The Eve of Destruction

The Eastern world...it is explodin'

            Violence flarin' and bullets loadin'

... And even the Jordan River has bodies floatin'

But you tell me, over and over

And over again my friend

Ah, you don't believe

We're on the Eve of Destruction

...If the button is pushed

There’s no runnin’ away

There’s nowhere to hide with the world in its grave.

Words and lyrics by P.F. Sloan 1965

Recorded by Barry McGuire

Talkin’ bout my generation. An eighteen-year-old Jim Ziegler took those words very seriously. The first time I heard that song back in the summer of 1965, I bought the record and played it over and over again until I knew all of the lyrics by heart. Young and idealistic, to me this song was the most significant statement solidifying my perception of who I was. It was my personal call to get involved.

Now, thirty-six years later an older, street-hardened, worldlier…less spiritual…Jim Ziegler watches 24-hour news as tanks roll into Bethlehem and it chills me to the bone.

In my opinion, you’d have to be an absolute idiot…a card-carrying moron…to even attempt to accurately predict sales trends in this volatile, explosive market. Most recently, I have warned dealers repeatedly about the dangers of taking your eye off of your business in an erratic, fluctuating and unpredictable market. If there’s anything I can say with certainty it is that the public reacts instantaneously to breaking news. If world events take a negative turn, it has the ability to kill momentum and reverse the market immediately. The economy is fragile. There are so many variables beyond our control affecting our lives and future.

Hey did you see where J. D. Power and Associates now predicts that U.S. light-vehicle sales might be as high as 16.5…even 17 million units this year?  Yup, Mr. Bob Schnorbus, chief economist (evidently a big shot) with J.D. Power and Associates revised their earlier official forecast, which had predicted 15.7 million units. With perceived authority, devoid of excessive pomposity, cloaked in an illusion of dignified competency he said that the company’s mathematical models now point to 17 million unit sales this year.

Excuse me folks, does this mean their previous official forecast turned out to be just a big pile of bullpoop? Personally, I have to believe that a blindfolded drunken chimpanzee with a dartboard would have had a more accurate track record predicting industry trends and events than J.D. Power and Associates has ever exhibited over the last few decades. Of course I could be wrong about that but I still think the smart money would be on the chimp.

In a related story…there is a growing number of dealers joining a groundswell rebellion against J.D. Power and Associates perceived intrusion into our business. Some dealer friends of mine recently received J.D. Power dealer surveys and returned them with the words… “Get Out of Our Business”…written across the front of the form in bold black marker pen. I think that’s a great idea. In the past, some of my dealer friends have been sending these surveys to me, allowing me to fill them out for them, but I think this new idea is better.

Personally, I want to be a cautious optimist here. After all, according to front-page headlines in Auto Snooze, General Motors and Ford have both officially declared the recession is over.

As I predicted in every issue, although March sales were off less than 1%, the players are realigning dramatically as market shares shift. Predictably, Ford is still the biggest loser sliding backwards 12.7% over last year compared with General Motors modest 1.7% retreat. Ford has posted double-digit sales deficits every month this year. Chrysler also limped to the finish line posting a 3.8% deficit in U.S. sales. (Down 8% year-to-date)

In the truck wars…General Motors showed an impressive 8.7% increase in light truck sales while Ford took a 12.5% bloody nose. Chrysler tuck sales were off 5%.

Okay Ziegler, enough with all of the statistics, where is all of this heading? Okay…okay…I’ll get to the point. European imports were up more than 12% over last year and the Asians grabbed another 6% increase. 

BMW of North America showed a 23.1% increase in March posting a U.S. sales record. Toyota Motor scooped up another 4.2 %, American Honda showed 2.3 % increase, and Nissan’s jumped up another 14.4% in the U.S. Market.

Here’s the real news…as you may be aware, I have predicted repeatedly that the Koreans are the legitimate contenders for a shot at the title. Right now Hyundai is positioned exactly where Toyota was in the U.S. market back in 1980 when they really started to explode onto the scene.

