Ziegler Supersystems, Inc. May 2003  Dealer Mag Article

Bombs Over Babylon 

Three A.M., alone in the den…hypnotized…sitting alone in a darkened room, watching several screens within a screen, three newscasts at the same time on my state-of-the-art big screen television. Four hours ago I told my wife that I was just going downstairs for a minute to watch the war. 

Not unlike millions of otherwise normal Americans, I have become a CNN Addict. As I write these words it is now April 5^th …our troops are encircling Baghdad and Saddam Hussein look-alikes are conducting press conferences and kissing babies. Hopefully, it will all be winding down soon.  

By the time you read this, my current future will be history…the outcome will be known, and maybe our lives will already have begun to return to normalcy. 

Right now however, for the time being, I’ve got FOX News on one of the smaller screen insets…and…if anything more interesting breaks, I switch to FOX on the larger screen with CNN in the smaller inset. Truthfully, I like FOX News better for what I perceive to be their fair and balanced conservative approach. There’s something a little too liberally slanted in the subtle undertones peppering CNN’s alleged reporting to suit my taste…but they do have more reporters on the ground where it’s happening. Besides, Paula Zahn is a real Babe.

Sometimes I actually catch myself standing up in front of the television, wearing nothing but my underwear, cheering loudly when something hits me emotionally. I get excited every time there’s news about another victory for the good guys. I wish more Americans would have the testicular fortitude to stand up and say what they believe. So many silently stand by and take so much crap from the extreme intelligentsia liberal left…who, according to all reputable polls are holding the extreme minority viewpoint. I’m sick of wimping out and biting my tongue. Yeah, they have their right to freedom of speech...so do we...and I don’t like them.  

Well, I never was accused of being 100% socially correct anyway. There’s a yellow ribbon on my mailbox.  

AND, most recently, at the Ziegler household we had a little ceremony and shattered all of our CD Albums by “The Ditsy Twits”.   

Me and mine, we are boycotting Susan Sarandon, Richard Gere, and George Clooney. Of course, we destroyed any Barbara Streisand merchandise or memorabilia years ago. 

It’s just my opinion mind you, BUT I wanna barf every time I see Martin Sheen portraying the president of the United States on television. Maybe it’s just me, but I think he might possibly be the biggest wimp on television actually bumping Alan Alda and John Ritter out of contention for the top slot on my personal list of greatest whussy-boys of all-time. What a spineless, pacifist. 

Then, what would the liberal news media do without indignant self-righteous statements from perennial political hacks like former president, Jimmy Carter (also scoring high on my whussy-boys list), speaking out about his perception of the immorality of the war. Let me preface my upcoming commentary by disclosing the fact that, in my personal opinion, ole Jimmy was the absolute worst, most ineffectual President in our history. Wasn’t he the guy who sat on his thumb in the Rose Garden, pitifully powerless, while Iranian Militants tortured our diplomats publicly on international television? I blame Carter’s weakness for a lot of what’s happening now. As for his Nobel Prize…didn’t he get that for his peace initiatives when he negotiated with the North Koreans and convinced them NOT to produce nuclear weapons? Maybe Jimmy will do the right thing and give the medal back.   

Don’t even get me started talking about Senator Daschle? Also…while I am venting my personal opinions about people and events…I, for one, believe Peter Arnett is a left-wing traitor... He and Geraldo should be exiled to live amongst their new friends in Baghdad.  

It enrages me when some bureaucratic jerk makes police officers remove the American Flag from their patrol cars because it might offend somebody. My viewpoint on that issue is that if the American Flag is offensive to you, then why don’t you just get the Hell out of my country. We got yer one-way ticket to Baghdad right here Pal. 

Other than those few minor conservative right-wing idiosyncrasies the majority of my personal views are fairly liberal. 

