Q&A With Frank E. McCarthy
Here is a transcript of today's session:
Alexandria, VA: Business 2.0 Magazine had a recent feature article about "20 industries about to be fossilized by the net". Auto dealerships were one, as the author contended that online auto sales will surpass dealership sales in the next few years. I know most dealers are already noticing the change. What do you expect this e-commerce revolution will do to traditional sales methods?
Frank E. McCarthy: Clearly, the internet will complement the way auto dealers sell cars and trucks. But in my opinion, it definitely will not replace the traditional dealer because people like to see and to test drive the products.
Germantown MD: Why are cars so expensive? Look at the sticker prices in the 60's and 70's and compare them to today's. There is more than just inflation at work. New cars have become so unafforable, young buyers are being driven away -no pun intended-.
Frank E. McCarthy: In spite of the large increase in the price of cars, it actually takes fewer weeks or months pay to purchase a car today than it did ten years ago. Another factor is that most cars are larger and more fully equipped with standard equipment than cars in the past.
Bob Levey: Leasing--Who is it right for? Who is it wrong for? Do dealers make more of a profit by leasing than they do by selling?
Frank E. McCarthy: Leasing is a hot topic these days. It's difficult to know whether to lease or buy a new car. The secret is to shop at two or three dealerships and compare the monthly cost of leasing versus buying. In some cases, the manufacturers offer incentives for new car purchases, when, at other times, they offer incentives for leasing new cars. By shopping, you will find the best approach for you. Dealers do not make more by leasing or selling.
Tysons Corner, VA:
How can you work for an industry of such questionable consumer ethics? I speak from experience. I worked for one of the big local dealerships for a few months. In training, I was told that no salesman was to ever lie or mislead the customer. My first week on the showroom floor, the sales manager suggested we say that Honda just approved us for instant dealer incentives of $500 to $1000 but only until closing -completely untrue-.
Frank E. McCarthy: You ask the right person this question. I have been working for automobile dealers for over 32 years and also happen to be a lawyer, so I guess I'm at the bottom of both of your lists. Most dealers with their large investments recognize that their number one job is to keep the customer happy. Dealers across the country are participating in the National Automobile Dealers Association (NADA) salesperson training program. This program emphasizes ethics, listening to the customer and truly professional practices.
Reston, Va: It seems like a few big dealerships, Lustine, koons, etc. run all the dealerships in the DC area. Is that good for competition?
Frank E. McCarthy: The fact that some dealers own many dealerships in the Washington area in no way reduces competition, nor lessens customer shopping opportunities. The Washington area has one of the largest concentration of new car dealerships offering all car buyers an excellent chance to shop for the right product at the best price. There are hundreds of new car dealers in the Washington area.
This is more of a comment than a question.
Frank E. McCarthy: Dealers recognize that women purchase a very large number of new cars and most likely either purchase or influence the sale of a majority of all new cars and trucks sold. Most dealers have embarked on training programs for existing sales people and have hired women sales people to professionally market to this growing number of women buyers. Dealers recognize that the growing number of women in the market are essential to their success. Any dealer not treating women buyers with the same or better respect and professionalism as they do men buyers, will lose out in the long run.
Bob Levey: Dealers always complain about buying services, because they can't make as much profit this way. But I don't notice any dealers refusing to do business with buying services. Why not, if the return is so low?
Frank E. McCarthy: Many dealers are willing to associate themselves with buying services in order to increase the total number of cars and trucks they sell. It is interesting that cars and trucks purchased through buying services are not always at the lowest price. I know of many instances when the dealer may be overstocked with a particular model that the dealer is willing to sell one of these cars to an individual buyer lower than some people would pay from a buying service. Everyone thinks you always get a lower price from a buying service, but that simply is not the case.
Washington DC: Is there a serious effort to get dealers to stop high pressure sales tactics?
Frank E. McCarthy: The public has made it clear that they do not like high pressure selling. Most dealers have found that taking a professional approach to selling increases their sales as well as helping them retain good sales people. More and more training programs including NADA's sales person training program address this issue.
Bob Levey: Seems to me that the fundamental problem in the car business is the absence of repeat business. When I go in to buy a car, the salesman and I both know that I won't be back for at least three years. That means he has to make everything off me that he can, right that second--and I have to get as good a deal as I can, right that second. This produces the "dance" that the business is famous for. Your comments?
Frank E. McCarthy: The amount of repeat business, or what we call "customer loyalty," has dropped off significantly. There are many reasons for this, but probably the most common reason is the large number of new high quality products that come into the market each year. However, even though customer loyalty is lower than in the past, it is most important for dealers to do everything they can to make the sales and service experience satisfying for the customer. Custormer referrals are the most effective and least costly form of advertising.
Frank E. McCarthy: I agree with your comment. Customers have the ability to be far better informed today than in the past. Manufacturers and dealers provide a great deal of information to help customers narrow down their choice of products. Today the internet has an enormous amount of information that is most helpful to customers. the key is to know what fits your needs and what price you can afford to pay. Then you can shop for the precise product that you will be happy with and can afford.
