MilePost Online ... Transcript of June 9, 2009 Luncheon Presentation

Car dealers Jon Gray, Peter Hoffman and Beau Boeckmann tell us how today’s troubled industry looks from their perspective

MPG VP Dave Kunz introduced Charlie Vogelheim, Chair of the Speaker Committee, who conducted the meeting.

 Charlie Vogelheim: What crazy times we’re having in the industry. Last month, right after we finished the MPG luncheon, we were standing outside in the courtyard. I happened to mention I was on my way to the dealers’ march on Washington and to talk to Congress about this desire to do away with dealers.

 Well, sure enough, that was on Wednesday and Congress took all of the meetings very well, wondering why this was happening. Of course, on Thursday the dealers were receiving text messages and e-mails from their dealerships that they were receiving envelopes, the Chrysler dealers, anyway, several of ‘em.

And now here we are at our next MPG meeting and this is the last day for 700-plus Chrysler dealers. So a lot of changes going on in the industry right now.

We thought it was important, at the Speaker Committee, that we’ve heard from OEMs talking about what’s going on in this downturn in the economy; we’ve even heard from analysts, when we had PriceWaterhouse here. What about the dealers? These are the guys on the front line that are dealing with the consumers and the OEMs on both sides.

The consumers and the troubles happening with the economy, and the OEMs with their own troubles, everything from brand closures to bankruptcy.

So what we wanted to do today… In some of our discussions we’d say, well, this industry that we’re all involved in has its ups and downs. Well, it’s nothing like what we’re going through right now.

Charlie Gill is here, and he represents the Los Angeles area automobile dealers. You’re on the phone, what, several times a week, a conference call with a hundred-plus auto dealer association directors throughout the country, trying to talk about what’s going on from one day to the next.

So what better time. Let me bring the gentlemen up here. Jon Gray is the president of the Orange Coast Chrysler Dodge Jeep [Vogelheim mistakenly adds “Plymouth” to laughter]. Also we have Peter Hoffman, who is the president of the Sierra Autocars. Then our good friend Beau Boeckmann [Galpin Motors].

What we wanted to do today is, this is all about these individuals talking about their businesses. I know you all get very anxious, because you’re all journalists and you have lots of questions, so get ready because the majority of this discussion will be Q&A.

Before we do, these gentlemen are running small businesses of great stature here in Southern California. They’re not representing corporations in the larger term that some of our guests here have. That being said, they’ve agreed to come here, take time away from their businesses, and we very much appreciate that.

We ask that you just treat them fairly. If you’re going to quote them, you know, run the quotes past them ahead of time because, again, they’re going to be open and straightforward and we promised them that we’d be fair in our discussions with them.

I’m going to ask each one to give a little bit of the background of their own dealerships. I’ll start with you, Jon.

Jon Gray, Orange Coast Chrysler Dodge Jeep: I have a lot of Plymouth inventory, if anybody’s interested… [Laughter.] It’s open mic night, right?

Anyway, Jon Gray, second-generation car dealer. My father opened up Orange Coast Jeep in 1981. I started in 1991, and in 1999 started the domino effect of taking over the family business. I guess that’s the way we say it, right?

Graduated San Diego state with a degree in psychology, which I’m glad now. [Laughter.] It’s coming in handy.

Married my college sweetheart. I have a ten-year-old and a 6-year-old. I’ll be as open and honest, just fire away the questions.

Vogelheim: Just a couple of points about the dealership, the different…

Gray: Chrysler, Jeep, Dodge in Costa Mesa, on Harbor Blvd. We merged the two dealerships we had. We were kind of lucky, in a sense, that we had the Dodge store and the Jeep Chrysler store already, so when all this combination Alpha, Genesis, whatever they’re calling it today, uh, you know, we had it so we were able to put it together last July, and do consider ourselves a little lucky ‘cause we did it not knowing all this would happen.

So when I opened up the UPS envelope—seriously, it showed up in a UPS deal—and I opened it up and it was like gettin’ your college acceptance. It was either going to be “Sorry to inform” or not, and I got the good letter. So happy to be here.

Vogelheim: And other franchises you’ve had through the history of the dealership.

Gray: We’ve had GMC, Pontiac, Oldsmobile, Isuzu, Mazda, and some of those we sold because we weren’t doing well. Some of ‘em we sold for, well, for money. [Laughter.]

Vogelheim: And you’ll describe what that is later, right?