On the home front, this war is having a predictable effect on sales. It’s 1991 Déjà vu all over again. For months now I’ve been predicting an erratic and uncertain market, with wild swings in used car values and fluctuating sales. If you’ll remember, 1991 was a 12.5 million-unit sales new car year. Remember, the economy was already starting to stall long before the war started. Zero percent and all of the rebates were already beginning to lose their zing. Used Car deflation is and was a serious concern. 

You really can’t blame the public for getting a little squirrelly right now in light of all of the uncertainty. BUT…relax…this too will all pass. Those of us who are veterans in the retail “Car Wars” have seen these cycles come and go. The winners will be the aggressive high-energy sales-driven dealers and manufacturers. The losers will be the cost-cutters… the turtles that retreat back into their shells waiting for the storm to pass. 

Already I’m seeing some dealers cutting back on advertising and training…reducing their sales force and paring down their inventory while others are working harder and smarter, training their sale force, targeting their marketing and tightening up their processes. 

Undoubtedly, this unpredictable market will shake out some weak players and strengthen others. I have said repeatedly, you’re either going to grow or die.

Over the last two or three years I have conducted hundreds of speeches, seminars and 20-group presentations. One question dealers frequently ask me is… “What do you think about the future of the Mitsubishi Franchise?” 

My answer has always been consistently… “If anyone offers you the opportunity to buy a Mitsubishi franchise…Run! Run away quickly and don’t look back!” I recall a long debate I had with a car dealer at a 20-group meeting last year about the fact that he was considering acquiring a Mitsubishi Franchise. Unfortunately, I was unsuccessful in talking him out of it. I know you’re reading this article right now, aren’t you Big Guy...don’t you wish you would’ve listened to me? 

First of all, we’re talking about a corporation whose North American operations are run by a Canadian ex-Saturn guy with a French name...Mssr. Pierre Gagnon. (Judging by his photos apparently a pretty boy with good hair to boot) Gagnon, an 18-year General Motors veteran was the Head of Consumer Marketing for Saturn...and we all know about that track record. Worse yet, he’s surrounded himself with several other Canadian ex-Saturn executives in all of the top slots. 

To show you where their heads are...the high point of the marketing effort was the fact they had a television commercial featuring the rock group...“Bare Naked Ladies.” Okay sports fans; we’re talking about chasing Generation Y buyers again. Sort of like those tacky goofy Saturn spots where the people are driving cardboard boxes or the other one where the cars are looking for the people on the lot. 

You might think I’m prejudiced against Mitsubishi just because it’s run by an ex-Saturn guy with a French name and good hair, which of course, in my opinion, that alone is a dead giveaway this company’s probably going into the tank BUT there are actually many other substantial reasons why I think Mitsubishi is about to bite the ultimate big one.  

If you’ll recall, I wrote an article back in September of 2000 titled “In Search of new Cheese”. In that article at that time I wrote the following...

Hey! How about them Mitsubishis? Can you believe that they actually covered up serious defects and hidden recalls for more than twenty years on more than a million cars and nobody in the Japanese government was aware of it? (Wink-wink) We’re going to have to award them the prestigious Bridgestone/Firestone trophy.

No sooner is the ink dry on that story than Mitsubishi dealers get caught red-handed falsifying sales reports. My God, what do they think they are...Cadillac executives?

In other words, this franchise has been walking on razor blades for some time now and all of their current financial problems can’t be attributed to Mr. Gagnon’s Saturn-esk management style. 

I am sort of predicting that Mitsubishi appears to be too deep in the toilet to pull it back out without at least partially flushing the company. Just a high school graduate from Jacksonville, mind you, but I’d guess they might end up being as much as $3 billion upside down in their $10 billion loan portfolio. 

Anyone in their right mind could’ve seen it coming. Through their finance arm, Mitsubishi Motors Credit, Mitsubishi drove sales with creative finance programs that ranged from absurd to asinine. Although there is no apparent genetic link between Pierre Gagnon and Jacques Nasser, I could swear we’ve witnessed this management style before. 