Washington, DC: What do you think of places like CarMax that do away with price haggling and go by the sticker price? A couple of people I know have had very positive experiences there.
Frank E. McCarthy: Many customers like shopping at stores like CarMax and Saturn. However, the vast majority of customers prefer to shop at more than one dealership so that they will be assured of purchasing the car at the lowest possible price. Surveys show that a majority of the customers prefer to shop for the lowest possible price. however, there is a growing number of customers that feel intimidated by price negotiation, and prefer a pressure-free environment to buy a new car, such as CarMax and Saturn or traditional dealerships that make the buying experience comfortable.
Bob Levey: On April 18, The Washington Post reported that yellow is the hot color for new cars. But aren't blue, gray and white still the most popular colors?
Frank E. McCarthy: To be honest with you, I didn't know that yellow was the new, hot color. I was at two dealerships last week and it seemed that every car in the lot was silver, grey or some variation of these two. It does appear that the darker colors are less popular.
Bob Levey: You say that dealers have been trained to treat women better. But I receive a complaint every few weeks from a woman about incredibly poor treatment at a dealership. What's the best way for a woman to complain about this, and to seek some sort of satisfaction?
Frank E. McCarthy: Every woman should be treated as a knowledgeable customer and with utmost respect. If any woman has any degree of discomfort because of the actions of any sales person, the woman should take her complaint directly to the dealer or the general manager in that dealership. All dealers would want to correct a situation like this immediately.
Newport News, VA: Three weeks ago I sought and found a car on the internet - www.hamptonroadscars.com. I responded to the selected car-dealer and was called by a salesman. Prior to meeting him I signed up with Carfax.com for $19.95, traced the cars that interested me via the VINs given as info in most cases on the above site. My question: Could I have avoided the $19.95 expense and gotten the same detailed info from the salesman? Always?
Frank E. McCarthy: Almost all information regarding cars that is found on the internet can be found at a dealership itself. The advantage of using the internet is when you are researching several different make vehicles. The internet will let your fingers do the walking.
Bob Levey: Have customers resisted the "pass-along" cost of safety features like air bags and seat belts?
Frank E. McCarthy: For years customers resisted any price increases for safety or environmental equipment. Today, customers are far more safety conscious and environmentally responsible, so now they do not resist modest increases in car prices for proven safety and environmental equipment.
Germantown, MD: Do you think the current enthusiasm for sport utility vehicles will diminish any time soon? What do you think will be the next "big thing" in cars?
Frank E. McCarthy: I think the current enthusiasm for sport utility vehicles will continue to increase. I now drive one myself and am more aware of how many are on the road everyday. Light duty trucks are also used in great numbers as a kind of sport utility vehicle. Last year, light trucks and sport utility vehicles accounted for approximately 48 percent of all new vehicles sold. I expect this number to go over 50 percent in 1999.
Warrenton, VA: I've had a car self-destruct not long after it was out of warranty. The problems are known to the manufacturer but they refuse to offer any assistance whatsoever. I may have to junk the four year old car. What other recourse do you recommend to get the company to take "some" responsibility?
Frank E. McCarthy: Nothing is more maddening than a car to break down right after the warranty has expired. In some cases, if you can show the manufacturer had issued service bulletins to dealers regarding the problem with your car, you might be able to convince the manufacturer, that even though your car is out of warranty, they should cover all or some part of the repair.
Odenton, Maryland: The last two times I purchased an automobile, the dealership sat me down and made me sit through a sales pitch for the add-ons - weather-proofing on the body, Scotch Guard treatment on the carpets, I cannot remember what else. Of course I had just agreed to a price and i was not interested in spending any more money. Why do dealerships persist in this attempt to nickel-dime the customer at the end, or why don't they just include these extras in the base price?
Frank E. McCarthy: Dealers make very little money on the sale of a new car. After allocating expenses to the sales department, in many years dealers will make fewer than $50 per new car sold. Over the years, dealers have offered customers additional accessories for the convenience of the customer and to increase the profits. If a dealer does this properly, simply offers the customer the opportunity to purchase accessories, then customers do not find this objectionable. Customers should object to any high pressure sales tactics.
Bob Levey: I realize you represent the industry, but do you really see blue skies in the car business forever? What with gigantic traffic backups, the cost of parking and insurance and sticker shock, won't people gravitate to public transportation?
Frank E. McCarthy: I really do see blue skies in the car business forever. People love their cars and love the freedom of mobility that cars give them. Unfortunately, I do not see blue skies for the increasing number of traffic jams, the cost of parking and other costs associated with operating an automobile. Public transportation is important for major cities, but only carry a very small percent of the people. Also, public transportation is not as convenient nor as flexible as personal transportation. Therefore, public transportation is a necessity, but will never replace a significant percentage of personal automobile travel.
That'll have to be that for this week. Many thanks to our guest, Frank E. McCarthy. Our guest next Tuesday, July 13, will be Phil Bennett, The Washington Post's assistant managing editor for foreign news. And don't forget the anything-goes version of our show. We call it "Levey Live: Speaking Freely." It appears from 1 to 2 p.m. Eastern time every Friday.