Gray: I have a vague recollection of what that stuff looks like!

Ah, the gentleman from Galpin was talking about some stuff this weekend, so at our old Jeep location we’re opening up OC Motorsports and Off Road Performance, sales, parts, service. www.ocmotorsports.com. Check it out.

Vogelheim: Thank you, Jon. Peter.

Peter Hoffman, Sierra Autocars: I’m with Sierra Autocars in Monrovia. We have Honda, Chevrolet, Subaru, Mazda and Buick, and then we have Acura down in Alhambra. My family’s been in the automobile business—my grandfather was the Studebaker distributor in 1919, so we’ve been around for a little while. My dad still shows up every day at work at Sierra, and my son is actually a part-time cook in the cafe, so… [Laughter.]

We’ve had, like the Grays, a whole bunch of franchises over time. We were one of the launch Saturn dealers, and we gave that up in 2006 in order to get Mazda. We’ve been a Mazda dealer since then.

We had Oldsmobile as well, so we’ve been through a closure before. What else ya need?

Vogelheim: No, it’s all good. Unless you want to talk about your college sweetheart…? Beau!

Beau Boeckmann, Galpin Motors: Actually, my father started at Galpin in 1953 as a salesperson who worked his way up to eventually owning the dealership. We expanded along with Ford Motor Company, so we added the other brands: Lincoln Mercury, Mazda, Volvo, Jaguar, Aston Martin. The only one of the previous Ford we don’t have is Land Rover.

We also were an early Saturn dealer. In fact, we sold the very first Saturn in the world. I hope we don’t sell the last one. [Laughter.] And then we added a Honda franchise…about three years ago, which we’re very happy to have now as well.

I have five children. The youngest one is five months, so I’m exhausted.

Vogelheim: Right, and you might recognize Beau also as the star of stage and screen on “Pimp my Ride.”

Boeckmann: Yeah, we do have also a customizing shop called Galpin Autosports, so we customize all makes and models of cars in all areas of customization, to the absolutely absurd, to performance and audio-video; all kinds of fun stuff. That’s the fun side of the business. When I get tired of dealing with all the crap I get to run over there and play with cars. [To Gray] So I’m glad you’re starting OC Motorsports, ‘cause it’s fun. Nothing else!

Vogelheim: What we have here…for the most part is the three domestic brands…we wanted to have that here today. And for the most part they’re all family-run dealerships, they’re not corporate stores. And multi-generational at that, also.

To start the discussion, the economic downturn starts happening long ago; when was the last time you guys actually made money just selling new cars?

Gray: 1990… [Laughter.] Well, for us, when we merged the stores together last July, that made the bad less bad, I guess that’s the best way I can describe it. It’s still not great, but from then on at least things kind of stabilized.

If you’re asking just specifically the new vehicle department, it has been particularly, maybe with Chrysler, Jeep and Dodge, very, very crazy. Like in March we sold 125 new cars and did very well. That was the good old days. I don’t now why March, I couldn’t tell ya. We didn’t do anything special.

Hoffman: Sales tax.

Gray: Yeah, sales tax, it’s always something. But it was followed up by April, which was reasonably mediocre. But to answer your question, it kinda has been ping-ponging back and forth depending a little bit on Sacramento, a little bit on Detroit and I guess a little luck. But it’s certainly been tough here, for sure.

Hoffman: We made money last month, but an interesting aspect of that question, when was the last time we made money on a specific automobile sale, one of the things that’s an interesting sort of a drift in our industry right now, and I think it started with the Blue Oval, actually, but the manufacturers have been forever trying to figure out how they can control dealers, and one of the things that we’re seeing is that they’re creating programs, Standard for Excellence is one of them for Chevrolet…that try to take the focus off the individual dealer and put it on the book of business.

So you have a collection of parameters that you have to meet in order to get a chunk of money from the factory. And frequently, with a number of franchises, that’s the difference in being profitable or not profitable, whether you hit those kind of numbers.

Vogelheim: Well it’s certainly a statistic that we bat around at the National Auto Dealers Association meetings, in terms of the profitability of the new car departments vs. the other profit centers, which might be aftermarket and things like that. Beau, you certainly have done well in the aftermarket.

Boeckmann: We have and we really enjoy that aspect of it. As far as the new car department specifically…as you can imagine, margins are something that are near and dear to our hearts, because they’ve reduced them so dramatically over the years.

