|
Tomorrow
Searching
back through my favorite memories, I can warmly
remember the first time I saw the stage play
"Annie" back in the early eighties. In the
Broadway version of the musical Angela McCartle
starred as Annie with Harve Presnell playing the part
of "Daddy Warbucks". Of course the best part
of the whole play was when that wonderful little
red-haired girl stood at center stage and belted out
her theme song... "Tomorrow". Later on Daddy
Warbucks, FDR and the president's cabinet, and Annie
all joined in and sang it again. Just thinking about
it brings tears to a grown man's eyes which are
running down my face and splashing into the snifter of
Remy Martin Cognac sitting next to the keyboard of my
computer.
Part
of the lyrics go like this...
"The
sun'll come out Tomorrow...
Bet
your bottom dollar that tomorrow there'll be sun...
Tomorrow...Tomorrow...I
love ya Tomorrow...
You're
always a day away-y-y-y-y."
Well
folks the modern day, real life version of that play
stars another bald billionaire but this time the cast
onstage features Steve and Mike and the new Daddy
Warbucks singing the all-new revised AutoNation
version of the Annie theme to some little Orphan Car
Dealer whose store they are about to swallow. The new
AutoNation lyrics sound something like this...
"The
stock'll go up Tomorrow...
We
want you to risk your bottom dollar...
That
Tomorrow there'll be gains...
Tomorrow...Tomorrow...We'll
be profitable...Tomorrow...
Tomorrow's
just a day away-y-y-y-y-y"
Nearly
two years ago the public corporations, the superstores
and the consolidators came thundering into the market
making a lot of noise. "There's a new sheriff in
town...We're here to clean up this dirty car
business." The CarMaxs and the AutoNations were
here to teach us how it's done. These guys were going
to teach us "Efficiencies of Scale" and how
to take advantage of "Critical Mass" They
painted the traditional automobile sales people to be
a collection of seedy criminals. "We're gonna
teach you how to sell cars like they was videos,
Son!"
Wayne
and Steve described how they were going to achieve
"Clusters" in strategic markets. At that
time I believe they were using the term
"Cluster" as a noun, however it's turned out
to be an adjective when used to describe their ability
to run a used car operation.
According
to the most recent research by The Dohring Company,
the superstore concept appears to be failing. (not a
big surprise to those of you who have been reading
this column over the last couple of years).
Even
though public awareness of the superstores is
increasing, the probability that someone would shop at
one has decreased from 49% to 37.6% with a down arrow.
The survey was conducted with more than 400
respondents who bought a 1992 model or newer car in
1997 in the Houston Market where there are three
AutoNation locations and Three CarMaxs. All of the
people surveyed lived within ten miles of one of the
superstores.
The
good news is that 87% of the customers who shopped at
a new car franchised dealership bought a car from
one...as opposed to just 19% of the customers who
shopped at a superstore like CarMax or AutoNation
actually bought a car from a superstore.
Haven't
I said in this column for the last three years that
one-price doesn't work in a competitive market? Wasn't
I the first one to point out that CarMax and
AutoNation prices were outrageous?
According
to the Dohring survey, the public has overwhelmingly
agreed with me citing that high prices were the main
reason they didn't purchase from one of the
superstores. Not suprising was the fact that the
public views the superstores as impersonal.
It
is almost comical watching Wayne and Steve squirm as,
piece by piece, their original business model falls
apart exactly as I as predicted. You've got to
remember that AutoNation is the cornerstone concept
that they sold to Wall Street. If it fails, Republic
fails.
These
ostentatious twenty-five million-dollar Taj Mahals
were built to stock a thousand units or more in
inventory. That was the original plan anyway. Now they
are stocking in the neighborhood of 500 units per
location. They have had to publicly admit that they
didn't carry the right merchandise and their prices
were out of line. Reconditioning ate them alive and
their inventory rotted on the lot so-to-speak.
Inventory aging was an alien concept to these novices.
Then
they were so proud of the fact that they had no
traditional "Car People" running the
operations with "No-Haggle"
customer-friendly prices and cute little computer
kiosks that replaced the traditional sales person.
Well fans, if the Dohring survey is accurate, and I am
certain that it is, the public is rejecting the entire
concept in increasing numbers.
Additional
research coming out of CNW Marketing Research, Bandon,
Oregon agrees with the Dohring research that consumers
are becoming increasingly aware that the superstores'
prices are too high.
Mike
Maroone, Republic's retail guru has been quoted in
numerous publications as saying "AutoNation will
be the low cost provider." Sort of sounds like
the chorus from the song "Tomorrow" again
doesn't it. Excuse me folks, when he says they will be
the low price provider, doesn't that sound like he's
admitting their prices are too high now?
As
for the non-traditional AutoNation sales farce,
(excuse me, I meant to say "sales force")
They are now replacing some of Wayne and Steve's
former Blockbuster Video cronies with real Car Guys.
