What Don't They Know?

I'm writing this after attending a J.D. Power and Associates International Roundtable in Los Angeles.

Earlier, a column in The Wall Street Journal written by J.D. Power III, chairman of J.D. Power and Associates, triggered arguments, rebuttals and accusations from car dealers, manufacturers and others in the industry.

While Power attempted to clarify his thoughts with a follow-up column, the controversy remains in full swing.

I won't argue the accuracy or inaccuracy of his comments, but rather use them as a rallying point to reexamine not just the automotive franchise system, but the entire automotive distribution system.

Could our industry learn something from Wal-Mart? Absolutely. We could learn something from most other successful enterprises as well.

Does that mean the automotive distribution system is in shambles? Absolutely not. But we should seek continuous sustainable improvement. The Japanese call it “kaizen.” Continuously looking for ways to improve sounds good to me.

Mark Cooper, research director of the Consumer Federation of America, claims eliminating automobile franchise laws would result in a $1,500 per vehicle savings to the customer.

With that in mind, it is interesting to note that, Lexus, the franchise with the highest new-vehicle unit sales per outlet along with one of the highest per-unit retail gross profit of any major automotive franchise also has the highest level of customer satisfaction and a high percentage of customer service retention after the warranty expires.

I wonder how he reconciles that. My contention is that the dealer must be able to make good front-end grosses to allow him the capital it takes to serve the customer at the level today's society requires. Isn't that really what it's all about?

This brings me to another point: some manufacturers are over dealered in some markets.

Think Lexus had a plan to keep its dealer count relatively low when it came to market in the late 1980's? You bet.

But the domestics did not start their distribution system in the 1980s; they started in the early 1900s based on the demographic and economic environment at the time.

No one can consistently and accurately predict the future. Not then and not now. But to continuously improve a system, you must change it, not necessarily destroy it.

In his controversial column, Power says, “What happens when information and access are finally unleashed to empower the retailer and his customer to control what, when, where and how goods are purchased? Ask Wal-Mart.”

My question is: What is it that the customer doesn't know?

An Internet user shopping for cars can get a lot of information sitting at home in his pajamas. Can you find out how much Wal-Mart paid for that television you bought there? No. But consumers can easily learn the wholesale prices dealers paid for any car.

More than ever, today's automotive consumer has more information and the power that goes with it.

In fact, J.D. Power and Associates' CSI Power, a study from the roundtable, says, “In the past 50 years, power has shifted from an industry paradigm to a customer paradigm. And that shift is likely to be permanent because the information age has given consumers the knowledge and the power to pursue their choices.”

Brian Shaffer of the University of Maryland sums it up well in “An Assessment of Franchise Laws and Internet Auto Sales.”

He says, “Ultimately, as in any competitive market, the car dealer's survival depends on applying cost-effective technology and providing good customer service.”

Don Ray is a senior member of the George B. Jones Dealer Services division of Dixon Odom, a national accounting and consulting group for dealers. He's at 901-684-5643 and [email protected].