Lost Chevy dealership

[Bill Arnold]

Originally Posted by Paul Ryan

... We can go on and on about the failures of the domestic maufacturers, from union wages, to horrible suppliers. ...

Our next-door neighbors had been in the market for a new car for several months. My wife and I had bought two Ford products early this year - a new Mercury Sable Premier for her and an '08 Escape for me. The neighbors really liked both vehicles - she likes the view from the Escape - he kept talking "union"(?) and was unwilling to go with anything but a GM product. They ended up buying an '09 Buick. Now, they complain about noises, the seats aren't as comfortable as our Sable, etc., etc. It's in the shop now for the dealer to try to fix a few things.

I think it's great that people have brand preferences. We prefer Ford products, although my wife currently still uses her '04 Kia Optima as a work vehicle. Our Sable is fantastic for road trips. My Escape has been a great replacement for the '97 F150 I traded for it. We're doing our part to help the domestic manufacturers. The GM faithful will help keep the company going through its recovery.

American-made vehicles? How about Toyota? Kia is building a plant here in Georgia. Some Fords are built in Mexico and some GM products are built in Canada. Guess the line is getting a little fuzzy!

[Mike Wilkins]

My .02 cents of opinion. In my area there were 3 Chevy dealerships, and many more within 30-35 minute drive away. Even before the well-published problems with the Big-3, I felt there was a problem with market saturation.
Why do we need 3 dealers of the same brand in one county?? GM probably should have done this years ago, but top management was too thick headed to listen.

[Julian Nicks]

Dave, I hear what you are saying about ford. I have a 99 e350 with the crappy modular v8 in it. Well guess what. That model engine has known issues with the engine blowing its spark plugs out the top and the auto lifter adjuster doesn't do its job. There are many thousands of frustrated ford owners out there that have been told by ford that this issue will cost them big bucks to fix. It's something that should be a recall but it's not. Luckily I have not had problems with the head spitting out the sparkplugs, but I do have the lifter issue. I guess it all comes down to doing your research online BEFORE buying that new car. The old saying of not buying a first generation model still applies in my book.

[Pat Germain]

Originally Posted by Paul Ryan

Pat,

I am not saying only a dealership will work on it. But out hear in the sticks where I live. If you take your shiny new camry, accord in for a check engine light, they look at you like you brought in a flying saucer. Larger cities are fine, but in the little old po dunk towns we live in good luck getting your rice burner serviced.

I can understand it would be frustrating not having any service centers nearby who could work on a Japanese or European car. Colorado Springs isn't that big, but we have many such shops who do very good work. We even had one shop that worked on Hondas and Acuras exclusively. They are so good, the dealerships often send work there. They recently started working on Subarus as well.

It sounds like opening a small import shop in the sticks would be a worthwhile business endeavor.

I can understand how lack of maintenance can contribute to problems with a Ford, GM or Chrysler. But it won't cause the dash to fall apart, the rack and pinion to blow out or the car to fail to start if it's raining. I've heard many first hand reports of those specific problems and more.

[Ben Hatcher]

Originally Posted by Mike Wilkins

...Why do we need 3 dealers of the same brand in one county?? GM probably should have done this years ago, but top management was too thick headed to listen.

Closing dealerships has sparked lots of backlash and they did it in the middle of a bankrupcy. Can you imagine the PR dissaster that they would have suffered if they closed underperforming dealerships prior to the melt-down?

[Horton Brasses]

I can't say how much or exactly what it costs-but there is a significant cost to the manufacturer to keep a dealer going. A lot of the small Mom and Pop dealers only need to sell a few cars a month to be very profitable-but they are costing the factory money.

New car dealers make much more off the service end than the sales end. The best dealers (large and small) have "100% service penetration" which means that 100% of their costs are covered by service. Sales generates pure profit-they can also sell for less than dealers without 100% penetration as they really are just looking to get cars on the road and into a lifetime of service. So you can see how a small dealership can sell 5-10 cars a month and have a small garage that covers all the costs. Essentially, being a franchised dealer allows them to bill lots of service to the manufacturer and their customers (depending) and sell enough cars to keep the garage full all the time. Not good for the factory, but good for the dealership. Big dealers are best for the factories whether they have 100% penetration or not.

[Paul Ryan]

Originally Posted by Horton Brasses

New car dealers make much more off the service end than the sales end.

Horton,

This is another one of those old wives tales. I used to think the same thing. Working in the service department it is easily to think that service is the real money maker. But in reality profit for most dealers is about 37% sales, 35% service, and about 28% parts. If you have a body shop then they make some money too. The big down fall to the service side of a store it the over head. There is a much larger amount of overhead to run a service department then there is for sales. Sales over head is very very minimal. The bigest cost the sales department has is advertising. Payroll cost is very minimal because most dealers pay on a commission base only. There service department has huge over head in payrol, and then you have insurance, utilites, tools, uniforms, subscription costs on service equipment, and the list goes on and on. So if you look at total money brought in the service department is king, but bottom line, the sales department makes more money if operated properly.

