temporary dealer's license in order to properly and legally display vehicles. Further, company representatives are not supposed to engage in direct selling or demonstration of display vehicles offsite. Tesla brought along a vintage Airstream trailer doubling as a portable showroom along with two display vehicles. Tesla marketing materials also festooned the display area as individuals clothed in Tesla gear demonstrated vehicle features.

What is questionable is whether the electric vehicle manufacturer obtained the necessary dealer license to legally display said vehicles. There was no visible temporary dealer license visible at the offsite display, and when asked, representatives were unaware of such a requirement.

Tesla Motors representatives can clearly be seen engaging with potential customers at the offsite display and given the applicable statute, it would appear that the manufacturer could be in direct violation of the law. 

This issue is what would seem clearly problematic for a manufacturer who is now experiencing reported financial problems, some of which may be a direct result of their failure engage with actual showrooms and dealers prepared to sell the product. One could readily speculate that this questionable effort recently seen in the Charleston, SC. area suburb is not a positive indication of future success for the otherwise innovative auto manufacturer. 

Copyright 2017, Robert Liotti. All Rights Reserved.

Why Ego is Destroying The Auto Business

https://www.linkedin.com/pulse/why-ego-destroying-auto-business-robert-liotti?published=t

The Car Business Insider Show #003

Global Automotive Consulting Group Mission Statement - Why Your DEalership Should Hire This Firm

The Car Business Insider Show #001 - Employee Retention and Burnout

The Car Business Insider Show Introduction 01/10/2017

The 'Dealer Fee' Scam Revealed in South Carolina

Have you ever purchased a new or pre-owned vehicle from a dealer and were preparing to sign the purchase agreement (buyer's order) when you came across a bold section that said 'dealer fees'? If you, so are not alone. Dealer fees are not only legal in most states, but the State of South Carolina is currently considering a bill that will nullify impending lawsuits against dealers for collecting this frivolous fee.

Car dealerships are big business as we have discussed time and again. And, we here at the Car Business Insider are supporters of the automotive business, but firmly believe that dealers are lack integrity are rampant. Thus, our mission is to educated dealers and those employed in the industry as to the pitfalls of low-integrity auto business dealing and to raise the otherwise low barre that seem to persist in the industry.

Car dealerships are also big businesses for cities and states. They collect hundreds of thousands of sales tax dollars for the state and also pay fees applicable to doing business, such as: taxes, disposal fees, environmental fees, etc. So, it isn't difficult to imagine that they also have a big lobby at your statehouse. That is certainly the case in the State of South Carolina as auto dealers are scrambling to convince lawmakers - your lawmakers - to reverse the court's legal position on improperly assessed doc fees.

The following is a Notice of Class Action Settlement levied against a Hendrick Auto Group dealership in North Charleston, SC., specifically Rick Hendrick Jeep Chrysler Dodge Ram:
http://www.noticeclass.com/upload/ClosingFeeSettlement/rick-hendrick-jeep-chrysler-dodge-ram/JeepNotice2.pdf .

The result of the suit amounted to about $1.5M in settlement fees. But, the settlement was only applicable to the complainant's suit and those incidents that preceded his own. It does not account for those who paid the fees post-settlement. The Hendrick Group was hit yet again for $2.8M levied against their Hendrick Honda dealership.

Recently, in Columbia, SC., a bill that would kill some 200+ class action lawsuits against car dealers for these frivolous fees was passed out of the Senate Judiciary Committee, according to The State newspaper. See: http://www.thestate.com/news/business/article55158070.html

The bottom line is this with regards to dealer doc fees:

1) Dealer doc fees are subjectively imposed by dealerships.
2) In South Carolina, there is no cap or rules as to amount for doc fees.
3) Dealer doc fees usually range from $99 - $699.
4) Dealers typically explain the extra charge as a "processing fee" to cover "expenses".

INSIDER TIP: Let me be straight and to the point: DEALER DOC FEES ARE 100% PROFIT!!

I have been in many, many dealer meetings and it is, without dispute or confusion, accurate to infer that doc fees are profit that goes directly to the dealer's bottom line on each sale. Furthermore, and to add insult to injury, I know of NO dealer out there that actually shares a percentage of those passive earnings with his/her staff members. In other words, all doc fees go straight to the dealer.

