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Tear Down This Wall!

By James A Ziegler, Dealer Advocate

 July 2004

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How ironic, on this, the 60th anniversary of the D-Day invasion when our troops hit the beaches at Normandy in the decisive battle of World War II... the liberation of Europe... I find myself sitting here at the word processor mourning the death of one of America's greatest heroes.

After decades of soft politics and liberal diplomacy, Ronald Reagan looked the Soviets squarely in the eye and called them "The Evil Empire." Under his watch he brought the Iron Curtain down and caused the Soviet Union to disband and our most powerful enemy dissolved. In truth, although he was a staunch Republican, his optimism reignited American nationalism and made patriotism once again fashionable. His style was reminiscent of Franklin D. Roosevelt. I loved this guy. I spent most of last evening watching documentaries about his life and times.

The definitive moment of his presidency occurred on June 12, 1987, outside the Berlin Wall...standing at the Brandenburg Gate, speaking in both German and English, Reagan looked squarely at the cameras and said, "Mr. Gorbachev, tear down this wall...there is only one Germany."

More recently...another hero in my life left an indelible mark on my memory. Back in August of 2001, I hired a young man to work for my company as a consultant to car dealers. He had credentials and experience...well qualified to train. His name is Jake Jacobs. I clearly remember during the interviews that he mentioned several times that he was in the Army Reserve...a Lieutenant Colonel...Airborne Ranger. I didn't think much of it at the time. Who could have second guessed history?

Then 9-11 and the World Trade Center...Colonel Jake Jacobs reported for duty and was off to Afghanistan before his first day on the payroll at Ziegler Supersystems. Well, I have followed his exploits through the Afghanistan campaign...back to Fort Bragg...and then to Baghdad. He sent me one of those Afghani, little flat hats and some other memorabilia on several occasions. Throughout the last few years I have kept a desk and an office for him when he returned. Several of my employees wanted to use the office but...no...this was Jake's office and I wasn't going to double-cross him while he was over there defending us.

There was one time during the actual invasion of Iraq...I think it was the second day...I called "Jake" on the cell phone as I often did. He was so funny and the reality of the moment hit me like a ton of bricks when he said... "Mr. Ziegler, listen, I can't talk...we're in firefight." I could actually hear the war live in the background of that phone call. Even under heavy stress Jake always calls me "Mr. Ziegler."

Well, here's the point: I called him last week to wish him a happy Memorial Day. He answered his cell phone...he was on the speaker phone in my office and my staff was listening in on the call...Jake was so energetic and upbeat. I have never spoken to him that his contagious enthusiasm and mental attitude didn't infect everyone he speaks to. Even this particular conversation was no exception.

"How's it going Jake?"

"Well, I'm in a rehabilitation hospital in San Antonio, Mr. Ziegler." His voice never lost the positive upbeat tone or strength, "I got hit pretty bad...took a lot of shrapnel in the chest and I took another major hit in my back."

The long and the short of it is that Jake is out of the game permanently. The Army will retire him after a tour at a desk job in a strategic command situation... probably back at Ft. Bragg.

He and I also discussed the obvious. I can now let someone else use that desk; he's not coming back here. My staff and I sat there and talked about it for an hour. That call was an inspirational epiphany. When I listen to a real hero like Jake finding the brightest side of one of the biggest challenges of his life without a complaint...no self-pity...not even a whimper; how can so many of us sit around and whine about the petty day-to-day setbacks we experience in this industry?

Personally, I have never had the slightest sliver of patience with wimps, whiners and cry-babies...if things ain't going your way then change them or get out of the way. Get over yourself already. Right now we are an industry in turmoil. The players are climbing all over each other clawing their way toward the top and pulling each other back down like a bunch of crabs in a bucket. Previously, when I predicted a fluctuating and erratic market, I had no idea even then to what extreme this thing was going to vibrate. Weekly, almost daily, sales are turning on and off like a faucet. When I call dealers across the country there is no pattern...nothing is predictable except that the winners are winning and the losers are losing...as they deserve to.

Told you so

(Drum roll) Once again, I am vindicated. Guess what...according to a recent article in the Snooze, Chrysler has had to cave-in and restore reasonable margin to the Durango because it got its butt handed to it because of that goofy "value pricing" miscalculation. Ziegler to factories... "Stay the Hell on your side of the line...you build 'em...we'll sell 'em, okay? Stop dabbling in retail."

All of a sudden Chrysler's on fire...it's amazing how one car can make such an incredible difference. The first time I saw one on the street about three months ago, I told my son, Zachary, "Hey look son...a new Rolls Royce." The new Chrysler 300C Hemi is one of those hot products that can ignite an entire brand. Talking to Ken Crowley with the Crowley Group in Connecticut and to Joey Accardi at Eddie Accardi Chrysler-Jeep in Boca Raton, two of my premiere consulting clients...as well as dozens of other dealers coast-to-coast the story's the same. Even the previously slow-selling Crossfires and Pacificas are picking up spin-off momentum from the 300C Hemi's tremendous popularity. I read it in the Snooze but I have to tell you from experience, I am seeing all types of high-profile luxury cars being traded in as this car reaches red-hot fever status. DaimlerChrysler has a winner here and it deserves to cash in on it.