They are aggressively recruiting and hiring
experienced "Car People" with traditional
retail experience....and...the funniest twist of
all...they are now paying their alleged sales people
on commissions. That is definitely a major breakdown
from their original model that was going to
revolutionize the industry with salaried sales people.
Let's
see now, they've put these alleged sales people on
commissions...had major layoffs in their
reconditioning centers
...
They cut their reconditioning expenditure per
unit...reduced their warranty coverage...reduced their
inventory in stock by half the original model...and
charged their dealership operations an alleged
one-time charge of reportedly more than 150 million
dollars to incorporate AutoNation stores into it's
Republic new and used car operations. Whew, for a
minute there I was afraid that 150 million dollar
write-off was going to be considered a loss the way
most other companies would have reported it.
Disclaimer:
I would like to make it perfectly clear that I am not
saying that incorporating AutoNation dealerships into
their overall Republic Dealership Operations is an
accounting trick to make it easier to hide
AutoNation's losses from critics and stockholders.
The
point is that AutoNation is starting to operate like
every other dealership on the block. It appears that
they have not contributed anything to the industry
that actually works. Maybe that's the reason that
Robert Friedman at Standard and Poors seems to have
such a low opinion of Republic stock. Since nothing in
their model seems to have any added value to the
industry, then this is really just another over-priced
four-dollar stock.
Obviously,
the results of Art Spinella's research at CNW
Marketing and Dohring's recent research seem to
support my contention that one-price is not working
for the superstores and is actually increasing
business for their immediate competitors, the
traditional dealers.
Wayne
and Steve are just another couple of car dealers,
nothing special...just got a few more stores doing
business the same way all the other car dealers do. I
am putting them both on my Christmas list to buy them
some white shoes, white belts, white ties, and plaid
jackets.
Right
now, I know of some dealers who are planning to
feature billboards and newspaper ads that say...
"Save
Thousands...Don't get soaked at the Superstores"
..."We
will negotiate"
...And
"Don't pay the Highest prices in the
Nation."
...And
"Don't Pay the Max".
As
I wind down this article, I am swirling the last few
sips of cognac, holding the snifter up to the light
and humming softly beneath my breath...
"Tomorrow...Tomorrow...I Love Ya...Tomorrow...Tomorrow's
just a Day Away-y-y-y-y
More
Food For Thought
Ouch!
The sub-prime lending industry is on the ropes but
don't count it out. Reeling from monumental losses,
sub-prime lenders are dropping like flies. With some
estimates putting the sub-prime auto loan business at
somewhere just below 5 billion dollars annually, there
has been a virtual feeding frenzy of competition for
this business that caused most of these lenders to
make increasingly "Stupid Loans" with
"Stupid Advances" to ultra high-risk
customers. They ignored the risk factors and
under-estimated losses due to default.
This
was necessary and expected. The market was becoming
cluttered with pretenders and wanna-be lenders who had
no business in the game. The fact is that more than
half of the American public has credit problems and
that number is growing. There is an absolute need for
credible sub-prime sources. I predict that a new,
stronger generation of solid lenders will replace the
shaky weak sisters that have now become their own
customers because of poor business management.
The
Caddy That Zigs: Whenever you start to waver and catch
yourself starting to believe that the factory (any
factory) knows what they're doing, just take a deep
breath and look at all of the evidence around you that
proves that these people have lost the ball in the
sun.
A
case in point...Just to have the privilege of being
allowed to sell a Cadillac Catera (Malibu with leather
for $20,000.00 too much),
a
Cadillac dealer has to lay out somewhere in the
neighborhood of $30,000 plus a parts package. Just to
be allowed to sell Catera a dealer has to redesign
certain aspects of his dealership, restructure his
training and dress code, and subscribe to some
standards for excellence...all for a car that has had
far less than an excellent reception by the public.
Rumor has it that only 30% of the Cadillac Dealers
even signed up for the Catera...What is this...They
don't want it?
R.L.
Polk (highly respected research firm) says the Catera
is at the very bottom in the category of entry-level
luxury class vehicle sales. Besides that, every
publication I have read has agreed with me that the
"Caddy That Zigs" advertising campaign has
to be a contender among the worst campaigns of the
decade.
Of
course, I was all over that dog in this magazine more
than a year ago. Sometimes the appearance of stupidity
is all too blatent a temptation for me to pass on. Why
would anyone pay $36,000 for a little up-graded
six-cylinder Opel/Chevrolet Malibu? Especially when
you can get a really nice tricked out Oldsmobile
Aurora with a Northstar Engine and great looks and
features for roughly the same money. Are these people
taking drugs or what? How can you call that thing a
Cadillac with a straight face? Didn't the Cimmaron and
the Allante teach these people anything? To add
insults to injuries, I predict they will further slap
their dealers in the face with some stupid
"Value-Pricing".
|