So, if we translate a dealership that sells 200 units per month with a doc fee of $399.00, that is an additional $79,800.00 for the month's bottom line that is not commissionable and straight profit. Believe me when I tell you that if you are attending a dealership meeting and make any enquiry as to the validity of or the divvying of a doc fee, prepare to be cut off at the ankles. Dealers love their doc fees.

From a legal standpoint, the SC Legislature and the bill's sponsor are likely going to be quickly shut down by attempting to satisfy the dealer lobby. The SC Supreme Court has already ruled in favor of consumers regarding frivolous doc fees, and it is not likely (nor legal) to retroactively nullify pending suits with this type of legislative dodgeball.

More laughable was the remark by a Rick Hendrick General Manager who testified that, “Hendrick failed to offer any evidence that it calculated the costs that comprised the closing fee,” the opinion said. During the trial, Hendrick’s general manager testified he didn’t know how closing fees were computed, the opinion said. http://www.independentmail.com/news/state/sc-supreme-court-rules-against-car-dealership-charging-closing-fees-ep-1352832243-347812751.html

One thing is for certain, folks: every dealership general manager out there knows EXACTLY what the doc fee is and what it constitutes!

END

Copyright 2017, Robert Liotti, The Car Business Insider. All Rights Reserved.

Why It Is Time To Seek Out Objective Automotive Consultants and Drop The 20 Group

For some time, the automotive 20 Group has been a staple amongst many franchise and independent dealers as a source for critique and new development strategies. Definitively, a 20 Group is a group of dealers who meet with some regularity to discuss and strategize their businesses together. What I have never understood nor bought into was the belief that a competing dealer was going to tell me how to get rich and become more successful. To me, this is a  fallacy at best.

Some dealers may argue that their 20 Group members are not "competitors", but the reality is that everyone is a competitor even if allegedly outside of your geographic scope of doing business. Furthermore, while there may be some dealers out there who genuinely do not mind exchanging profitable business strategies with their fellow dealers, it is naive to think that most car dealers are that generous.

The more likely scenario is that at the very least subliminally, many, many dealers feel like the only person that will truly understand them is another dealer. Moreover, while there may be the overt intention of "sharing", the fact of the matter is that most dealers are very protective of their secrets. What draws them into this situation, however, is their inherent "need to know" what the other guy might be doing and because of the otherwise rather juvenile psychological mindset that they hate leaving their comfort zone. Thus, the 20 Group is their "warm and fuzzy", albeit an unlikely source to deliver the shot of creative adrenaline needed to fix so many broken dealerships.

What is the real incentive for one dealer to tell another how to be successful?

The fact is that 20 Groups are not particularly innovative and tend to reinforce the definition of insanity (a la Freud) because it is far more likely than not that were you and I to travel to 20 different dealerships within a 50 mile radius that the same 20-year-old bad habits prevail in the vast majority of them. That is reality.

Most car dealers are not necessarily known for ingenuity, although in all fairness, there are certainly dealers who set the trends for success. What is most important to measure, however, is whether a dealer is just covering up poor business practices with a shiny new facility or whether a dealer is using all available means to increase and grow his/her business without smoke and mirrors. One of the most effective benchmarks of dealer success, for example, is employee retention percentage. Again, all that a dealer can truly hope to obtain from a 20 Group is much of the same retread rhetoric that they've been discussing for the past decade.

So, what is the answer?

While many car dealers are so quick to acknowledge their willingness and efforts to "change", the sad fact of the matter is that their version of "change" is just recycling yet another manager who has drifted from dealership to dealership following the manager he/she replaced who has just moved into the musical chairs line for auto managers. It is tough to effect real change considering that all of the managers in town know the systems and processes of their former employers. Therefore, it is time to truly advance their thinking and to give due consideration to employing third-party consultants to help develop and implement positive change and growth.

Now, for many people in many professions, those of us who have heard people refer to themselves as consultants receive the obligatory eye-roll and dismissive kiss-off. In many cases, the position of "consultant" truly does provide an important sounding title for a person who is either unemployed or has failed at everything they've tried. But, for the moment and for purposes of this article, let us shun the cynicism and acknowledge that there are professionals in the industry who are more than happy to help a client improve their company in exchange for due compensation.

Consultants bring one thing to the table that no 20 Group can ever hope to deliver - objectivity.

