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Story by Jack Baruth
I’d like to start this week with a bit of an apology – not for what I’ve done, mind you, but for what I am going to do. Fourteen years ago, I was a flat broke, know-nothing kid starting at the bottom of a small-town Ford dealership’s auto (and light truck!) sales department. The hours weren’t great, and most of the actual minutes were even worse, as Douglas Adams would say. On a monthly “draw” against commission of eight hundred dollars, I didn’t exactly live like a king. Heck, I couldn’t even afford to eat a real lunch. Instead, I’d buy two fifty-nine-cent McD’s cheeseburgers and wander over to the used car department, where “old Frank”, the finance manager for the “used side”, would be telling stories while trying to sort out the motor trade insurance for the business. After forty-plus years in the business, Frank knew all the tales of the car biz, and he wasn’t shy about telling them, no matter how disturbing, slanderous, or just plain obscene they might be. One lifeless Tuesday afternoon, I said to him,
“Hey Frank, you oughta write a book about this stuff.” Frank reacted to this mild suggestion with unconcealed disapproval and what was very possibly contempt, as if I’d suggested that he put a firecracker in the dealership toilet. His lit cigarette – yes, you could still smoke indoors at a car dealership back in 1994 – dangled dangerously out of his stained hand. He “fixed me with his eye”, as the Ancient Mariner did, and replied v-e-r-y s-l-o-w-l-y.
“I could do that,” he said, “but I won’t. I would never write or say anything against this business. I wouldn’t share our secrets, our business, our life, with people on the outside,” and here his glare became quite focused and intense as I shrank back in one of the used car building’s rickety old wire-frame chairs, “and neither… should… you.” As the years went on, I came to appreciate and understand his statement. I arrived at a deep sympathy with, and later a bit of nostalgia for, the business as it once was. Once upon a time, the car business was a real profession, not a dumping ground for low achievers and double-fisted-handshaking douchebags. Those days are gone, and Frank went with them, dying at the end of a short but brutal bout with cancer well before the turn of this century. I’d like to think Frank wouldn’t mind it if I talked about the business now, but just in case, I want to apologize to him, wherever he is. I’m not going to write a book, but I am going to spend some time talking about the business. We’ll cover it all, from the way dealers finance their stock to the tale of the salesman who took a female customer in a Mustang convertible for a “test drive” that ended with the two of them having rather public sexual intercourse on the road adjacent to the service building…. Today we’re going to talk about how a dealership is really organized, and who really makes the decisions.
I feel silly mentioning this at the beginning, but if the discussions on automotive forums are anything to go by, I’d better do it anyway: In the United States, there is an absolute division between manufacturers and dealerships. When you go to a Toyota dealership, you are not dealing with Toyota; you are dealing with an independent business. After the cars are delivered to the dealership by interstate car transport, that’s it, you’re only dealing with the business. In many states, it’s not legal for a manufacturer to own a dealership; in others, it’s merely discouraged, but it’s important to understand that the Toyota dealer is not Toyota the manufacturer. This is not the case in most countries, and if the manufacturers had anything to say about it, it wouldn’t be the case here in America either. Independent dealerships are the worst enemy of consumers and manufacturers. They’re outrageously profitable – the number-one profession of self-made millionaires in this country is “auto dealer” – and, as an aggregate group, they are also outrageously crooked, which means that manufacturers simultaneously envy their profit and weep for the damage they do to their brands.
Consider the case of the “Taurus II”. The 1986 Taurus was what they call a “game-changer” for Ford, and it was widely considered to have “saved the company”. Incidentally, that wasn’t true – full-sized trucks “saved the company” in the Eighties – but it was reflective of the esteem in which the Taurus was held by the public. By contrast, the smaller Escort wasn’t all that great of a car, and that’s putting it mildly. When Ford revised the ‘Scort in 1991, changing it from a rather depressing little “Erica”-platform car into a rather decent and sporting vehicle which shared quite a bit with the Mazda Protege, many people were confused as to why Ford had kept the name “Escort”. Why not call it something different, perhaps something which capitalized on the positive reputation of the Taurus? One dealer decided that if Ford wouldn’t do it, he would. He announced the “Taurus II” in 1991 to an extremely positive local response, said local response diminishing in fervor somewhat when the owners of new “Taurus II” automobiles got home and their neighbors said, “Hell, that ain’t nothin’ but one of them Escorts with a Taurus badge. How much didja pay?” As it turns out, the “Taurus II” cost more than an identical “Escort”. Quite a bit more. Thousands of dollars more – for a badge! And here’s the best part – Ford couldn’t stop ’em! The dealership is free to call its cars whatever it wants! It’s in the law! In the end, the state attorney general clamped down on it as a deception case, to Ford’s massive relief, leading our intrepid if slightly ethics-challenged dealer to move on to his next project, a television ad in which it was strongly implied that he was building brand-new “used cars” at a factory located on dealership property… But that’s another story. The point is that dealers are independent companies and they have very strong protection under the law.
