Community Magazine July 2009

42 COMMUNITY MAGAZINE The Cost of Kicking the Tires For traditional dealerships, the general tightening of business credit, along with declining sales and other factors, has created an industry- wide crisis in “floor planning,” the financing of their retail automobile inventory. In response, as of July 1, 2009, the government, through the Small Business Administration, is rolling out a pilot program to offer government guaranteed floor planning loans to help cash strapped dealerships fill their showrooms and lots with cars. But at least one industry insider believes that government financing alone will not be enough to save many dealerships. “Keeping a vehicle in stock is inherently expensive,” explains Bill Small, former owner of a Cadillac dealership in Long Island. “For every month that vehicle sits on the lot or showroom floor, the dealer has to pay interest on the floor plan loan, a theft and damage insurance premium, upkeep expenses to make sure the vehicle stays clean and properly maintained and rent for the space it takes up. All that ultimately gets rolled into the purchase price that a retail customer will have to pay.” Banking on Brand Independence The Legend dealer model not only eliminates the showroom and car lot cost centers, by not requiring that any inventory be carried, it also frees Sasson from franchise expenses and restrictive supply and dealer financing contracts. This allows for taking advantage of the best incentives being offered among automakers; the flexibility to source vehicles from the dealer offering the most competitive price; and the opportunity to secure financing from the bank offering the lowest rate. All of which adds up to significant savings for customers. “All the customer needs to know is his general price range and the size of car he or she needs” explained Sasson, “and my team will take care of everything else – finding the right car and the right price.” Take the case of the seven to eight passenger SUV that Penny Cohen was in the market to lease last fall. Mrs. Cohen sought Sasson’s advice on which model to purchase. “After discussing my priorities, Steven helped me narrow down the options and I decided to get the 2009 Honda Pilot,” Mrs. Cohen describes. “But then he told me to keep my car and not to start the new lease yet. He explained that based on his experience, he felt that manufacturer incentives would improve dramatically within a short time because dealer lots were being oversupplied with this model.” About six weeks later, Sasson delivered Mrs. Cohen’s new Honda Pilot. “We saved about $2,500 in payments because we waited a few weeks,” said Mrs. Cohen. “How many Honda dealers would have advised me to do that?” While timing and sourcing are crucial in finding the best price, Sasson points out that these two factors alone are not enough to get the best deal. Supposing that Mrs. Cohen had somehow come across the inside information about when the new promotion for her desired vehicle model would be introduced. Then, suppose she also did all the legwork to poll the dozens of area dealers to see who had the model and color she needed at the best price. Would she then have been able to get the same or better deal? Apparently not. Even with the manufacturer incentive, a direct quote from the very same dealership which Sasson chose to source the vehicle amounted to about $800 more in lease payments for Mrs. Cohen for, quite literally, the exact same car. So how can Sasson undercut his own supplier and still make money? Part of the answer is greater flexibility in arranging the lease through different banks. Unlike a factory dealer, which may be contractually bound to use a single manufacturer sponsored bank, Sasson can arrange financing through a wide network of companies. But more significant is the difference between a factory dealership’s retail and wholesale divisions. The margins required for retail sales, which typically involve salesmanship, time spent on test drives, negotiating and multiple contacts, are far higher than wholesale or fleet sales which are essentially transacted in a two or three minute phone call or a quick email. “Once we established credibility with the fleet sales managers at the major area dealerships and we proved that we can move dozens or even hundreds of cars for them each year, our price was adjusted accordingly,” Sasson explains. The difference in factory dealer profit between retail and fleet sales can be almost one order of magnitude, leaving more than enough room for Sasson to make a modest sum while still beating the factory dealer’s retail quote. What about the notion that the premium price charged by factory authorized dealerships is justifiable because of the security and service that come afterwards? In light of the recent decisions by GM and Chrysler to terminate a huge number of dealerships from their network (and warranty service authorization along with it), such security is by no means secure. The future of factory dealerships has clearly become subject to the whims and fortunes of their franchisors. Case in point, ABC Motors in Valley Stream, which sold cars exclusively from Chrysler corporation, was among the 800 dealerships notified on May 14 that its contract will not be renewed. Although ABC has been in the Chrysler family for some 30 years and is left with over $300,000 in Eliminating much of this expense and potentially revolutionizing dealerships is the prospect of substituting physical trips to dealers with virtual ones, on your computer. For the past twelve to thirteen years, automakers have been investing heavily to design feature rich web experiences, often even developing model-specific microsites to tout the features of their product line. Consumer trends seem to be responding in kind as, according to former Cadillac franchisee Bill Small, an estimated 80 percent of car buyers are doing research online before buying a car. “You can’t smell the leather or kick tires,” explains Small, “but you can compare models from ten different manufacturers and visit fifteen virtual dealerships in an hour.” Aside from the manufacturer produced sites, there are dozens of websites dedicated to providing unbiased information about car models and pricing. Among the most famous and content rich is Edmunds.com, which offers more information about just about every make model than a normal person can possibly absorb. “With accurate and exact specifications, up-to-date pricing information, honest user reviews, and even virtual test drives, time spent shopping for a car on the web is usually time well spent,” concludes Small. In light of the mass dealer closings, he predicts that car shopping on the web will become the norm as manufacturers further enhance their online presence to accommodate buyers whose local dealers will no longer be so local. The Virtual Showroom