I fully expect Dodge Magnum sales to explode with similar public enthusiasm. Still holding my breath on the new Hemi Charger...hope Chrysler does it right.

On the other hand...according to dealers I have spoken to, as well according to the front page of the May 24 Auto Snooze, it appears sales of the new GTO are experiencing escalating "Lot Rot" with annualized sales of half of the original projection. Now, you guys (gals) know that I love General Motors, but I have to agree...this car is a mistake...a miscalculation. When I heard that Lutz was resurrecting the name GTO, like many others out there I was excited. But, when it finally showed up the car was a disappointment.

Now, don't get me wrong here. I am sure, as in certain, that it's a good car, but it ain't no GTO. You can brag about the performance, scream from the rooftops and hold your breath till they call you Blue Boy -- you can even put it as the centerpiece in a new made-for-TV movie (The Last Ride) aimed at the aggressive Fast N' Furious youth audience -- but still, it ain't no GTO.

I owned a 1967 GTO that was race engineered at nearly 500 horsepower and completely frame-off restored. It was formerly owned by my friend Lynn Thompson (GM Dealer Council president) who traded it to me for consultation services 15 years ago...it was hand built as his personal car.

The problem as I see it is that GM wanted a GTO for Bob Lutz so bad that it put the nameplate on the wrong car. General Motors knows better. Styling sells...the public wants definitive lines and edgy cars that have identity and personality. God knows I love my Escalades with the Evoq design and Stealth-fighter-influenced styling for that very reason.

Sorry guys, the current GTO imposter is just another uninspiring (did I say too pricey with no incentives?) wind-tunnel designed jelly bean. The salvation here is scoops, wheels, pipes, and flares and more insignia and radical muscle aura. Truthfully, the car would have been a killer with the same powertrain if it was "retro designed".

It's perfectly okay though...with so many homeruns for GM recently...we'll just call the GTO a base on balls. Not a bad car...but a bad idea for that car....a waste of valuable brand equity.

On another note...I just ordered my fourth Escalade, and I also bought a new Corvette hatchback (bright red), which I am also going to keep after the Escalade arrives...and I also ordered my son Zachary a new 2005 Mustang GT (which my friend Jim O'Connor has guaranteed to personally go out on the line and supervise the build through every step of production). So, you see, I am doing my part to keep the industry moving in that I have bought six current-model-year, high-dollar cars in the last seven months.

Interesting additional item... General Motors is going for the gold with the development of the new Chevrolet Cobalt. The goal is to dominate the small car segment (as in kick Honda and Toyota's asses in the market segment they hold the title to). With Cobalt, we're talking the perfect car in the small-car category. Replacing the Cavalier with Cobalt, General Motors is betting the farm on a world-class contender. Unfortunately, rumor has it that GM is planning to give the Cobalt to Saturn as well, integrating parts and assemblies into the Saturn Ion because of issues with the car.

To show you how fast the cards can turn on you...Titan (The Nissan Valdez) and Armada SUV sales have been turning on and off like God's hands were playing with the spigot. From "Red Hot" to "Not," Nissan dealers coast-to-coast are on tranquilizers trying to second guess the market. I suspect hysteria over gas prices may have something to do with it, but I really haven't seen or heard about any overt consumer backlash over gas prices as it relates to car sales with any other brand of car or truck. People seem to be buying what they want, regardless. My theory is that the public believes (as many of us do) that this gas supply situation is just another artificial market manipulation...and...that it will be temporary. Of course, Nissan and Infinity are still on fire...car sales are dynamic.

At the same time, Nissan CEO Carlos Ghosn told investors last week that Nissan is "evaluating the need for additional North American capacity." Guess what...all of the players are ramping up production for introduction into the US market to the point where, if nothing changes, I am going to call the 2006-2007 model years "Armageddon" (The battle of the end).

I have been writing and speaking about this for some time now, and now it appears the reckoning is accelerating. I was the first to point out in print nearly six years ago that, in their quest to capture and conquer the US market, the import manufacturers (specifically the Japanese and the Koreans) were going to be using over-production and market saturation as a game strategy (right out of Sun Tzu's Art of War). Toyota and Honda have very successfully used this tactic to beat down and annihilate the competition, and now we are seeing Hyundai, Nissan, and Kia all announcing increased production goals. Last October, the combined automobile manufacturing community was projecting more than 18 million unit sales production for the US market where we've never done more than 17 million and a strong decimal... Now they are all adjusting those figures upwards even higher. It's going to be a bloodbath.

