TedH

Markup In The Automobile Business

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From the summer of 1959 until the spring of 1967 (I was born in 1948) my impressionable years were spent selling cars and tires at my Grandfather's shop. Then most of 1972 and I went off the pursue another career . He wholesaled out of two large Chevy dealerships in Rochester, New York and anything that wasn't a Chevy was a pain to own after a week on the lot. I am thinking $349 was a high ender for us. That would be a clean '56 or '57 Chevy 6. In May of '66 I bought a '60 Buick Invicta for $600 retail at our local Buick store, just for reference. We rarely bought at the wholesale auctions unless we wanted a cheap ride home. It was a neat way to grow up. Those hundreds being tossed around are just a part of life when money is easy to get. I grew up having very little respect for money. It was always too easy to get. And I had less respect for authority figures. Maybe I was competitive too young. My Dad had a regular job, but he always had a few bucks to buy a car and flip it as well.

 

In High School business class, my teacher, Tom Burns, told us about tangible and intangible sales. I caught on to the value of intangible real quick! Then I figured out necessity and discretionary purchases. That's when I got morals. I decided to avoid tangible necessity sales whenever possible. I didn't want the responsibility. Discretionary purchases sprinkled with intangible has been my specialty since HS days. Talk about indoctrinating a young car salesman. Some people grow up with baseball and football for sports. There is nothing wrong with the sport of selling cars. If you saw a group of buyers getting together to shaft a dealership one would call it a consumer group. A dealer giving you the once over and being able, being able to describe a buyers heinous life in detail, and sportingly use it to put groceries on the table is called robbery. I recognize that. So I only sell discretionary cars and parts.

 

Say, I just got back from taking my collector condition, black '94 Impala out for a 40 miles ride since the weather is good. What a ride, I'm thinking about selling it this Spring when the prices go up.... unless someone wants to get the low off season price.

Bernie

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33 minutes ago, Digger914 said:

A few years back we had a dealer with a chain of stores that he ran his way and every other dealer in town had to compete with him or close up shop. Long story short, he has served his time and gets out of prison this year.

 

If he shared a cell with another dealer it's like going away to college.

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In the 80s, if a dealer principal was going to jail in the territory I worked in, it would have been just as likely due to the white powder up the nose - a habit, I observed as pretty rampant in those days.  I think it might have to do with the nature of the work, and the fact that some (but not all) had that wiseguy attitude I noted earlier, throughout the ranks.  I was shocked at that aspect of the business.  Another factor, I believe on the sales floor is the long hours, not unlike police work - great periods of boredom punctuated by periods of great excitement.  To me, that's a hard thing to face daily.  Of course some just have gasoline in their blood - guy across the street from me has been a retail salesman with the same dealer since they moved in around 1997 - - I rarely see him as he leaves when I do around first light and usually gets home between 8:30 and 9:00 PM.  Those are some serious hours when you throw in every Saturday.  He is one of the good guys, though, and I hope they are making it worth his while.

 

I sometimes think I might have enjoyed it long term - when I left, my boss suggested I might want to stay in as "for some reason, so many losers are drawn to this business, the cream rises to the top pretty quickly" - - I am not disparaging anyone just quoting someone I worked for, in the business in the mid -late 80s.  Well, I didn't - partly due to that and partly due to the fact that like most on this forum, I am a car nut - but at the time I thought I might like to be in an unrelated business for a little balance in life.  I might consider it at this stage in life, but I am not sure if it would be in a dealership environment.

Edited by Steve_Mack_CT (see edit history)
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2 hours ago, John_S_in_Penna said:

 

Digger, that's one story not to shorten!

How did he run afoul of the law?

Knowing more detail will shed some light on

what to watch out for, for businesses and customers alike.

 

Lots of customers and businesses got hurt and there is just to much to tell, but if you're really interested here is part of the broad overview that only begins to tell the story.

 

http://whitecollarcorruption.com/high-flier-article/  "Prosecutors say that between 2006 and 2009, he orchestrated a scheme to defraud lenders out of millions of dollars, repeating the crimes several times with different lenders. In each case, he instructed employees including two who have also pleaded guilty of felony charges to alter documents that were presented to lenders for financing new car purchases for Hecker’s leasing company.

Hecker’s crimes were unique, prosecutors said, because he kept going, even after getting caught again and again. He lied to the court, defied court orders and denied any wrongdoing until threatened with jail."

 

And for a timeline breakdown http://www.notshallow.org/2010/03/the-hecker-timeline/

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3 hours ago, Digger914 said:

There are still some factory owned stores and there are still some single store family owned dealerships. In metropolitan areas, the small owner operated dealerships are more and more being absorbed by the multi store dealership corporations and as it is with any business, the owner is the personality, integrity and conscious of how the business runs.

 

And where might those "factory owned stores" located?  Most state franchise laws do not allow factory owned stores.

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Tesla might, but it will be interesting to see how long that lasts.  They have been trying to get a store in Michigan but they have not been successful.

 

Also Tesla is a newcomer to the auto business and do not have any stores that have been around decades.

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Quote

they had to work through

the existing laws that protected dealerships.