Swimming in the shallowest end of the credit pool...Mitsubishi solicited the very dregs of the subprime consumer market...the worst credit customers imaginable...and put them riding in new Mitsubishis.  We’re talking about no money down...120% of invoice...no payments for one-year...and, get this, 60 month balloon payment loans amortized over 80 months with outrageously unrealistic, as in never-gonna-see-that-big-of-a-dumbass-number at the auctions, as in way too-high residuals.  

No wonder back in February, Charles A. Treadway, executive vice president in charge of Mitsubishi Motors Credit left the company. (Not sure if he resigned, retired, or if they ripped the buttons off of his uniform and blew him out)  

I’m sure many of you have seen those repossession puppies coming back home at the auctions often as not losing $11,000 to $15,000 at a whack...and there are quite a few “whacks”. What in the hell did they think was going to happen? They gave hardcore bogues a free ride for a year in a new Mitsubishi of their choice. They’ve had to contract JP Morgan-Chase & Co. to try to administer servicing the portfolio and maybe tourniquet the bleeding a little. In their initial report, JP Morgan-Chase and Co. politely as possible described the situation as...  

Mitsubishi has been under pressure to better its performance in today’s 0% financing environment. This has led Mitsubishi to make loans to borrowers with less attractive credit histories, and to use riskier loan products, such as balloon notes which have smaller payments initially and larger payments later in the loans life. The larger payments have led to higher losses later in the loan-life cycle.  

“Well DUH!” 

(Ziegler analysis of the situation as reported by JP Morgan-Chase & Co.) 

The Mitsubishi Motors Credit program was called “Daybreak”. Mitsubishi Motors Credit urged dealers who had multiple franchises to run all of their credit turndowns through the Daybreak Program on a new Mitsubishi. Daybreak was supposed to be a creative way to move units. Once the word hit the streets...Mitsubishi had every “credit mooch” in the world beating a path to their door.  

If you’ll recall, Ford Motor Credit stacked up a pile of bad paper on the books a couple of years ago and they also deferred a lot of their hidden losses to the future in the form of bad leases with inflated unrealistic residuals that also weren’t never-ever gonna happen in a million billion years. If you’ll also recall, at the time I also predicted that Ford’s Red Carpet lease program (The Plan) was going to crash hard when the consumers turned those heavily over-residualized pigs back in at lease end...which it did with Ford Credit bleeding money out of every artery as a result. Ford however was better financially positioned to absorb the losses than Mitsubishi. 

Now, it appears that Mitsubishi is blaming it on their dealers for taking advantage of the program. If Mitsubishi is taking it in the shorts, I believe it’s largely their own fault. Now we’re hearing reports of Mitsubishi Motors Credit requesting and, in many cases, requiring dealers to recourse paper. Let me assure you...I know these dealers...many of them contributed to this article...I get a strong impression that Mitsubishi Motors Credit begged the dealers to “stretch” the program whenever possible. Evidently, some paper buyers even coached the dealership personnel how to structure the applications to get more deals on the books. From the many conversations I’ve had with dealers and managers, I am fairly positive there existed a wink-wink attitude that resulted in a kink-this, kink-that...just do whatever it takes to get it bought environment. In other words, I don’t think anyone raped a virgin here. 

Coincidentally, one of Mitsubishis biggest players in the United States, CarMax...decided to give back five Mitsubishi franchises in an announcement by Austin Ligon, CarMax CEO on March 17th. Of course Ligon spouted some rosy rhetoric something to the tune of how great those nice folks at Mitsubishi were but, us guys at CarMax, we’re just moving on and doing our Used Car Superstore thing without them. Excuse me folks, I really don’t like those CarMax folks BUT they are doing a Hell of a lot of business. Let me do some Ziegler logic here...why would anybody throw away five perfectly good New Car Franchises...Unless there was a problem? Could the fact that CarMax does somewhere around 20% or more in subprime business have anything to do with their sudden departure? You don’t think CarMax helped milk this cow dry do you? 