Hyundai, showing 18.5% growth year-to-date, just posted another 19.2% sales increase in March. Showing a 42% sales increase in less than two years, these guys are coming on…these guys are juggernauts…extremely desirable franchise.

The shift is an aggressive assault on the U.S. markets as the Europeans and Asians take market share away from the big two-and-one-half. Remember, General Motors was the only domestic manufacturer who made a profit last year and the only one expected to make a profit this year.

On the other hand, Japan is still deep into a recession that has drug on for more than a decade. Japanese exports to the U.S. are solely supporting the Japanese industrial sector. This is about a country’s economic survival. The world’s second largest economy is banking on exports to us. The Japanese are pulling themselves out of the hole by leveraging the strength in the U.S. economy coupled with an eight percent drop in the value of the yen against the dollar…another chapter from “The Art of War”. Right now, Japanese car and truck sales account for slightly less than 28% of U.S. market share.

No, let’s review something I wrote last September in an article titled “I Just Heard the Music”? To quote myself in part, I wrote these words last August…Now, I am hearing rumors and rumblings about Toyota and Honda hiring some allegedly goofy one-price and Internet consultants and preparing to start interfering with their dealers’ selling processes. If Toyota and Honda don’t watch it, they are about to suffer the same hard, arrogant fall we have seen these other giants suffer. Gearing up to incorporate mandatory Internet initiatives into their process is going to kill their momentum and demoralize their dealers. A message to Honda and Toyota…you’ve got great dealers, great products and great profits, don’t dick around with the formula.

Well, at the time I received an irate correspondence from Jim press, VP-COO of Toyota, denying that Toyota had ever flirted with any idea of hiring any sales and marketing consultants, whether we’re talking about goofy propeller-heads or otherwise (Ziegler paraphrase). At the same time I also heard from Honda Dealer Council members who were concerned about the statements I had written.

Well, next thing you know Honda gets in bed with Pat Ryan and the ION Corporation…and now comes the latest news.

Drum roll…

LOS ANGELES-- (BUSINESS WIRE)--March 27, 2002--Fresh Machine, a next-generation consultancy, has joined forces with Toyota Motor Sales, U.S.A., Inc. to launch the automaker's new brand for youth-oriented vehicles -- SCION.

The article read in part…Fresh Machine landed the account in September 2001 when Toyota was looking for innovative partners to help them reach out to the youth market.

Excuse me Mr. Press. You had me apologizing, groveling and bowing at your indignant letter when you knew all along I was 1000% right. I wrote the article in August at the same time your company was interviewing these guys and finalizing the deal. I knew my sources were deep and accurate.

The Business Wire release went on to say…Fresh Machine, now in its second year of operations, is a next-generation consultancy providing strategy, branding and creative services for a wide variety of clients, with a focus on interactive media and emerging technology.

 Although the word “One-Price” is carefully never used in any of the literature I have seen, SCION sort of smells like Saturn. I could be wrong but the adjective “Next-Generation” conjures up images of purple hair, multi-tattoos, and abundant pierced body parts.

Here is a quote from a Toyota press release on their website…With an aim to create the promise and the reality of a truly customer-controlled atmosphere, the SCION dealer environment will allow shoppers to browse, investigate, research, or just discover SCION, entirely at their own pace. Sales people will offer assistance and guidance. However, at SCION, their role will be clearly defined as just one of the many resources available during the shopping and purchase process.

…The Internet will also be an important tool in this process. The SCION Web Site will be highly interactive, targeted and constantly evolving. It will invite the user to stay and explore, rewarding those who take the time to experiment with surprising discoveries. Equally important, the Internet will act as a two-way conduit between buyer and seller. It will be designed as an important listening post, where customer feedback and suggestions will be closely monitored.

