Photo by Jonathan Bayer

Photo by Jonathan Bayer

I once again find myself in a reflective mood. Been doing that a lot lately. People keep telling me the industry is changing, and the disruptors keep taking shots at the dealers and traditional processes.

At heart, I am a car guy. But if the truth be known, I still reminisce about the magical days when I was a celebrity rock jock in the ’60s and ’70s. I wouldn’t have missed those times for anything in the world. In those days, being a disc jockey at a major rock station was the coolest job in the world.

I think this mood crept over me last week when Gregg Allman died. What affected me most was that he was my age, and I knew him and his brother Duane before they were famous. I met the Allmans in 1969. I was a DJ and they were playing at Jacksonville nightclubs, calling themselves “The Second Coming.” As a rock jock, I had the opportunity to meet a lot of the legendary groups of the day. My biggest regret is that I never got to meet the Beatles or even see them perform. I was fortunate enough to have had several lengthy conversations with Elvis.

In 1970, shortly after the Fab Four disbanded, George Harrison released “All Things Must Pass.” Produced by Phil Spector, the triple album featured Bob Dylan, Eric Clapton, Ringo Starr, Billy Preston and a dozen other music legends of the day. In the liner notes, Harrison wrote, “All things must pass, but only for them to be born again.”

Last month, in this magazine — and in numerous speeches, blogs and articles I’ve written and performed — I talked about all the external forces and disruptors that are planning, scheming and orchestrating the automobile dealer apocalypse. Make no mistake about it, we are under attack on many fronts, and it appears our enemies are winning.

There are mass minions of absurdity chasing the millennial mythology and screaming they are the champions of the customer experience for the greater good of the industry and, presumably, of all mankind. Truthfully, these pompous pious frauds make me want to heave. It’s about the money, pure and simple.

Phoenix-based Carvana has struggled to recapture its $15-per-share stock price since its April IPO, leading some analysts to predict the online retailer will go the way of Beepi. Photo by Jerry Ferguson

Phoenix-based Carvana has struggled to recapture its $15-per-share stock price since its April IPO, leading some analysts to predict the online retailer will go the way of Beepi. Photo by Jerry Ferguson

Carvana Stock Tanks

I’ve written extensively about Carvana, another classic disruptor out to assassinate dealers with their “customer-friendly” approach and vending machines that spit out cars when you insert some kind of bogus coin into a slot. Carvana’s business model is to deliver the cars to the consumers under the tagline “That didn’t suck. In fact, I liked it!”

Their commercials go out of their way to portray car dealers as crooks. They say millennials are tired of your crap and won’t do business with dealers if you don’t change your process. How many times, from how many sources, have we heard that theme?

Well, let’s take a look at who the crooks really are!

A recent Bloomberg article about Carvana dated June 6 is titled “Cars in Vending Machines, a Fading IPO, and an Ex-Con Owner.” Wow!

Let’s start with the part about the fading IPO. Carvana had a rough first day in the public markets. They priced their stock at $15 dollars per share, a figure ordinarily designed to show a substantial increase on Day One to create what is known in trading circles as “pop.” Well, it didn’t. Instead, it burst, ending the day at $11.10 per share. Within just a couple of days, Carvana stock bottomed out at $8.72. In fairness, the stock has since rebounded, closing as high as $13 per share at press time — still a serious dump after opening at $15, especially since the market is soaring otherwise. In other words, this is, so far, a $225 million pile of crap.

Before they even went public, Carvana raised $460 million and burned through so much cash so fast that they were down to their last $39 million before the IPO. Even with the infusion of investors, some analysts are saying they are good for another year and a half before they go belly-up — sort of like their ill-fated competitor, Beepi, which bit the big one earlier this year after blowing through $150 million.

I despise Yelp, but I looked at Carvana reviews anyway just to see what was there. Lo and behold, there are some really stinky reviews on Yelp and some of the other rating services. What struck me as strange was that all the reviews were either five stars (the best rating) or one or two stars (the worst) That struck me as perhaps a little too convenient.