[Tom Godley]

Chrysler, GM and Ford have been in a death spiral. With so many factors working against them - it became impossible to stop the slide. MAYBE this will give them a second chance. Jeep may survive out of Chrysler.

So many of the "Big Three" dealerships became weakened shells left over from the glory days when they had real market share. Most of the dealerships - especially Chrysler - were not able to invest in the businesses given their current sales level. Reading the closing list and the corresponding sales level was a real eye opener.


Now all they have to do is design and produce products that they can sell at a competitive price and still make money -- and get people to by them a second time!

[Pat Germain]

Originally Posted by Horton Brasses

New car dealers make much more off the service end than the sales end.

It would seem that way. But consider all the profit potential from selling a new car:

- MSRP is significantly higher than dealer cost. And the markup isn't just on the car. There's also a significant markup for every option, or option package. That's why dealers can come down from MSRP and still make money. A dealer can generate any kind of paperwork, with any price, and call it "Invoice". But invoice has nothing to do with the actual cost of the car. If a car is in high demand, you'll sometimes see a "Dealer Market Value" fee added above MSRP.

- Wipe on a $20.00 bottle of paint sealer and sell it as "Paint Protectant" for $800.

- Spray $10.00 of Scotch Guard onto the seats and sell it as "Fabric Protection" for several hundred dollars.

- Squirt some goo into the doors and sell it as "Rust Proofing" for several hundred dollars. (Most people are learning that rust proofing is bogus and sometimes even promotes rust by clogging drain holes. So, you don't see rust proofing as often as you used to.)

- Peel and stick some clear plastic sheeting to the front of the car and sell it as "Invisi-Bra" for several hundred dollars.

- Sell an oil change package with the car. Not only does this make money on its own, but it brings customers back to the dealership again and again making it much more likely they'll get expensive, regular maintenance performed at the dealer and not elsewhere at a discount.

- Charge the customer for administrative fees, DMV work, processing fees and anything else they can throw in. These fees often have strange names. Sometimes they're just added with no explanation, but they're, "Non-negotiable". A local Toyota dealer actually has signs posted on the showroom floor informing customers, "A fee of $399 will be added to every car sold".

- Sell an extended warranty with the vehicle for $2,000. I don't know what these warranties, which are really insurance policies, actually cost the dealer. But I do know they can sell them for half the regular price and still make money. That's why there's such high pressure to sell them.

- Sell a loan to the customer and collect a comission from the lender. That's why dealers are always happy to help with financing, which can sometimes be convenient and a good deal if the buyer has good credit. (Buyers with bad credit may have no other choice.)

- Sell a "Gap Insurance" policy with the car and collect a comission.

- Sell a "Credit Life" insurance policy on the loan and collect a comission.

- Sometimes the dealer has an auto insurance salesman on site. For example, a local dealership is managed by the owner's son who recently became a Farmer's agent. My buddy, who is also a Farmer's agent, tells me this son is setting records for signing new policies. He collects a comission for every new policy and then another comission every year when the policies renew. Nice.

- Lowball the buyer on his trade-in. Dealers can just jack up the price of the new car to make it look like the buyer actually got a great price for his trade-in. Then, send the trade-in vehicle to the service department and have it detailed. Put it on the used lot and sell it for a huge markup. If the dealer is lucky, he can also sell all the above, high-profit products to the guy who buys the used car.

- What's that? The Mrs. is upset because you're looking at a new truck and she wants a new washer and dryer? Well, no problem. Tell you what, the dealership is such a "charitable" organization, they'll throw in a new washer and dryer with the truck! Of course, the cost of the appliances was just tacked onto the truck loan. And, what do you know, there was even a markup for the appliances.

- Once the vehicle is sold, the manufacturer sends the dealer a check. This is called "dealer holdback" and is an incentive to move cars off the lot. Therefore, it really is technically possible for a dealer to sell a car at actual cost and still make money. (Although, they rarely do so.)

- If the dealership sells a lot of cars, they get discounts and incentives from the manufacturer. This allows dealers to make even more profit on a car and gets them priority for getting the most popular vehicles.

So, consider all these profit makers and it becomes clear how dealerships can sell very few new cars and still make a killing. Dealerships who sell lots of new cars make profits unimaginable to us little guys. My local Toyota dealer recently opened a new compound. It looks like an upscale ski resort! That compound sure didn't come cheap.

[Jim O'Dell]

Originally Posted by Dave Lehnert

We had a small Chrysler dealer here that was said to only sell about 7 cars a year. Said they made a profit with service and such.

I heard that Toyota sells more cars than GM with half the dealership. Or something like that.

That is part of the reason for closing some dealerships. Imports have done it for a long time. While keeping the selling price up doesn't help the manufacturer's bottom line, it does make the dealership more profitable. There is always manufacturer money to the dealerships to help with factory mandated renovations. Notice how most all dealerships, foreign and domestic cars, have a similar appearance within one brand? Part of the brand recognition concept.
And without making this a political statement, wasn't the committee that decided which dealerships would close a government appointed committee, and not a manufacturer appointed one? In other words, didn't the same committee decide which Chrysler and GM stores would close? Seems I read something like that when it was going on. Jim.