Last October I wrote an article in this magazine titled Thirty-Six to Nothing. In that article I wrote the words... "Somebody's Gotta Die." I went on to say...

"Now analysts are saying that the Japanese and the Koreans intend to dump nearly two million additional units annually into the US market in the next few years. Even if the US market raises to saturation levels above 18 million new vehicle sales...it's a mathematical certainty...the market can't support that production; we're over the point of saturation...unfortunately somebody's gotta die."

Returning from vacation at Atlantis in Paradise Island, Bahamas, last week, I was riding the shuttle from the airport to offsite parking. There was this guy sitting there across from me with a Toyota emblem on his Polo shirt. Several miles to the parking lot, we struck up a conversation...he was aware of who I am (no ambush). He told me he was with the launch team for the new Toyota Scion. He was bubbling with that blank stare, starry-eyed "Stepford Wives Enthusiasm" usually reserved for Saturn sales executives. His eyes seemed to glaze over in a trance as he told me the factory line: "We're projecting 100,000 unit sales" he exclaimed, beaming with pride. "The age of the average Scion buyer is 36 years old." He went on to say, "That's all conquest business since the average Toyota buyer is in their forties."

Well excuse me Dudes (Dudettes), 100,000 unit sales sounds a bit aggressive to me. Of course, the factory might mean it plans to sell 100,000 of these square, awful, ugly-ass little geeky cars to its dealers who in turn are stuck with trying to unload them on the public. I guess the factory considers the car sold when the dealer takes delivery. In fairness, I must say that my descriptor calling the Scion a square, awful, ugly-ass little geeky car was certainly my own personal opinion based on the fact that it pegged the needle registering a 9.5 on my upchuck barfometer. It certainly wins the bogus prestigious glass trophy in the Butt-Ugly Category, leading the pack with Honda Element in a distant second, slightly ahead of the Pontiac Aztek.

The laughable part of that conversation was the part where he was bragging that the average buyer is aged 36. Excuse me, all of the hype and alleged research on this apparent abomination says it's supposed to be a Generation Y vehicle. Thirty-six-year-old adults don't fit that category. Same thing with the Honda Elephant...the average buyer appears to be somewhere in his or her forties, although I haven't seen or heard any research or claims from any reputable researchers on this. (There was some J.D. Power alleged statistics but you know how much credibility I personally think that has.)

Well...we all heard and read the hype. The dealers who were seduced into buying in have bought in and the cars are on the way. By July 4 the Scion will be available in showrooms nationwide...complete with allegedly goofy Saturnesque sales and marketing. The official party line is Toyota is projecting 75,000 unit sales in 2004 and 100,000 annually thereafter. Selling roughly 6,000 units a month nationwide...yeah, that's doable. But, where are these sales and these customers coming from? After all, the car is high gas mileage and extremely cheap. But, so far, the kids ain't the ones buying them...the demographic is older. I predict this is going to be one hell of a good sub-prime finance car. In other words, we're going to see a lot of dealers stuffing bad credit players into their new Scions. When the 20 year olds start buying them, that'll be the day. Like I predicted (accurately) when Honda came out with the Elephant, it would end up exchanging buyers and robbing Civic sales. In truth...Civic sales dropped dramatically simultaneously with the introduction of the Element. And...the demographic buyer is the same buyer who was buying Civic. These cars are not selling because of their appeal (ugh); they are selling because they're cheap...period.

Laughing so hard that Cognac shot out my nose! I just read where Honda is considering a cylinder shut-off option where its six-cylinder engines could shut down three cylinders while the vehicle is cruising at highway speeds, thus running on three cylinders. Honda is eyeballing the Pilot and the MDX SUVs, as well as the Odyssey, for this project. Excuse me; does anyone remember the famous Cadillac 4-6-8, circa 1982? That was one of the worst fallopian tube engineering malfunction abortions in history. What a nightmare. How do you say "Idiotic Idea" in Japanese?

I could write five or six more paragraphs with fresh material here, but I've decided to give Mitsubishi a rest this issue...but, rest assured, when it comes to Mitsubishi there is no shortage of new bad news...the hits just keep on comin'. Truthfully, I have a strong positive feeling Mitsubishi will weather this storm and come out okay...but I wouldn't stake my reputation on it.

Everybody keeps asking me why I am so high on Suzuki. Well, have you really taken a look at this product? The product, the advertising commitment and marketing plan, the growth strategy and the price point....everything about the franchise spells opportunity. With most of the Japanese brands abandoning the low-end product and Hyundai moving upscale, that leaves this price segment nearly wide open. Couple that with an aggressive finance support...I think Suzuki's poised to explode. Its growth plan is to triple sales in less than three years - it's workable, realistic and achievable. If I were a dealer I would certainly study the opportunity. Of course, if I had a Suzuki franchise, I'd throw some serious money into advertising. I think brand awareness is the key to making this puppy takeoff. Actually, I don't know anyone at Suzuki and I am not on the company's payroll...I just got a good feeling about what I've seen and heard. Remember, Honda and BMW came to this country through their motorcycle divisions. Suzuki engines are world-class, and the company is mixing some cross-manufactured product into the mix as well.