You know, I am not actually criticizing the car or the concept…not yet anyway. Truthfully, It has strong possibilities. My concern stems from my perception that General Motors blew through billions and sacrificed Oldsmobile division trying to make Saturn successful. I am just hoping Toyota dealers aren’t being bent over and vaselined up for the same treatment. With an aging demographics perhaps Toyota is being viewed as a mature franchise while new products, research and development dollars are diverted to a pipe dream with a controlled sales process. I am one of Toyotas biggest fans. Mr. Press, I have held you and your company in great respect and highest regard but I strongly object when someone pees down my leg and tells me its rain.

As I wrote in last month’s article, one of Toyota’s biggest legitimate fears should be the emerging Korean franchises…especially Hyundai.

Last month, Hyundai outlined a strategy to build a billion-dollar factory in Alabama capable of producing and additional 300,000 cars a year. Putting the plant in the largely non-union southeast United States, Hyundai plans to widen their competitive edge over Detroit with more cost-efficient labor. Most of the Asian and European automakers operating factories in this country are not unionized giving them incredible cost efficiency edge over the domestics.

It’s more fun being a commentator than being a journalist. I love to speculate and predict. Now, I am sure there’s fire somewhere under the smoke as the rumors about Daimler-Chrysler AG selling off Chrysler Corporation continue to proliferate.

Even though the Germans vehemently deny any possibility of a sale, the European bank and investment community is openly nervous about the future of the corporation. With a myriad of lawsuits stacking up against the corporation on several continents as well as several stockholder uprisings, the company is buried in an ocean of negative press in the Fatherland.

One headline read…European stocks ended lower on Monday as the crumbling Argentine peso dragged on Spanish blue chips and Daimler-Chrysler led a retreat in auto shares due to concerns over a U.S. lawsuit…

Compounding Daimler’s financial jitters, Delaware U.S. District Court Judge Joseph Farnan refused to dismiss two lawsuits accusing Daimler-Chrysler AG of deliberately deceiving and lying to Chrysler Corp. shareholders during the merger in 1998. The centerpiece lawsuit centers on an $8 Billion claim from billionaire Kirk Kerkorian. You may remember Kerkorian and Lee Iacocca were involved in an unsuccessful takeover attempt on the corporation in 1996. Kerkorian was a major stockholder at the time of the alleged “Merger of Equals” fiasco. My guess is that the Fat Lady is about to sing here. If Kerkorian prevails, which is extremely possible considering Juergen Schrempp’s “Dunderkauf” confession that he was just outright lying to Eaton about all of that “Merger of Equals” crap. How do you say “Arrogant Incompetent Goober” in German? As in the sentence Juergen’s a real Goober. Well anyway…if Kerkorian wins, many feel he’ll take Chrysler off of Daimler’s hands in a settlement and bring it back home…unless of course, someone else buys it in the meantime.

I’m trying Lord knows I am. I swear I am making a real effort to back off of Ford Motor Company but the hits just keep on coming. Nasser's gone…Rewey’s gone…Trotman’s gone…now Winkler’s gone but they still rabidly cling to their core incompetence. Let’s face it bad faith has No Boundaries.

Ford Management…this act is so bad it has become pitiful. I was laughing earlier when I wrote about Ford predicting the recession is over. As I wrote those words it occurred to me that this was coming from a company with a recent $30 billion track record of misreading virtually every facet of the retail market. How do any of these people even pretend to take themselves seriously? We’re talking about a company posting a $5.45 billion loss in 2001, its first annual loss since 1992…a company that has not learned anything from the experience.

 

Let’s start with Don Winkler being paid $962,500 in severance in light of the incredible ineptitude he displayed at the helm as Ford Credit dived into the toilet. In addition he was allowed to keep his Jaguar. He also continued leasing a Ford Focus and was paid five days unused vacation pay. He was also given the opportunity to exercise accrued stock options. If he’d been on my payroll he’d be standing on an exit ramp with a cardboard sign about now.