A few years ago we went back to meetings with some of the heads of Ford Motor Company and we said, “Do you know what the average cost is of a dealer to sell a car?”

They couldn’t come up with an answer. Finally, by the next meeting they were able to get some information together. So using their numbers, the average cost was $2700 per car to deliver, and $3200 in the state of California once you take all of the costs into consideration.

So even selling a car at full list, you’re not able to make a profit selling new cars. Unfortunately, that kind of takes some of the fun out of the business.

And it causes, frankly, some playing [on the part of] other dealers. We don’t participate in slamming a person in F&I and doing some other things that we don’t agree with morally. But it does mean that you’ve got to focus on used cars and aftermarket and parts and service because new cars, it’s incredibly difficult if not impossible to make money in those departments today. That’s frankly wrong.

Vogelheim: Jon, do you agree approximately with the figure he came up with?

Gray: We just did a study. Ours is about $2400 a car, and it was up close to $3000 before we merged. And when we look at the average markup, just from invoice and…

Back to what Peter was saying, for a second, if someone were to ask me what’s my cost on a car, I’m not sure I could figure that out any more with all the factory programs. He’s right on. There’s programs where, like in the fourth quarter, if you sell this many cars we’ll wrap it for one month or for the quarter, and so at any given time we have money kind of flowing in and out.

But I do agree with Beau that it would alarm a lot of consumers and the reporters to know how the new vehicle department is the least, by a long shot, profitable part of what we do.

Vogelheim: Why don’t you break down a couple of key aspects of that figure? $2400 includes…

Gray: Advertising, flooring, the office, the porters, the lady or gentleman who answers the phone, salespersons, the manager, the finance manager, the rent…

Vogelheim: Everything. And how much is the marketing, relative to the cost of doing business?

Boeckmann: Our marketing costs, I think, run roughly $400 to $500 a car, depending on what kind of promotions we’re…

Vogelheim: When the Internet came along, that was going to take away a lot of the marketing costs. Have you seen that happen?

Boeckmann: Exact opposite. [Laughter.] It’s just another added expense, another department we have to deal with. You know, the Internet doesn’t take care of itself. When somebody has an inquiry, it either has to be a person on the other end to answer that, so now we’ve got to be training our salespeople and making sure that we have other staff there that their inquiries are answered properly. No, the exact opposite has occurred. It adds cost to a dealership. The Internet has been nothing but a negative—on the costs side of it.

There are positives, in the information that we can share and get out. There’s a lot of great things about the Internet, but saving money isn’t one of them.

Vogelheim: It came into being about 14 years ago from a commercial aspect, and back then Scott Painter, when he started Cars Direct, he said you guys would all be gone by now. [Gray laughs.] Talk about how that didn’t happen.

Gray: What’s he doing now? [Laughter.]

Vogelheim: Next month’s speaker, Scott Painter, will be here…!

Boeckmann: The reality of the Internet, if you go to buy almost anything on the Internet it very early on starts to get a little confusing. You want to talk to somebody about what it is. I’ve bought all kinds of weird things on the Internet that, you know, you end up hoping it’s what you thought it was…

When it comes to a large transaction like a car you’ve got your trade, the vehicle you want to buy, and so much choice that ultimately I think people really need some help, and that’s what our salespeople are there to do. Not just help them with information about the subtleties of the product, but also with how their own credit works with the manufacturer programs and what their trade-in might be worth and how to structure a deal, the difference between a lease and a sale; there’s an awful lot in there that even a pretty sophisticated customer I think wants to just assume they know everything and go take care of.

Gray: I think the most frustrating part for the consumer ironically is the most frustrating part for our people on the showroom is, we sit there and we debate facts, or our perception of facts. And the one thing, the Internet certainly has not saved us any money, but you’d like to think has educated the consumer about reality. Now whether or not they choose to believe that source of information…

Vogelheim: You mean statistics on the car, or the price…?

Gray: The price. If you want to go in and find out what our invoice is on a car, you can do that. You can find out rebates. We chose to look at that as a positive, ‘cause all you’re doing now is negotiating, what’s my time and business worth? And the service to get you the car. Rather than spending an hour and a half calling each other a liar.

I think the Internet hopefully will evolve into a better way to sell cars, because it’s not the most efficient way to do it right now at 2700 bucks a car, that’s for sure.

Vogelheim: You have a unique business, where invoice for your product is available to your customer. You [Gray] take a positive approach to it; how about you [other] guys, how do you look at your customers armed with the pricing?