Dealers would be wise to face the fact that their buddy in the next town over may very likely have no other goal than to cherry-pick any valuable piece of operational intel that will give them an operational advantage. And, it is an all-to-familiar scenario that the local car business and its inhabitants are a far more entertaining dramatic series to follow than the most popular soap opera or housewives reality show on television.

Objectivity is everything with respect to hiring a consultant who has no other mission than to retain you as a client, see you succeed, and get paid. Yes, you will have to spend money on a professional consultant, but look at the money that dealers literally piss away on ridiculous, ineffective ad campaigns, the ubiquitous weekend newspaper ad buy, fancy large LED screen televisions to show a service customer that their car is done, and over-conditioning an otherwise not very retailable unit. So, if a dealer were to track all foolish expenses or to simply redirect their expense structure in a way as to justify potential increased growth, the money is there to acquire the knowledge to help them grow their company. In fact, they really cannot afford not to do so, as they risk a long or short term bleed-out or a long term, no growth plateau.

A knowledgeable consultant comes to a dealership with open eyes. Because they have no vested interest in the dealership or any specific employee or professional social situation, a new set of eyes makes their evaluation invaluable. And, while there is always a realistic professional margin of error, an effective consultant (dependent upon their expertise) can view a situation and set of circumstances and make a non-emotional recommendation to the dealer as to a suggested strategy or adjustment. The simple technique of shadowing the staff, interviewing associates anonymously, and casual interaction is a passive approach to consulting that can reap massive rewards for the dealer.

Frankly, the biggest obstacle standing in the way of most dealers are the dealers, themselves. Will they be open-minded enough to call for outside intervention? Are they willing to admit that not only can they afford it, but, more importantly, that they cannot afford not to seek said intervention? Lastly, will their ego, affinity for staff members, and comfort zone allow them to accept the recommendations?

Socially speaking, 20 Groups are probably a nice way to maintain a congenial relationship with a group of people who have similar interests and goals. In fact, it is likely that a dealer can actually pick up useful tidbits of information and intel that will help him/her in some fashion. But, it is also important to realize that smart dealers also likely to engage in spreading disinformation that can become cancerous and obfuscate the forest for the trees. This is just reality.

Yes, change in the car business is inevitable, and you will consistently hear dealers acknowledge that fact. What you won't hear in many cases, however, is a viable strategy for repairing or growing one's dealership business. While this writer knows many dealer principles who have experienced great success in spite of themselves and their poor choices, image, or otherwise, most flailing dealers may need to give strong consideration to a fresh perspective and unemotional input that a professional consultant can bring to the party. Recognizing and acknowledging that change is inevitable is one thing; willingness to initiate change is another challenge for dealers entirely.

END

Copyright 2017, Robert Liotti, The Car Business Insider. All Rights Reserved.

Why Buy-Here-Pay-Here Operations Compromise An Already Suspect Automotive Sales Industry

I had an interesting phone call and quasi-interview this morning with a regional buy-here-pay-here automotive franchise based out of Georgia . After spending over an hour to complete an online application with this company for a ground-level sales consultant position this past holiday weekend, I was contacted by the company's HR representative who was tasked with providing details about the position for which I applied.


For those of you who are unaware, buy-here-pay-here automobile dealerships (otherwise known as "dirt lots" or "tote-the-notes") are independent dealerships that specialize in selling used vehicles and providing in-house financing for their customers. Typically, the dealership will hold one company as the dealership proper and another company as their "finance arm". Nonetheless, these dealerships are facilities that most often deal with disenfranchised buyers who lack the creditworthiness to purchase at a traditional franchise dealership.

What is problematic about BHPH operations is that they normally sell higher mileage, less mechanically sound vehicles which can be acquired by them at an advantageous price and finance them through their finance arm making the entire purchase captive to themselves.

Is there anything illegal about this practice? No.

But, cutting right to the chaise, here is how a successful BHPH operation works for the dealer:

1) Their buyer purchases higher mileage pre-owned vehicles that do not necessarily have to meet the more stringent guidelines or standards expected in a franchise dealership operation.

2) The buyer's goal is to buy vehicles that are often in a pre-determined price bracket set forth by the dealer. The buyer may be directed to pay no more than $5000 for an automobile and no more than $8000 for a truck in order that they may double the price for retail sale and require applicable down payments.