All of this happening as Mitsubishi announces a $200 million expansion plan producing cars in Illinois in conjunction with Daimler-Chrysler. With Mitsubishi’s strong ties to Daimler-Chrysler (they own 37.3% of Mitsubishi) I don’t think you’ll see the franchise totally decimated BUT there’s a strong possibility that Daimler-Chrysler might absorb more of the corporation’s assets. BUT, as far as Mitsubishi surviving and thriving into the millennium...Can you say “Daewoo”?  Those ex-Saturn marketing guys sure know how to run a company. 

Speaking about people who know how to run a company...according to an Article by Robyn Meredith in Forbes magazine, Toyota has set a goal of becoming the world’s dominant automobile manufacturer capturing 15% of the global market before the end of the decade. Right now they are sitting on a total market capitalization of $84.5 billion, making them already bigger than General Motors, Daimler-Chrysler, and Ford Motor Company combined. 

15% global market share would mean doubling current sales, presumably taking most of it away from General Motors that is currently at 14.2%.  

Of course goals are great things to have but a little side note in the Forbes article twinged my skepticism...it said that Toyota is shooting for 50% cost cuts as it grows market share. Every time I see a manufacturer attempting to cost-cut their product line to achieve greater profitability, I sense an impending train wreck a little farther down the line.  

Also, according to Reuters, Toyota also announced plans to cut the number of members on their board to half to improve efficiency...streamlining down to 30 members by June with shareholders approval. Reshuffling the deck is another part of the aggressive business plan to achieve world sales dominance.  

Toyota enjoyed $12 billion profitability last year while the big three struggled... 80% of that came from U.S. sales. 

Even so, I am on record as saying “It all sounds good, but...That ain’t gonna happen.” 

Oh sure, I have great admiration for Toyota...and until recently, I had a lot of respect for their North American marketing strategy. BUT...they aren’t the only players in the game anymore. General Motors, Nissan, Hyundai, and Daimler-Chrysler aren’t going to continue to lie back and allow this to happen. They have some incredible product in the tubes. The Big Boys are more than up for a good ole fashioned dogfight. I look for the competition to come roaring back. I imagine that even Ford Motor Company will come limping back into the fight once top management removes their heads from wherever they’ve placed them. 

There is a major miscalculation in the premise upon which that article is written which is the assumption that Toyota still has upward momentum. My take on that is I think they’ve peaked in North America and, along with Honda; they are poised on the edge of the precipice looking down. Cheapening the product through further cost-cutting, decontenting, and micro-managing their retailers are serious mistakes...it will become glaringly apparent to industry insiders and dealers that the product just ain’t what it used to be...or what consumers expect it to be. The war is going to be fought with great new product and Toyota is looking in the wrong direction. Scion is going to be one of those miscalculations. Right now Toyota is sitting on top of the mountain with great product, great dealers, and incredible momentum.  

Like Ford Motor Company, there are hard lessons to be learned...blinded by arrogance and pomposity, they may overlook the obvious until it jumps up and bites them on the butt. It could be a long downhill slide before they wake up.  

I just read where the last Oldsmobile Aurora rolled off the assembly line. In the not so distant past, The Aurora was going to be the state of the art engineering, next generation salvation of Oldsmobile Division.  

I remember John Rock writing full page articles in Auto Snooze about how Oldsmobile was going to be the next generation Saturn concept...complete with that one-price, no-haggle, goofy sales and marketing strategy. Well...Oldsmobile and John Rock are both gone now...and Saturn’s still in business, although nobody can really say why. Go figure. 

Well, there’s a lot happening and I’ve been sitting here in this chair for hours, going back and forth between writing this article and watching the war live on television. A CNN Commentator was just talking about how the French, The Germans, and the Russians feel we should allow them to take the forefront in rebuilding Iraq now that the conflict is winding down.  