Ford Credit is in serious trouble with no end in sight. In the 4^th quarter alone Ford Motor Credit had to more than double its reserve for loan losses up to more than $912 million.

Blame shifting their losses on the economy instead of failed initiatives, over-residualized leases and over-aggressive (stupid) lending practices, Ford said higher U.S. unemployment and personal bankruptcies were to blame.  I guess this excuse is a big crock of bull-pooky emanating from the hallucinations of Martin Inglis’ troubled mind.  Ford Motor Credit reported a loss of $297 million in the fourth quarter of 2001.

This is the way I see it…First of all Ford has artificially driven market share over the last decade pushing over-residualized short-term leases. This was Bob Rewey’s deal with Half-a-Car in concert with Ford Credit when they were strong-arming every dealer in the country to push two-year leases. The Plan was a goofy miscalculation from day one but some equally goofy over-educated alleged morons bought into it. Between 1992-2000 Ford was pushing these leases hard…too hard.

By 1998 Ford Credit was starting to offer two-year leases on Expeditions with 87% residuals. No way that car would bring that kind of money. Predictably those cars came back and residual losses on some Ford and Lincoln-Mercury products were approaching as much as $9000 per returned unit.  I was in print five years ago…ten years ago that short-term leasing doesn’t work. The increasingly bad news is that those losses are still coming home every month and will continue to until the last one of those cars comes home which is several years away. Those leases are still expiring…every month there’s a new crop of losses. The by-product is that we are seeing used car values being dragged down by this surplus glut of off-lease returns coming into the market that were sold during record sales years.

Secondly, Ford Credit dived deep into the sub-prime credit market. For more than five years I have often scratched my head in disbelief at some of the loans Ford Credit has been approving. They were so much looser than any other factory lender. On the other hand GMAC has been much more conservative, which, in the end, has proved to be the right course. Ford Dealers could get virtually any flimsy deal approved through conventional Ford Credit.

Coincidentally, they finally put Fairlane Credit out of its misery. Meant to be the sub-prime arm…in truth they didn’t buy any deeper than Ford Credit. There were too many more aggressive sources out there that bought deeper and funded more.

Thank God for light trucks…right? If it weren’t for their dominance in the truck segment, Ford would be totally and unequivocally on the rocks right? The F-Series pickup, Ford’s bread and butter claim to fame as the world's best-selling vehicle for the 20th straight year. They wouldn’t dare do anything that would screw that up right? Okay, it reasonably seems to me they would do everything and anything at all costs to protect their strongest asset. How on God’s Earth…what unfathomable level of supreme incompetence would allow anything to happen to tarnish the F-Series legacy?

Now we’re hearing a defective motor in four-wheel drive systems has stopped shipment of Ford trucks and sport utilities…the heartbeat of their company. This latest problem involves a defect in the electric motor connected to the transfer case on four-wheel-drive versions of at least three high-profit SUVs and two pickup trucks. So what we have now is potentially thousands of trucks and sport utilities being parked as soon as they roll off the assembly lines…sitting there at the factory waiting repairs. We’re talking about four-wheel drive Ford Explorer, Expedition and Lincoln Navigator as well as Ranger and F-Series pickup.

Wait, it gets worse. They tried to keep it low key and under wraps but its out now. They have been farting around with this since June and now its public. There is a serious problem with oil seepage on the 5.4 and probably on the 4.9 liter Ford Engines. We’re talking V8 engines in F-Series pickups…Expeditions…Navigators…and Econoline Vans. This is a catastrophe. I know dealers who have already had to replace the replacement engines. Dealers loyal repeat customers are blowing up. When interviewed by Bloomberg News, Ford spokesman Todd Nissen told the reporter… “Not all of the fixes have worked as well as we had hoped,” he said. “We continue to work on it.”

Well sports fans, according to Mary Connelly at Automotive News… The company (Ford) is spending up to $4,500 per unit to replace complete engine assemblies. Less severe cases receive an estimated $800 repair to replace the cylinder heads and head gasket.