[Pat Germain]

Originally Posted by Jim O'Dell

And without making this a political statement, wasn't the committee that decided which dealerships would close a government appointed committee, and not a manufacturer appointed one? In other words, didn't the same committee decide which Chrysler and GM stores would close? Seems I read something like that when it was going on. Jim.

The decisions were made by GM and Chrysler and not politicians. I heard rumors about certain dealerships in specific Congressional districts being protected targeted by the Obama administration or protected by members of Congress. I did some research and found this to be bogus. There was no evidence; only speculation.

[Paul Ryan]

Before Bankruptcy around 95% off all new vehicles from the big 3 were sold with in $500 of dealer cost!. So there isn't a huge profit made there. They did get something called hold back on the vehicles that was as high as $1000 on some vehicles. And to the best of my knowledge GM and Chrysler were still using an MPA practice. MPA was a set # of new vehicles that the manufacturerer set for them to sell each month. Kind of like a quota. After that number was hit the dealer would get an additional chunk of money back on every car sold for that month. That amount usually ran between $500-1000. This is what hurt the little mom and pop stores. The little store may have a # like 7 for the month. So they sold 8 cars that month and got 8 grand back. But the big dealer 30 miles away might have a # like 50. So the big dealer at the end of the month sells their cars for under cost just to make their MPA. At the end of the month the big dealer sold 56 cars and end up getting 56k back.

And yes there are huge profits in everyhthing from fiancing to accessories. Most stores have a seperate finace manager/person. 9 times out of 10 they will not quote you the best finace rate they can for you. They will ask you something like where do you want your payments to be. You might say $500 per month. They look at there little chart and realize they best rate they have would be a 4%. But if they finace you at 6% they still get your payments real close to that $500 mark. Now the store gets a kick back from the lender for the difference in finacing percentages. So if you ever go into buy a car shop lenders also, the dealer is lying if they can get to what other lenders will do. Most time the dealer can finace you for rates as low or lower than credit unions. It is up to you if you buy the other crap that they try to push. Rust proofing used to be a big deal. But nothing rusts anymore. Everything, and I mean everything is negotiable. I knew a dealer that had taken a horse in on trade before. There is a reason they are called horse traders. That is illegal, but only if you get caught.

[Pat Germain]

Originally Posted by Paul Ryan

Before Bankruptcy around 95% of all new vehicles from the big 3 were sold with in $500 of dealer cost!

I would expect that period was primarily influenced by soaring gas prices, a tanking economy and a very lackluster reputation for big three vehicles. Before this period, I would bet the markups were far greater than $500.

Originally Posted by Paul Ryan

I knew a dealer that had taken a horse in on trade before. There is a reason they are called horse traders. That is illegal, but only if you get caught.

Interesting. Why is it illegal to take a horse as a trade in? I would think it would be up to the dealer to trade whatever they wanted as long as they paid the right taxes. Personally, I think it's kinda cool that a dealer would do so.

[Bill Arnold]

Originally Posted by Pat Germain

... Interesting. Why is it illegal to take a horse as a trade in? I would think it would be up to the dealer to trade whatever they wanted as long as they paid the right taxes. Personally, I think it's kinda cool that a dealer would do so.

Even before the current situation arose, dealers would occasionally run and ad that said, to the effect, "If you can drive it, ride it, pull it or haul it in here, we'll trade!" I'm sure they meant it, too! Maybe you only get $5, but they offer you a trade!

Then there was the situation a few decades ago up in Yankeeland. A colorful dealer who always did his own ads told his audience, "You can have this little car today for only 1,000 bananas!" A lively woman rode up to the dealership with a load of 1,000 bananas - and her attorney, I think. The dealer had to go to court to save his hide. After that, I assume he decided it was safer to use the term "dollars" rather than clams or bananas!

[Pat Germain]

Originally Posted by Bill Arnold

Even before the current situation arose, dealers would occasionally run and ad that said, to the effect, "If you can drive it, ride it, pull it or haul it in here, we'll trade!" I'm sure they meant it, too! Maybe you only get $5, but they offer you a trade!

The proverbial "Push, Pull or Drag" ads must be effective because they never seem to end. Locally, the come on is, "We'll give you $1500 for your trade! No matter what the condition! If your car is worth more, we'll give you more!".

If you do trade in a junker, what those dealers actually do is just tack the $1500 onto whatever car you buy. Thus, they actually give you nothing for the trade in and provide only the illusion that you got $1500 for your junker. Then they call the local salvage yard and ask them to come and pick up all the junkers. Most salvage yards will haul off the junkers for free and sometimes even give the dealer a little money for them, depending on the current price of scrap steel.

If you don't know any better, you come off thinking you got a great deal. "Wow, they gave me $1500 for that piece of crap car!". If you're tickled pink about getting $1500 for your old junker, you probably won't notice you're getting reemed on the car you're buying.