 

The laws protect the manufacturers just the same, and in the end, it's better for consumers too. No real maker of cars wants to directly deal with the end users. Once the cars are at the dealer, it's the dealers problem, not the makers. Sure there are market downsides to just cramming the dealers full of as much metal as you can make, but generally speaking it's a pretty easy setup for manufacturers. The dealer model also makes pricing better for consumers. I can pretty much promise Ford wouldn't sell them as cheap as I do, I compete far more with the other Ford stores around here than I do the other makes. I don't think people are as brand loyal as they once were, but I think generally more folks have picked out what they want before they step on a lot. Dealing with used cars really isn't an industry the manufacturers want to deal with beyond CPO programs and keeping lease residuals high. Selling used cars to specific used car stores wouldn't be good for consumers either, because the current model makes part of the incentive to give a little more for the trade to make the deal happen. No, the car market is horribly suited for direct sales. I don't think anyone would be better off.

As a consumer, all you have to do is use the internet a little. There really isn't an excuse to not get a great deal in one visit to a decent dealer if you know what you want.

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"In the mid 1970's, I was living in New Orleans, and had a good friend who collected very low mileage antique cars.  He was never into new cars, but one day, there was a brand new, top of the line, Buick sitting in his garage.  I commented on it, and he said it was a deal he couldn't pass up.  A friend of his owned a Buick dealership, and Buick had a promotion going with dealers, order four cars for your inventory, get the fifth one free.  He said the car he had was the "free" one to his dealer friend, and he had bought it at exactly half sticker price..........."

 

Nobody sells a new Buick for 50% of sticker price. Nor does Buick offer dealers" buyfour, get the fith one free"

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Not so sure, there were a lot of Buicks, particularly Reattas used for promotions, that were floating around central Florida in the late 80s. Often such a deal was a dealer or zone rep would put 500 miles on and then it was sold as a used car at 25-33% off MSRP. Sometimes these just happened to have the color/options the ultimate buyer wanted. Were a lot of ways to qualify but having a monthly column in a national magazine helped....

 

OTOH I am more familiar with "if you want one of these, you have to take four of those..."

Edited by padgett (see edit history)

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When Dad was in the tire business discounts were calculated on a scale of say 20-10-5. Took me a while to understand that if dad had to give a commercial customer the whole 20-10-5 discount it was less than if he simply gave them a 35% discount. 20% off the top, then 10% off the discounted price, then another 5% off the price after the 20% and the 10% were deducted. Somewhat sneaky I guess but common practice, at least in the tire biz. On a $100 sale, discounts of 20-10-5 comes to a $32 discount rather than the $35 discount if simply calculated at 35%.

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Guess no one remembered. GM ShopTrack was an accounting method where a customer was charged an hour for 50 minutes work.

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Shoptrack is likely not the only methodology that does something similar Padgett.  I can tell you in the business I am in today - essentially business process outsourcing, when we price a project we generally figure 7 productive hours in an 8 hour shift to account for the odd break, trip to the bathroom, impromptu meeting, etc. and it is generally accepted by competitors, clients, etc.  I would imagine those who developed Shoptrack were looking to account for that downtime - maybe retrieving a part, etc. as no one, I think works 8 straight hours uninterrupted by anything that takes them off their core task.

 

If there is more to the story though, that might be interesting to the OP, but it sounds like it might be history anyway.

 

When it comes to service, I think a lot of it comes down to reputation regardless of rates.  I mean, some clients might draw the conclusion that flat rate encourages one to rush through a job (I know it is not generally explained to a customer, although some might ask) vs. straight hourly rates where some might say  - wow, what if my guy is not so much meticulous as just dead slow...  Tough for the average customer to sort all that out.  I will say if you find a place you like, shame on anyone to swap for a few dollars off the next service.  That will likely bite you down the road.

 

This thread sure brought back some memories.  What in education in human nature in 2 - 3 years my time was in the business, it has been very beneficial in thinking back on it!

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Thanks for the insightful comments. I invite forum members, who have a little time, to review the attached national sales prices for a Honda CR-V according to TrueCar.  The “market average” is about a grand above factory invoice, some sales appear to be higher than the MSRP, and some below factory invoice.  Maybe I’m not interpreting this correctly; otherwise, why would a vehicle that sometimes commands more than the MSRP be sold for less than its dealer cost on other occasions?  (Note: I condensed the information on the TrueCar sheet using Photoshop Elements.)

2017.CRV.National.Sales.jpg

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38 minutes ago, TedH said:

Thanks for the insightful comments. I invite forum members, who have a little time, to review the attached national sales prices for a Honda CR-V according to TrueCar.  The “market average” is about a grand above factory invoice, some sales appear to be higher than the MSRP, and some below factory invoice.  Maybe I’m not interpreting this correctly; otherwise, why would a vehicle that sometimes commands more than the MSRP be sold for less than its dealer cost on other occasions?  (Note: I condensed the information on the TrueCar sheet using Photoshop Elements.)