Hoffman: I find one thing about the Internet is, they tend to have accurate pricing, which is better. You go back 20, 25 years and they’d come in with the [ITALS] Consumer Reports [END ITALS] version of it, that was wrong. I can’t negotiate from that, because it’s the wrong number. At least now it’s generally the right number, so we’re at least on the same page.

And like Jon, we’re talking about the market, some cars are sticker price cars. They’re in short supply, we’re gonna get that, if you want it you’re gonna pay that. And a lot of cars aren’t [chuckling]. Where they land in there is a matter of conversation.

Vogelheim: Both of you were Saturn dealers, and that was one price when it came out. How well did that work? How good an idea was that?

Boeckmann: We loved it. I sold Fords and then I went over to sell Saturns, and it was just a wonderful experience. It made it so much easier for the consumer, the salesman, we were able to focus on the product itself, demonstrate the features. It wasn’t all about the price. There wasn’t that distrust. You know, when you’re an honest person and someone distrusts you—that was one of the biggest wakeup calls for me selling cars. Well, wait a minute, I’m not trying to take advantage of you here.

And selling Saturns, actually we were the number one Saturn dealership in the country and number one with Ford, so negotiation and not negotiation, and the customers were just absolutely enthusiastic and the process was easy, and that’s what built so much of the following for Saturn. It wasn’t the cars. I mean, the cars weren’t that great. You guys know that. [Laughter.]

But it was the way of doing business. It made sense. And today, just to show you how the world works, we’ve got the best products we’ve ever had and hopefully Penske will come to the rescue…

Vogelheim: We’re jumping right into current events, so we wanted to just kind of set a foundation for the business that they do, and a couple more questions. I’m gonna make a quick statement, and you can tell me if you agree or disagree, but the automotive business is a push economic model. It’s a complex product that manufacturers create and produce, they set up this franchise system, they push the product down to these people to sell who then, to a certain extent, push it to the consumer.

It’s been that way for 100 years and through that process has come this certain degree of antagonism, both between the consumer and the dealer and certainly between the dealers and the OEMs, in some cases, which makes this a very unique business. Am I characterizing it correctly for the most part?

Hoffman: I think you are, and I believe that that model is more successful in what the manufacturer wants than in what the dealer wants. Because a lot of the tension between [them is] the dealers essentially pushing back. 

Vogelheim: And likewise the dealers to the consumers, perhaps.

Hoffman: Well, a little bit, but we do sell too much from inventory pressure, that there’s things that we have to get rid of rather than things that we want to sell.

You know, everything’s got a price point. It becomes a value that somebody wants at some price. We’re at the front line of trying to figure out what that price is for something, and when you have an excess of Plymouths in inventory, after a while that price point gets pretty low. But there is somebody that wants it at a given price.

If it’s the right price, it’ll sell. That’s our job. The factory gets the same price every time, so they want us to keep ordering. What we want to do is not be selling from inventory pressure, but to have what people want.

It’s a big source of tension between us and the factories.

Gray: They have a different agenda than we do. They’re beholden to a board of directors and stockholders and [have] plants they don’t want and unions they don’t know how to deal with, the loss of flexibility there. Before that car even gets to the dealership, there’s so much nonsense that goes on and so much posturing of more VPs than you know what to do with, all trying to be rocket scientists, trying to make the right decision.

And the car finally shows up and you’re like, who decided to build this? [Laughter.] What do you want me to do with it?

Vogelheim: But we’re not here to talk about the Aztek.

Hoffman: We had an Aztek that we took in trade last week and it sold almost immediately. It’s because it was an interesting vehicle. It certainly was functional. And we set the right price on it.

Boeckmann: You’re a good salesman. [Laughter.]

Gray: But you have the agenda in Detroit, who are measured on how much revenue and how many cars they can sell and market penetration and all that, and so they’re just trying to keep those plants going at all costs. And if it’s all rebates, we’ll deal with that much, much later because by then I’ll have strapped on my parachute and I’ll have been long gone. See Bob Eaton for that one.

Yeah, that was personal. [Amid laughter.]

From our standpoint, we have invested, from when my dad started in 1981, you’re talking about taking a second loan of about 30 or 40 grand out on your house and roll the dice, and if it didn’t work out you go back to being a general manager.