Bill Ford keeps telling everyone that improving quality is the top priority for the
company. How can he explain or justify this increased bumbling incompetence? Ineptitude evidently has no boundaries either.

Good Gawd Maud…it couldn’t get any worse could it? Fasten your seat belts folks, it ain’t over yet. The headline read… DEARBORN -- In another setback for Ford Motor Company, federal safety officials have opened four separate safety investigations into the Focus, the world's best-selling car.    The National Highway Traffic Safety Administration is examining claims drivers have been burned by deploying air bags and that the Focus' air bags sometimes inflate when they shouldn't. The other inquiries stem from reports of faulty rear-wheel bearings and engine fires in 2000 models. Ford spokesman Todd Nissen said the company is aware of the investigations and cooperating.

 

We’re talking Ford’s wave of the future here…the crown jewel of all future marketing initiatives. Now we’ve got 16 consumers claiming second and third-degree burns as well as two car fires as well as 29 additional complaints alleging the airbags deployed at slow-speed crashes…or no crash at all. The Focus has been the subject of about a gazillion recalls since day one when it was introduced back in 2000.

Of course, my theory is that the one common thread in all of Ford’s problems is the fact they have put incredible pressure on suppliers to cut costs beyond reasonability. I theorized at least a bazillion times over the last ten years that these cost cuts were dangerous and Ford’s suppliers were taking unsafe shortcuts. I said it first, I said it repeatedly and I think history is proving me right. Every quality and safety problem seems to point back to a defective part doesn’t it?

In another related work of creative fiction the headline reads…

Ford Says J.D. Power Quality Score May Rise 20%, Aid Sales

(Bloomberg) -- Ford Motor Co., plagued by recalls and defects that hurt vehicle sales last year, said a quality-control program will improve its score in an annual
industry survey by as much as 20 percent. The second-largest automaker may score as low as 130 customer complaints per 100 cars in a J.D. Power & Associates survey to be published in May, down from 162 last year, Ford executives said. A score of 130 would have placed Ford second behind Toyota Motor Corp. instead of seventh last year.

Wow! If I am reading this right Ford is predicting they’re going to show incredible improvements in quality according to a soon to be fabricated prestigious J.D. Power survey.  According to J.D. Power alleged research Ford had 162 complaints per 100 vehicles in last year's initial-quality survey…In an interim report J.D. Power sent to automakers in October, Ford allegedly improved to 158 problems per 100 cars, according to articles widely available. I can’t wait to see this survey result when it is released, it will certainly verify my opinion of the validity of JD. Power alleged research. Of course, Ford is one of J.D. Power and Associates biggest cash clients. I am positive that would never sway the results of any research pertaining to Ford.

Yup! Here’s the official quote now…  “We've made substantial improvements,” said James Padilla, group vice president for North American operations. Whether the gain in the quality survey will be 20 percent or 18 percent or 15 percent remains to be seen,” Padilla said.

Simultaneously, many Ford dealers are starting to scream bloody murder because factory quality issues are responsible for dragging down their VOC (Voice of the Customer) scores and they are in danger of losing their Blue Oval Certification reimbursement. There appears to be a little pissing contest developing between Ralph Seekins (Ford Dealer Chairman) and Michell VanVorst (Ford Dealer Alliance Executive Committee) about Blue Oval Certification. There have been lengthy correspondences between the two defending and attacking the Dealer Council’s recent perceived alignment with the factory viewpoint. Truth of the matter is that Blue Oval certification doesn’t matter anymore…it’s a farce. Ford is in so much trouble right now they need that money desperately and I believe they are looking for any excuse to take it away from the dealers.