So now we’ve established that dealers are independent of their manufacturers, and fiercely so, the question becomes: Who makes the decisions at most dealers? Well, every dealership has a “dealer principal”. Surprisingly enough in the year 2008, most dealer principals are simply the guy who started the dealership, or that guy’s favorite son. Many dealerships are true mom-and-pop shops, even if they are worth millions of dollars. If you have a problem with a dealership – and “you” could mean you, or it could mean the manufacturer, or even the state attorney general – the buck stops with that fellow. At most dealerships, he has absolute powers. He can sell you a car for any price he wants. He can authorize any repair, or force a warranty repair down the throats of the manufacturer involved. He can call you a son-of-a-bitch, leading you to beat his ass right there in the sales office, as memorably happened to one of “my” dealer principals while I was employed by Ford Credit. There’s no appeal past the dealer principal for dealer-related issues.
Of course, the dealer principal isn’t always some crochety, foul-mouthed old World War II bomber pilot, like mine was when Frank and I sold Fords together. Owning a dealership is so profitable that it leads to owning other dealerships, which leads to eventually forming corporations, which means that sometimes a dealership or group of dealerships has a CEO, who is effectively the dealer principal. These guys are not as interesting as traditional dealer principals, because they usually have no experience either flying bombers or sucking up literal mini-mountains of cocaine, which is another favorite pastime of traditional dealer principals. But they’re still principals as far as we’re concerned. Do not, by the way, confuse dealer princpals with dealer principles. Every dealer has a principal, while very few of them have any principles whatsoever.
Very few dealer principals want to come to the dealership every day. They have condos in Vail, homes in Naples, teenaged prostitutes with lumps of that sweet, sweet coke between their pert young breasts. So they appoint a general manager to do their job for them. The general manager, in turn, supervises the parts manager, service manager, F&I manager, and sales manager. I listed the managers in that order deliberately, because that’s the order of their importance. Selling parts keeps a dealership afloat, servicing cars pays for the dealer principal’s criminal attorney (with special expertise in DUI cases, of course), business finance and insurance rakes in the cash, and selling cars… well, that’s a piece of crap. With very few exceptions where markups are insane and customers utterly complacent, drooling morons – I’m thinking Ferrari and Lexus here – selling cars is a money-losing business. Nobody would sell new cars if they didn’t need to. Why do they need to? Because you gotta sell ’em to finance ’em, service ’em, and load ’em up with parts.
Now, I don’t mean to imply that dealers don’t make money on individual car sales. They do, pretty much every time, no matter what they’re telling you. It’s almost unheard-of for a dealer to lose money on the sale of a particular car. The problem is that once you pay for the big signs, and the television ads, and the DUI convictions of the sales manager, and the DUI convictions of the salesmen (starting to see a theme here?) and the attorney fees, and the settlements with customers and the state attorney general, and the balloons, and the popcorn machine, it just isn’t a money-making business. It was a money-making business back when my friend Frank got started. Back then, cars didn’t have window stickers, women were told to go home and get their husbands’ permission to test-drive a car, and wrecked cars were often sold as new. It was a free-wheeling era that came to a close in the Seventies. In the Fifties, a dealer might expect to hold a 25% markup, the same as the appliance store down the street did, but by 1990, most domestic dealers were selling for between two hundred and fifteen hundred bucks over invoice, a practice which has now been expanded to almost every brand out there, including BMW and Honda. It’s now a very tight business.
The parts, service, and sales managers are engaged in a daily life-and-death struggle to screw each other over and become the next General Manager of the dealership. They’re also constantly embroiled in the little disputes which arise daily between the three departments, usually due to horribly dishonest promises made by the sales manager to new-car customers, or over gross misrepresentations of parts prices by service advisors. “Take the car home today, and if you really rip the bumper off towing that little ol’ Bayliner, take it to the guy in the back and they’ll give you a gold-plated receiver hitch free of charge!” “No, bring that ’73 Fury right on in here! We’ve got plenty of differentials for that old girl, just lyin’ around in parts. Hell, might be fifty bucks, might be free! We might pay you to take ’em!”
I forgot to mention one fellow – the used car manager. Some dealerships separate the sales of new and used cars. As we’ve established, selling new cars is not profitable – but selling used cars is, and tremendously so. The average markup on a used car is two grand or higher. The customer has no idea what you paid for the car, and as Frank used to say with a smile, “Every used car is different, so there ain’t none of that comparison-style shopping.”
Below all these managers, there are the people who do the actual work, like counter guys, mechanics, admin staff, and humble salespeople such as I was back in 1994. Salespeople don’t make too many decisions, but if they keep their eyes open, they can learn a lot – everything, in fact, from the way manufacturers bully dealers into taking cars they don’t want, all the way to how parts are sold out the back door for big money at your expense. We’ll be covering all that in future weeks – along with the story of that Mustang I talked about before, and the story about how I sold the color-blind guy a wagon with a pink interior, and the day I learned what it means when a female customer has hairy arms. See you next time!