Right now, when we opened up the Dodge store you’re talking about personally guaranteeing $4 million. And all of a sudden, you know, our agenda is a lot more personal. They don’t quite get that part of it.

And then from the consumer standpoint, their agenda is to hopefully end up with a car that they’re fired up about, that they can afford, but they want to pay the least amount for that, and between their friends, relatives and the Internet they have so much information being throwed at ‘em that’s it’s just awkward.

So you have so many different competing interests just to sell one car. And so I would certainly hope that there would be a better system eventually.

Vogelheim: We’ve entered the consumerization age, where information is available, CSI [customer satisfaction] is important, and as you said the Internet and everyone’s friends and neighbors. If you want to satisfy this customer there needs to be some behavioral changes.

I’ll reset you guys to my memories as a child: You’re the local businesses that’s taking care of the Little League and puttin’ the cars in Driver’s Ed that we’re all destroying as we’re learning to drive. Now it all of a sudden becomes real as we fast-forward and you’re being asked to close your businesses.

If we talk to any of the people involved in the auto industry they would coldly say, “Oh, yeah, there’s too many domestic dealers, they’re not selling as many cars as they used to, their market share is down, there needs to be fewer dealers.  

You guys are dealers… What does it mean? Chrysler dealers are closing right now.

Gray: You noticed I looked away, hoping you’d pick somebody else? [Laughter.] Gosh. I don’t even know where to start with this. To answer your question, does there need to be fewer dealers… [At some length, Gray declares that Chrysler’s plan to close dealers was already in place long before the economy soured.]

So to answer your question, some of the dealers got hosed, and it’s brutal and I know a lot of ‘em. Some of ‘em are friends, they were at my wedding. These are good people that, Holy Cow, they got the Letter. And that blows. I mean, that really is not fair.

Vogelheim: Did it need to happen, though? I mean, is it going to benefit—why does Chrysler need to close 700 today?

Gray: I don’t know what the number needs to be. Here’s what I do know: In order to be competitive, you have to sell somewhere around 800 to 1000 new cars—we’re talking metro market. If you can’t, you’re not going to have enough service and parts business, you’re not going to have enough trade-ins to have a profitable used car department, you’re not going to have enough profitability to build the type of facility to attract the best type of people and then to be able to try new things.

If you have dealers selling 20 new cars a month, I don’t care if you’re Toyota or Jeep or how you make that up, it can’t happen.

Now, do you do that on 16 million a year, divided by 3000 dealers? Or 10 million a year? I guess the answer would be, you have to come up with the reality. Sixteen isn’t it. Ten isn’t it. Pick a number and you gotta divide it. I don’t know [a fairer way] to do it…

Vogelheim: So these guys are going out of business, and how do you react? Are you… Actually, I know the answer to this, but if you didn’t read the L.A. Times, you were quoted today in terms of inventory purchases…

Gray: I was?

Vogelheim: You were, you were. It was beautiful.

Gray: We did it three times before I got it right.

You know, on a personal level, we happen to have plenty of inventory and I don’t feel a ton of… What’s the word I’m looking for…

Vogelheim: To quote you, you said you didn’t want to be a vulture.

Gray: There’s got to be some dignity and some decency in this deal. I get that for the last 100 years those two words are not synonymous with car dealers, but we’re people, we’re… What am I gonna do, call up the guy from Garden Grove, my competitor Charles Lee, who’s a good guy and I’ve known him for a while, and say, “Hey, sorry, by the way can I buy your cars at 60 cents on the dollar?” I mean, that’s not right.

Now with that being said, I’m as compassionate as the next guy, but the flip side is, I don’t feel an obligation to bail these people out either. I have 60 employees and a business I’m trying to sustain and run and keep healthy. So when that phone call comes my way saying, “Hey, there’s X-amount of cars in the market from these dealers we terminated, come take this lime-green Durango,” no, I don’t feel a ton of obligation on that sense either.

So at Orange Coast it’s kind of been, let’s be compassionate, but we’re just going to go about our business plan. I don’t know, there’s no manual, this is what you do.

Vogelheim: And again, to make sure we stay away from the vulture characterization, but employee opportunities, are you…

Gray: Clearly there’s going to be some people, a lot of people, that are going to lose their job, and I can certainly say the right thing, and it is, it’s brutal. But if you’re good and you have a good attitude and you work hard and you perform, in our business the door’s always open.