Nevertheless, Wall Street is giving Carvana a “buy” rating. That sounds great until you realize nine out of 10 of those analysts appear to be with companies that underwrote the IPO. In other words, maybe they have skin in the game.

Then comes that really disturbing part of the Bloomberg headline that said something about an ex-con owner. As a matter of fact, it might have been correct to say several ex-con owners.

Remember that Carvana is a spinoff of DriveTime Automotive Group, which is privately owned; the majority share owner of DriveTime and Carvana is Ernest Garcia II. His son, Ernie Garcia III, is the CEO of Carvana. Garcia’s partner, Raymond Fidel, is the CEO of DriveTime.

Bloomberg (and subsequently several other publications) has since come out with the background story that Ernie Garcia II and Raymond Fidel were convicted of bank fraud and securities fraud in the early ’90s in the famous Charles Keating/California Thrift Lincoln Savings and Loan Association scandals that rocked the national economy. Garcia and Fidel pled guilty and exchanged testimony against Keating and others for reduced sentences of three years’ probation each.

There are no laws requiring that the records and past of the company principals be disclosed in an IPO. But I feel there certainly is a moral and ethical issue when you fail to inform the people buying your stock about your executives’ criminal history. The Garcias hold 97% of Carvana voting stock. I wonder if knowing that the controlling shareholder and operator was convicted of securities fraud in one of the biggest scandals in U.S. history would have affected the decision to invest.

To better understand Carvana’s dedication to the customer experience, you just need to look at DriveTime. They are deep into subprime. They make most of their money from finance. They uniquely lay off a lot of their paper to third parties rather than carry all of it on their own books. According to what I’ve read, DriveTime had to pay $8 million to settle a Consumer Financial Protection Bureau charge that DriveTime’s hundreds of collection agents used heavy-handed, abusive tactics, and that 46% of their finance customers were delinquent. Of course, I wasn’t there, but does anybody besides me think that sounds sleazy?

Regardless, these people are passing themselves off as the customer-friendly, great-experience alternative to the dirty rotten car people.

The author fears the ill-timed Genesis launch and executive churn may have cost Hyundai and Kia an opportunity to corner the North American import market. Photo courtesy Hyundai Motor America

The author fears the ill-timed Genesis launch and executive churn may have cost Hyundai and Kia an opportunity to corner the North American import market. Photo courtesy Hyundai Motor America

Derailing the Seoul Train

Just when you thought the Germans and the French had cornered the market on corporate arrogance, South Korea just lapped the track and passed them all. For years, I’ve been a cheerleader of the Hyundai and Kia product. As a matter of fact, I’ve written articles praising Kia as one of the most dealer-friendly franchises.

The leadership team in Seoul is another story. They have lopped off more heads than the Red Queen in “Alice in Wonderland.” They fired their U.S. CEO, Dave Zuchowski, back in December. He was just another in a string of superstar executives the Koreans burned through. It’s almost ask if they are only looking to hire screw-ups. They haven’t yet caught on that they need only look in the mirror.

Now, Derrick Hatami, who served as Hyundai’s stateside sales chief, has departed unexpectedly. Like most of the industry, Hyundai experienced a brutal May. Their U.S. sales dropped more than 18%, down to 58,259 units. Again, May was a down month for everybody, and as I have repeatedly predicted, it’s not going to get better anytime soon.

Hatami is a super competent manager. He was immediately snapped up as the new head of U.S. sales and marketing for Volkswagen America. Following his departure, I sense a strong undercurrent of turmoil and chaos in the Hyundai ranks. That’s to say nothing of the deeper problems the manufacturer has ignored.

First of all, I have written and spoken repeatedly about Hyundai’s Genesis marque. I predicted Genesis was going to be spun off as a separate luxury brand five years ago or more. I remember when former Hyundai CEO John Krafcik told me flat out that was never going to happen. I told him it definitely was, and I also said it was a bad idea. They finally made it official in late 2015.