With Hyundai trying to move up to a market segment that's more crowded with more heavyweight competition, it is abandoning its roots and leaving the low-end market wide open. As part of its aggressive brand imaging restructuring plan, Hyundai plans to go full-size, upscale, and luxurious with Kia targeting the lower-end market with performance and price offerings. In other words, the Koreans are now looking at becoming a major player with distinctly defined divisions...i.e. Chevy and Cadillac, Ford and Lincoln, etc.

You know, when I starting touting Hyundai as the franchise to buy six and seven years ago, everyone thought I was crazy. I received e-mails, letters and phones calls from people throughout the industry proclaiming I'd lost it. Well, imagine this? Even the folks over at the J.D. Power glass trophy shop are saying that Hyundai quality now surpasses Toyota and Honda (as I predicted). The point is that these Hyundai folks came to play with their game faces on. Fortunately, I saw it coming way ahead of the curve...the signs were all there. Now, Hyundai has set ambitious goals to knock off some of the other major players. Seems to me it is successfully taking Honda down. And, I think Honda and Toyota are distracted and heady with their own past successes. These Koreans might just sneak in there and take away major share from any number of contenders. Hyundai is saying it will be producing engines with 300,000 mile average life expectancy, twice the current best standard in the industry. In the meantime, it is ramping up production to more than one-million units annually in the short-term goal...with longer-term expectations of nearly six million units combined sales (Hyundai and Kia).

On the other hand

Most recently, as in just the last few weeks, Kia seems to have taken a nosedive, with sales dropping off dramatically in freefall. I haven't seen statistics yet; this is just what I am getting from all of the panic calls from my dealer friends across the country. According to the Wall Street Journal, May Hyundai sales increased 12 percent over same month last year in May (6.1 percent increase over April 2004). However, Kia sales were up 14 percent over same month last year, but fell off nearly 8 percent from the previous month (April 2004). Evidently, from what I am hearing, this downward spiraling trend is continuing into June. By the time this goes out in publication we'll have the numbers.

Back from the dead

Who'd of thought it? We've got Mazda reporting a 41 percent profit increase with a net of $298 million. Mostly because of cost-cutting, it claims. (Man, those jokers must have been sloppy and inefficient before, huh?). Mazda's actually projecting nearly two million unit sales...we'll see.

Where's Wolfgang?

When my son Zachary was seven or eight years old, we used to buy these little kid puzzle books titled "Where's Waldo?" You'd have to find the character Waldo who was hidden in a crowd of people in a big picture with thousands of people in it. Well, the new game is "Where's Wolfgang?"

Several weeks after his sudden ouster, just one day before he was to take over as chief executive at Mercedes, there have been rumors of numerous Wolfgang Bernhard sightings. Yet, as of this date, I have not been able to pin anything down. I have been told by otherwise formerly reliable sources that he has landed, but the details are not forthcoming as to what and where.

Two o'clock in the morning...I'm wrapping this one up earlier than usual. You have no idea how many times I see the sun come up before the column is finished. I am sitting here savoring another snifter of Remy Louis XIII cognac, compliments of my friend, dealer Denny Hardee and his sons Shaun and Chris.

I leave for Orlando tomorrow to perform a two-day Sales Managers seminar at the Hard Rock Hotel at Universal Studios Theme Park. I had a lot of fun doing those ads wearing the Elvis outfit.

Swirling the Cognac now, I am thinking about my friend, Colonel Jake Jacobs, seriously wounded, lying in that hospital in San Antonio. If he's sleeping, he's still probably smiling...I wish I had a fraction of that positive attitude.

Sixty years after D-Day we still enjoy the freedoms won by heroes who paid that way. I remember seeing the re-enactment in the movie Saving Private Ryan and the horrors those men faced...all of these things make our problems seem a little more insignificant and the price worth paying.

And, of course, the influence of inspirational leaders like Ronald Reagan...you know, tomorrow I will hit the floor with the sunrise. I am so ready...can't wait to get back to work; it's been a long weekend following a vacation in the islands. I am so ready to get back into it. Hey, why don't you send me an e-mail, tell me what's going on with your franchise...I'd really like to hear from you...

If you wish to discuss this article with other dealers, or with the author, please go to the "Discussion Forums" at www.DEALER-magazine.com and enter the "Dealer Advocate" forum.

Jim Ziegler is the president of Ziegler Supersystems, Inc.