3) Dealers are in the business of acquiring cash down payments and often cover the entirety of the equity position they have in the vehicle after retail preparation. In other words, they pay $3000 for a six-year-old Toyota Camry with 89,000 miles and have a total of $3500 in the vehicle after reconditioning. Hence, you are asked for $3000 down payment to "buy" the vehicle. In this case, the dealer has only a $500 deficit in his actual cost before you ever agree to the 36% finance rate when sitting down to complete a contract.

4) BHPH dealers live off of a portfolio. In other words, the scam artist that talked this guy into becoming a "dealer" told him that "the more cars you have in the street, the more payments you have coming in and the bigger the portfolio." Most of these "dealers" have zero true automotive experience and only look at the down payment as your obligation to increase their portfolio - and wealth.

5) Clearly, BHPH dealers prey upon buyers with poor credit and those whose desire to purchase is based upon need rather than want. Furthermore, THEY own the bank, so their desire is to get as much down payment as possible and finance that vehicle for as much as possible and for as long as possible keeping their accounts receivable clerk as busy as possible.

6) BHPH dealers may or may not attempt to be congenial with buyers, but all either directly or indirectly operate under the overt threat of repossession of the buyer's vehicle. Nowadays, nearly all BHPH operations utilize GPS technology and track the vehicle and also have the ability to employ a kill switch that will disable the vehicle if timely payment is not received. Moreover, "dealers" are told that they need to maintain a certain repossession percentage based upon a risk matrix.


Here is what is also problematic about the whole BHPH mentality: franchise dealers theoretically operate under the same methodologies, but in a far less exuberant fashion. Franchise dealers seek to buy low and sell high, sell financing, and build their portfolios as well. However, as much as I can criticize many franchise dealers for not exercising integrity, BHPH operations are typically predatory and seriously compromise the reputation of an already precarious love-hate (mostly hate) relationship between car buyers and car dealerships.

So, back to my phone conversation this morning...

After reading almost 200 reviews online about this company - all of which were negative - I picked up the phone and called the HR representative who had left a message for me earlier in the day.

Now, I have been in the automotive game for over seventeen years, and while I will admittedly acknowledge that I do not know everything, I am more than familiar with the typical BHPH business model, and this conversation proved to be no different.

I was first once again amazed at the fact that someone looked over an application that would be indicative of a GM at a minimum or a corporate position, but quick to point out that "no management positions are available" and that they "were only looking for a sales consultant." She was quick to point out my extensive experience, but that "they send new hires to Georgia for a week to train them how to do things 'their way'." So, I played along.

For those of you who are simply consumers, I do not expect you to necessarily understand, but this was yet another prime example of yet another automobile group who thinks they are going to change the face of automobile sales and reinvent the business.

To the contrary, today's conversation only prompted me to take the time to sit down and warn consumers and potential automotive employees about the pitfalls of becoming involved with the vast majority of these companies as their methods, acumen, integrity level, and business practices are inherently suspect. And, in the case of the company with whom I spoke today, their very, very tainted reputation far and away precedes them, and they carry a BBB rating of "F". Not good.

I spent six months employed with one such company a few years ago while between jobs. The dealership was run by a former boat captain who had never sold an automobile in his life, had no sales or management training, and who just happened upon the job because he captained the boat of a wealthy real estate developer who got the advice to go into the BHPH business. The dealership was unpleasant, the GM was clueless, the office manager smelled like she had been rolling in an ashtray, our buyer was a good guy but had received no real training, and they had two sales consultants with a combined 45 years of automotive experience. All we could do was shake our heads daily at the level of cluelessness. A lot of the same cluelessness exists in franchise dealerships, too.

In closing, I have two very valuable pieces of advice:

1) If you need a car, take that $3500 down payment and buy a car in CASH! You would be surprised what you can find if you look. There is 0% interest and you own it free and clear.

2) If you are a potential automotive employee, you will want to heavily consider the reputation of the company in order to save yourself many, many headaches.

END


Copyright 2017, Robert Liotti, The Car Business Insider. All Rights Reserved.

Working For A "Volume Dealer" - Does It Pay?

It goes without saying that things have changed in the car business. For many of you, you may not have even noticed.

It used to be the case in the late 1990's up to the mid-2000's that sales consultants actually worked to make a commission from the gross proceeds of their sales. As a result of that mindset, it required that sales professionals follow proven steps in a process to not only optimize their earnings, but to also give their client the best experience possible. It was always my opinion that a great sales consultant optimized every sale and worked smarter rather than working harder. Then came the "volume" dealer...