There was a time when Hyundai and Kia could have owned the market. Their quality and price point could not be matched. Honda, Nissan and Toyota were on the defensive. That is when Hyundai should have, could have, might have moved to crush their competitors and permanently become a driving force. Genesis was a distraction. The reason they are suffering now is lowered quality, the wrong product, and overproduction.

When the market swung from fuel-sippers back to big pickups and SUVs, Hyundai bucked the trend and focused on breaking into the luxury and near-luxury markets. With gasoline prices low and stabilized, the public has moved on. Heck, even Honda came out with that wimpy Ridgeline “pickup.” (Hiring Chuck Norris to appear in their commercials couldn’t put lipstick on that pig.)

But Hyundai charged ahead and launched the Genesis. They got ahead of themselves by going after established brands like Audi, BMW, Lexus and Mercedes-Benz with a $50,000 to $80,000 price tag. The launch wasn’t a total failure, but they’re still trying to turn it into one. They are running the plants at capacity, producing way too many units, setting unrealistic sales numbers, and — from what I hear — beating up dealers who fail to meet them.

Then there’s the engine problems. … Oh, I’m sorry, was that supposed to be a secret? Is it true they’ve even replaced defective engines with defective engines? Is it really a casting problem as I have been told? How many dealers are holding cars for engine swaps?

And now there’s even a government investigation alleging that, perhaps, Hyundai and Kia were too slow to acknowledge defects and institute “public recalls.” (Do they mean as opposed to secret recalls? I thought only the Japanese manufacturers did those.)

I’m told they recalled 470,000 engines in 2015, and now there’s another 1.2 million engines under the new recall. The supposed problem is engine failure caused by sand in the casting of the blocks. The article in the Detroit press just said it was “debris” from the plant. Whether it’s sand, debris or something else, it appears some kind of crap has contaminated these engines during manufacture.

Hyundai and Kia have benefited from the work of some of the brightest and the best top management in the U.S. market. If I were a top OEM executive, that is the last place I’d want to be. They have systematically abused and even humiliated some really great managers. I suspect they’re having some difficulty finding new meat.

That’s Amazing!

I just wrote about this in last month’s article, and now The Detroit News has a story about the ripple effect of driverless cars throughout the U.S. economy.

I tried really hard not to write about autonomous vehicles this month, but that’s all there is in the industry news right now. Every vendor, manufacturer and talking head is droning on about driverless cars. It seems like everybody wants one, except the consumers.

This past Saturday, I was a phone-in guest on a Dallas local radio talk show. The scheduled topic was (you guessed it) “Autonomous Cars and Carvana.” I was in my groove. It was classic Ziegler. The hosts were laughing so hard I could picture the tears running down their faces.

The TDN article said exactly what I wrote about last month. They predicted that autonomous cars will be a $7 trillion industry. I didn’t have a number on my article, but, as I said then, there will be a lot of ancillary products, services and new infrastructure associated with converting the entire driving fleet on the roads to autonomous vehicles.

You didn’t really think they were going to allow you to keep human-operated vehicles on the road once they reached saturation with the new technology, did you? Silly dealer! Your old self-operated vehicles will be obsolete museum pieces. They may even be illegal to operate on public roads.

This entire clamor to get to self-driving cars is about the money. Oh, I almost forgot, they also plan to eliminate dealerships in the process. The articles I’ve read all talk about ridesharing and Uber-type fleets; the most recent wave of everything I’ve seen says private ownership of vehicles is coming to an end.

As a matter of fact, here comes Cox Automotive developing a vehicle subscription service allegedly to allow consumers to book available vehicles from a dealer’s inventory and drive it for a while without buying it. But I’m sure Cox is doing this for the good of the dealers.