Excuse me...The French would show up about the time surrender appears imminent...it’s just their nature. This is the one aspect of war where they have a lot of expertise. It is my sincere hope that our government does not get soft on this issue and allow these countries to participate, do business as a result of, or to profit from a war we fought to liberate Iraq. American and British troops died and our resources were used here. How dare these people show up now in any capacity. My feelings are that the American people will turn angry eyes toward our former allies once this thing winds down. I can foresee a long smoldering anger and resentment that may affect certain import sales. I certainly wouldn’t be trying to reintroduce the Pugeot Franchise about now.  

My God! I absolutely hate myself for being the miserable hypocrite that I am.  Swirling a snifter of Remy Martin Louis XIII Cognac in the light and savoring the color and bouquet...looking at the exquisite Baccarat crystal decanter...I cannot help but notice the label... Produced in France. 

More Food For Thought

You could’ve read it here first...

 DETROIT -- Reuters / March 11, 2003

Detroit's automakers have closed the quality gap with European automakers, but their Asian counterparts continue to set new benchmarks in reliability, according to a Consumer Reports magazine survey released on Monday.

The influential magazine's annual survey found that South Korea's Hyundai Motor Co. Ltd. now ranks among the top Japanese car manufacturers in reliability for 2002 model year vehicles, after being among the worst for many years.

 Unlike some of the alleged research firms that award dozens of trophies and awards to virtually anyone in any industry who has an advertising budget, I have some level of respect for Consumer Reports research. First of all they are truly non-profit which is refreshing after watching what I perceive to be the prostitution of ethics practiced by some of the piranhas of the research world hijacking manufacturers reputations and holding them hostage for a buck or two.  

Secondly, they (Consumer Reports) use a large sample group; in this case there were 480,000 people who responded to their survey out of their subscriber base of 3.5 million. I prefer this as opposed to a small selected demographic in a precise geographic with a predictable outcome resulting from carefully selected wording designed to slant the survey to get a predetermined result. I am certain in my mind that some alleged survey companies servicing the automobile industry could publish their alleged bogus results before they conduct their alleged surveys. 

Okay, that’s enough of my opinions about the credibility of all of the varied sources of consumer research. The point is that General Motors and Hyundai kicked ass. I have repeatedly said that there is a product-driven renaissance with those manufacturers. And Nissan’s also bringin’ it to them. (There is a small issue that Nissan may have to face...they are partially French-owned and I foresee that is going to become an issue) 

All three domestic manufacturers (2 ½) improved dramatically in reliability according to the survey to the point where David Champion, director of Consumer reports Auto test Department issued this statement...

"The domestics have now caught up the Europeans and produce some fairly reliable cars."

Actually, Daimler-Chrysler led the domestics with Ford bringing up the rear. Out of 32 Ford vehicles surveyed only five received the recommended status...and 2 of those were Volvos. 

But the big news, as predicted, Hyundai and Honda tied for second place with only 11 problems per 100 vehicles. Toyota, of course, still took the number one position with 10 problems per 100.

Honda sales have declined in Japan for the fifth month in a row with sales down 21.5% year to date according to Auto Snooze. And, get this...I wrote about this in the last three issues...

Excerpted:  Another reason for Honda's tumble here is that its rivals are beefing up. Nissan Motor Co., for example, has made an aggressive push into the small-car segment  By Yuzo Yamaguchi Automotive News / March 17, 2003.

As I have written previously, Honda has come to the reckoning point at home in Japan...and although they are up more than 18% in the U.S. Market, I suspect they will not be able to sustain and will start to show deterioration in U.S. market share as competition heats up. As with Toyota, I believe Honda is coasting on past glory...even if it is in the recent past. They have great dealers...some of the best in the world BUT their business plans underestimate the competition. I said before that Hyundai and Kia are poised exactly where Honda and Toyota were in 1982 when they really started to kick ass in the U.S. market. Now, Hyundai has verifiable world-class quality within decimal points of the very top and they are coming on with state of the art U.S. Manufacturing plants and distribution. I think maybe Honda and Toyota have forgotten their own history.

(Footnote to above paragraph) I still think the Scion and The Element are double-triple Butt Ugly.

This Man Means Business!