If they intend to continue to grade dealers on Customer Satisfaction, isn’t it only fair to conduct a two-part survey that separates product quality issues from issues the dealer has control of? I would like to see Ford Motor Company step up to the plate and have the corporate balls to accept responsibility for their own bad Customer Satisfaction and stop penalizing their loyal dealers who continually keep bailing their butts out of all of the asinine problems they keep on creating. Let’s see Ford put out a survey grading themselves with their customers. 

Just when you thought you’d heard the last of the Firestone tire lawsuits a federal judge in Chicago refused to dismiss 121 lawsuits against Ford Motor Co. and Firestone involving accidents in Venezuela and Colombia. This opens the door for hundreds of other pending lawsuits to be filed in U.S. Courts by South American plaintiffs.

Ford and Firestone in similar statements protested that these cases should be resolved in the countries where the accidents occurred, where the plaintiffs and their families live and where the witnesses and investigating officers are located. Regardless, when it all comes out in the wash, this will be huge. I predict Ford is not done writing big checks. Ford is expected to appeal the ruling.

You can also expect a flood of similar lawsuits concerning Ford/Firestone related accidents in Mexico, Argentina, Ecuador, Costa Rica, Bolivia, Panama, Great Britain, Saudi Arabia, Qatar and Thailand.

I am really worried about Ford. They’re in it so deep with no short-term relief in sight. The fact that all of their wounds are self-inflicted doesn’t erase the pain. The worst thing about it is they are continuing to do all of the things that put them here in the first place…they’ve learned nothing.

All that is certain is uncertainty. I pray for our leaders…and I fear for the future if they can’t put a lid on it. Swirling a snifter of Remy cognac in the light, I inhale the aroma as a memory swells up in my mind. Humming the lyrics beneath my breath.

 Take a look around ya boy

It’s bound to scare ya boy

And you tell me, over and over

And over again my friend

Ah, you don't believe

We're on the Eve of Destruction

More Food For Thought

The noose is tightening around your neck and every dealer in the country is exposed and liable. The latest news is reverberating off of the walls as lawsuits by consumers and prosecutions by the States Attorney General of Florida are aimed at two Florida dealerships owned by Sonic Automotive. Dealers are under the microscope of government regulators, attornies and consumer advocates.

Clearwater Mitsubishi and Clearwater Toyota, both owned by Sonic are involved in court actions accusing them of racketeering, forgery, payment packing, fraud and deception in F&I Practices. Last Year it was Gunderson Chevrolet in Las Angeles, an AutoNation dealership…then it was Covington Pike Toyota in Memphis owned by United Auto Group. There is a new focus on deceptive trade practices and payment packing by virtually every States Attorney General in every state. Chances are if your dealership were mystery shopped, you and your employees could be sued and prosecuted for business and sales practices you’ve been doing for years. Dealerships are paying millions in fines and damages, employees are going to jail, and not to mention tons of bad sensationalistic press and television coverage…it can potentially ruin you.

The big public companies like Sonic and AutoNation and United Auto Group have compound expose because their corporate culture subliminally encourages risky sales tactics to make the numbers. Some estimates have it that 70% of AutoNation profits are F&I revenues. These big companies have lost the checks and balances required to police their employees and managers. In many instances there isn’t an invested dealer on premise and the inmates are running wild.

You don’t need to lie or cheat or deceive to sell finance. Two practices I teach, endorse, and highly recommend is that you require your F&I Department uses the Menu-Selling process…no exceptions…no excuses or you’re fired…period. Menu-Selling F&I is a dealer’s only legal protection in the F&I Office. It is customer friendly and documents the legality of the sale. It also shortens the F&I Sales Process to half of the time it used to take. I am telling every dealer reading this article, stop dicking around with this issue…if your people refuse to do Menu-Selling in F&I…then get rid of them. You are too invested to be this much exposed.

Secondly, I like the videotaping systems being used in many stores where the entire transaction is taped with the customer’s consent.  It not only documents what was and wasn’t said and done…it also is a great training tool to review the sale with the manager afterward. It is incredible legal protection for the dealer to have archived videotaped deliveries.

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