2017.CRV.National.Sales.jpg

Dealers sell vehicles below invoice for all sorts of reasons.  Favoritism for certain customers (friends, relatives, etc), but usually they are sold by dealer who focus on one thing--volume.  As has been mentioned, dealers can get all sorts of rewards for volume goals.  Those rewards may be money, preferential cars (like Chevrolet dealers getting more Corvettes than others, or Dodge dealers when they sold Vipers), or a variety of other rewards.  It is possible to walk into a dealer the last day of any given month, ask them which vehicle they need to sell the most, and get a deal that may not be possibly otherwise.  I would guess, and that's it, a guess, that the CR-V's sold below invoice also may have had a fantastic trade in the deal.  If you are taking a used red pickup truck (or similar very highly desirable trade) to trade for a new vehicle and it's a volume driven dealer, they will move numbers around al lot more.  They know they can sell your trade for $xxx and if you're a real serious customer, they can really adjust things.  On the other hand, if your trade is a wholesale piece that they don't even want, they'll still take it, but you're not going to get the same price on the new vehicle.  Many different situations can apply to such pricing on new vehicles.

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Ummmmmm. Because some people just go in and say yes to whatever offer they get and others negotiate down to get a better deal? For that vehicle $200 under invoice is listed as the "exceptional" price, the entire spread is less than $2000. Frankly I'd say that's a pretty good position for consumers. Certainly not like the stories of the "good old days".

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I was also thinking the dealer may have a tougher time with certain units (yes I know to get apples to apples accessories and model level needs to be same for a valid comparison) - what if color combo is not that great - that sort of thing.

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Colors are a funny thing--------Every dealer has nuances regarding colors.  Some don't care and operate in a fast-paced environment where the salespeople are expected to sell all colors.  Some only want certain colors (of course they don't get to choose every one, but they do throw a fit if they get too many tans and not enough reds)--that's another area where volume helps the requests.

 

I have had some swear they cant sell a tan/green/blue vehicle, but I see those cars on the road all the time.  Certainly a tan vehicle will be on the lot longer than a red one, all other things being equal.

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From what I have seen over the years,

the hourly rates for dealers' garages

have gone up MUCH more than the inflation rate.

I can provide anecdotal documentation.

 

When prices of necessary items increase

faster than inflation, it's an unsustainable process.

As a result, fewer people can afford it;  fewer people

use that service.  Eventually, no one would be able to

afford the service.

 
 

 

 

In NJ and NY 125. an hour for repairs is the norm. this has been discussed extensively concerning restoration shops as well. One in a rural area may be able to only chg 1/2 as much as one where the real estate is expensive.

Kind of works the same for pizza............ buy a large pie in the country or burbs for 10. bucks-go to the city and pay 18. real estate helps dictate pricing.

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On ‎1‎/‎19‎/‎2017 at 5:04 PM, Larry Schramm said:

 

And where might those "factory owned stores" located?  Most state franchise laws do not allow factory owned stores.

 

A new car dealership is a franchise, a store is brick and mortar. They are where they and they happen when the bean counters think fronting a new franchise into a desirable area is a good financial investment.  How to spot one, look for a brand new building that opens as a first time new car dealers very first dealership. 

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40 minutes ago, Digger914 said:

 

A new car dealership is a franchise, a store is brick and mortar. They are where they and they happen when the bean counters think fronting a new franchise into a desirable area is a good financial investment.  How to spot one, look for a brand new building that opens as a first time new car dealers very first dealership. 

 

Not from my experience.  The manufacturer may hold the mortgae on the building, but an individual owns the business.

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3 hours ago, Larry Schramm said:

 

Not from my experience.  The manufacturer may hold the mortgae on the building, but an individual owns the business.

 

There is a lot of slang in the car business and some of it is regional. In my part of the country a "factory store" can be a negative or positive description.  Skipping all the inappropriate descriptive words and putting it in a nutshell, it's a sink or swim deal on a silver platter.

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Talking about factory direct sales, I think it was common through the 1950's.   When I was a kid I knew a guy who bought a brand new 1956 DeSoto Firedome convertible direct from the factory.  He lived in Ohio.   He and his wife drove up to Detroit, got a tour of the factory, watched the car be built, and then drove it home.    

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13 hours ago, K8096 said:

Talking about factory direct sales, I think it was common through the 1950's.   When I was a kid I knew a guy who bought a brand new 1956 DeSoto Firedome convertible direct from the factory.  He lived in Ohio.   He and his wife drove up to Detroit, got a tour of the factory, watched the car be built, and then drove it home.    

 

From what I understand, Mr. K, the sale still would have

gone through his dealer.  He didn't buy it directly from the

factory, but he was able to go to the factory as you said.

I've heard of foreign companies, such as Mercedes-Benz,

offering the same thing.

Edited by John_S_in_Penna (see edit history)

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I've had one Dodge dealer call another larger one a "factory" (5-star) dealer.  In my dealing between them I saw no difference.  I understood they were 5-star based on volume.  I don't know if calling them a "factory" dealer was simply slang or not.  I do know a disproportionate amount of the most desirable new vehicles went there (vipers, Jeep Wranglers, diesel Rams) because the smaller guys were constantly trying to dealer trade stuff from them.  

Edited by 39BuickEight (see edit history)

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