Put a Positive Spin on It

Remember when Toyota kept trying to make everyone believe Scion was a millennial car, even when they couldn’t get millennials to buy them? It would have been too embarrassing to admit it was a cheap, funny-looking brand driven by seniors, and their entire experiment was a dismal failure based on false premises.

Even when they finally discontinued Scion, they still announced it was a great success story. Of course, we all saw through that and laughed at the inane claims they made.

Now we’ve got one full year behind the Lexus Plus no-haggle pricing program. The program is a monumental failure. Dealers don’t want it, the public doesn’t want it, and the manufacturer doesn’t get it. The dealers that went on the program want off because they’re getting creamed. It doesn’t work in a competitive market and these factory guys (and gals) don’t get reality. They want the entire transaction done by one sales representative, including finance, without negotiation. That ain’t gonna happen.

First of all, they were expecting dealers to sign up in massive numbers. They didn’t. Why, you ask? Because high-end buyers are some of the toughest hard-core negotiators on the planet. The internet has expanded your market area to most of the country, so you’re competing with everybody.

No-haggle doesn’t work, particularly in the highline segment, because those customers don’t want it. The article I read said only 13 dealers are signed up for it out of 237 Lexus dealers in the U.S. Of course, in their usual naïve, clue-impaired way, Lexus execs are saying, “This is fine. Smaller classes mean more individualized training.” What they really should be saying is, “This crap isn’t working and it looks like it isn’t going to work. Let’s scrap it and try to find a productive way to spend our time and money.”

Jim Hackett has replaced the departed Mark Fields as president and CEO of Ford Motor Co. Ziegler hopes Hackett will be as receptive to dealer concerns as his predecessors. Photo courtesy Ford Motor Co.

Jim Hackett has replaced the departed Mark Fields as president and CEO of Ford Motor Co. Ziegler hopes Hackett will be as receptive to dealer concerns as his predecessors. Photo courtesy Ford Motor Co.

I’m a Little Worried About Ford

Shake-ups in top management with the car manufacturers is commonplace. The higher up your position, the thinner the ice. Well, last week, Ford Motor Co. replaced their president and CEO, Mark Fields, with Jim Hackett, who previously led the factory’s Ford Smart Mobility division.

I first met Mark Fields back in 2008 when Alan Mullaly was CEO. Personally, I really like the guy. I know a lot of Ford dealers were not in love with him. Can’t say I agreed with everything he did or said, but personally, aside from business, I could talk to the man and he listened.

When Mullaly ran the show, I could always get him on the phone to discuss dealer concerns and issues as I saw them. Not that I could ever change his mind, but he did listen. He was exceptional at personal relations. I would say the same for Fields as well as Mark LeNeve. In the coming months, maybe I can establish some kind of a relationship with Hackett.

Like George Harrison said 45 years ago, “All Things Must Pass.” There’s a lot of people, manufacturers and vendors taking shots at the car dealers. These vendors are not your friends. Their goal is thinly disguised to eliminate you, eradicate you, and take you down as they pillage your profits for their own.

Their game plan is to tarnish our good name. They want to create distrust that will drive a wedge between us and the public. In case you haven’t noticed, it’s a war. Your future is hanging in the balance. At this point, I do not see the NADA doing much more than limping off of the battlefield bruised and wounded. If the future is what they say it’ll be, we won’t be part of it, and I believe that will be a sad day for consumers.

My wife, Debbie, and I just returned from a Caribbean cruise. After traveling 200 days a year on business for the last 25 years, in and out of dealerships, speeches and seminars, it was really nice to take a full seven days on a real vacation. Of course, I was going nuts without a phone in my ear and a keyboard in front of me. I have been threatening to slow it down and this is the first attempt to see what it feels like. Well, I have to say, it didn’t suck. In fact, I liked it! 

About the author
Jim Ziegler

Jim Ziegler

President and CEO of Ziegler SuperSystems

Jim Ziegler ranks among the industry's most recognized and honored trainers, consultants, authors, speakers, and forecasters.

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