For those of you who are unaware, there are many dealers out there whose existence depends almost solely on volume sales rather than optimizing gross profit. And, while there are many factors that are determinant of gross profit such as: cost, carrying charges, reconditioning, dealer pack, etc., let's keep it simple. In other words, for many of today's dealers, rather than spend adequate time training their staff to "sell", they are more inclined to employ "clerks" to corral customers, check out their website, and choose your model like choosing cereal at your grocery store. For professionals like myself, this methodology is sinful.

Why?

Many of today's dealers would rather have a "greeter" at the door, turn the customer to a "clerk", pick out your car, have the manager give it all away for the "best deal" on the first and only pencil, and have the "clerk" handle the 20 minutes of paperwork. The reason is simple: typically, the ones making the money are the managers and dealer - not you. As long as the manager sells "a unit", the F&I Manager gets an at-bat, service gets an email from a new customer for the next coupon blitz, and you get your "mini deal", the dealer is happy as can be.

Honestly, YOU shouldn't really get "paid" per se as you aren't selling; you are clerking. Selling requires rapport, listening, timing, knowledge, ability to convey value, negotiation, and closing. Are you capable? Apparently, most dealers do not believe so. In their mind, they are trying to bypass proper recruiting, effective training, skill development, turnover reduction, and accepting the fact that staff members may have their own personality and style. Good managers are capable to developing and fostering those individual personalities and strengths and harnessing their profitability. But, that requires good managers and investing in future successful employees. We know that isn't the case given the excessive turnover in the auto industry.



Dealer Principals and their anointed GM's have decided that short-cutting the process of employee development and associate individuality and putting the majority of responsibility in the hands of their managers streamlines the sales process while giving up on value-building and negotiation in lieu of extracting minimal profit margins, but moving more units. Oh, this process can definitely work, yes, and in the eyes of many dealers, the more car that cross the curb, the more profitable service business that they can capture and the more "advertising" the dealer achieves. In theory, this mindset can be true, but can come at great unseen costs, too. Furthermore, if tasked with running this type of operation, I can readily set up all of the systems and processes, hire the staff, delegate the functions, and drill down into all the mathematical benchmarks to maximize the "volume" principal. And, in all likelihood, I would do it very well. But, I have a conscience with respect to maximizing associate earnings and investing in my employees that others clearly do not.

You see, the bottom line is that volume dealers are set up to work for a minimum-challenge gross margin comprised of  dealer holdback, advertising money, lower floorplan expenses, dealer volume sales bonuses, increased back-end profit attempts, and future service revenue. Again, if the advertising and inventory are there, this system can be quite profitable. The dealer hires some tart to do the ubiquitous annoying "we are the #1 volume dealer" television ads and you sit at your desk sending emails trying to figure out why the "you can make $100,000 per year" employment ad you answered seems to be a total fallacy. Moreover, you see the same two guys at the top of the sales board every month and wonder why you always see one of them headed into an empty conference room with the senior sales manager.

Compensation plans have also changed as a result of this and other newer operational philosophies. Many companies are now offering a nominal salary of say $30,000 per year plus spiffs for this, bonuses for that, and a tongue-in-cheek statement that "if you put the time in" you should make $60,000+. Those of us who have been in the industry for a number of years have seen this happen, but chances are far better than not that you will ride that $35,000 line and either burn out from the hours and lack of real prospects that aren't friends and family members or the dealership will attrition you out for new blood. This is typically a dealership management failure, but most dealers just don't care.

The automobile business can be a career-changer for many people - especially those who don't have a degree or are in an area where the job market is tight. Yes, it can be a high-paying gig, but too many associates pick up bad habits or integrity problems that make their tenure short as they bounce from dealership to dealership. Dealers are constantly changing, and most are not changing for the better.
There is no doubt that I can sit here and give you a page full of reasons why being the volume dealer can be and is profitable, but realize that business conditions such as macro economic changes or a bad story or two in the newspaper can change everything in the blink-of-an-eye for these dealers. And, unless they have a staff that it actually prepared to earn every sale through rapport building, proper needs assessments, effective product demonstrations, and closing skills, the next thing you wont see is the goofy blonde tart with the annoying voice pitching the "#1 volume dealer" any longer because there is a new sign out front.

END

Copyright 2017, Robert Liotti, The Car Business Insider. All Rights Reserved.