So I don’t think the numbers of losses is quite going to be—I mean, trying to find good technicians, one of the downsides, and I know you all went through it too, as the domestics expanded in the Nineties, now there’s really so many good technicians and salespeople and managers and that, you’re cut so thin, and so there’s going to be some employment opportunities and some very good people that we’re going to be fortunate enough to interview and see what happens.

Vogelheim: Let’s step over to you, Peter. Again, you had Oldsmobile at one point and so you got The Letter, as it were, back in the day, but it was a lot different then. They were actually buying you out, essentially.

Hoffman: Right. And Oldsmobile had almost died on the vine before anyway, so it wasn’t that significant to us. 

Vogelheim: It makes me wonder if, again, this forced closure today is not an attempt to, again, Oldsmobile was a very expensive brand to close out. It’s an opportunity, then, for the manufacturers, under the cloak of bankruptcy to, to…

Hoffman: I think you have to distinguish between closing out a brand and closing some stores. I don’t believe that General Motors is saving any money by shutting down Buick stores or Chevrolet stores, because the brand’s going to continue. It doesn’t really cost them anything to have a dealer and when they get rid of a dealer they’re going to lose something. It just doesn’t work that the guy in the next town’s going to pick up all the business. People have some level of loyalty to dealers. Generally people are pretty happy with their experience in buying a car and they get to know people at a dealer, they service at a dealer. When you blow one out, over the long run it’ll have some effect.

I think we’ve seen that actually with Saturn. When we closed our Saturn store, I was trying to get ‘em to let us do service only, because I knew that the Saturn owners would kind of be abandoned in our area by that. And they wouldn’t let me do that, but they, the guy I was talking to mentioned that in Sacramento, when they closed the Saturn store, they almost weren’t in a position to be able to reopen one because they’d abandoned the market and the customers weren’t coming back. They had experience with that.

So I think that generally this notion of closing an ongoing franchise store is just bad for the manufacturer and not a useful thing to do.

When you talk about Saturn, if they’re going to close down the whole division—or Hummer or, which they’ve changed course on that, they’re not going to close ‘em down, it doesn’t look like, but Pontiac—shutting those down, yes, that would be Oldsmobile-like and would be very expensive to essentially breach their side of the dealer sales and service agreement and stop providing vehicles to the brand. They’ve got a problem.

But, again, with all the other stores I think that generally Chrysler’s going to keep building. So I would say that almost all of the stores they shut down, they could have either, under state franchise laws, gone in and done what they needed to do to shut ‘em down for non-performance, or kept them and let them—in this economy, there’s a certain number of dealers who are gonna die anyway.

I think General Motors, before they sent that letter out, had reduced their dealer volume down to 6500 and then this year it was down another 500 dealers all on its own. I mean, they were doing some things in the background, but basically without them taking a very affirmative step. And I think that probably would have continued in this market.

Gray: I gotta hop in on that real quick. There’s so many… I agree with most of what Peter said there, but there’s so many unique situations. I have a very good friend who’s a dealer, a Chrysler Jeep Dodge dealer in Massachusetts. One point five miles away from him is another Chrysler Jeep Dodge store. That’s insane.

Now I think it stinks that that other guy got The Letter. I mean, I don’t know him from Adam. You can’t have that.

Now, whether or not there should be, between DC, Obama and Detroit, all those back room deals, I don’t know, I don’t want any part of what went on there. I don’t know what the right thing is to do. What I do know is, to a certain extent, if this doesn’t get fixed, whether it’s through natural attrition or forced attrition, you know, you run the risk of never, never being able to invest in your business and never quite, you’re just always getting by and doing that.

And a lot of these deals, what I think they should have done is, if I’m the Jeep Chrysler guy and you’re the Dodge guy, sit them in a room and say, “You’ve got 90 days to figure it out, or we’re going to come in and make the decision for you.”

At least give the people that have invested their time and their money and their life to figure out a way to have a very, very soft landing. Their interpretation of a soft landing is a joke.

And some money would have exchanged hands and people’s lives wouldn’t have been ruined. But instead, I get the letter saying yes and you get the letter saying no and all of a sudden I get your Dodge store for free? That’s insane. That’s wrong. That’s where I think they went wrong about it.

But the premise of a bunch of metro dealers selling 20 cars a month, that isn’t the solution either.

Hoffman: I think you’re right, but those kinds of conversations, I mean, Ford was doing that. Ford went around the L.A. market and a lot of stores closed voluntarily, with a little help from Ford, sometimes some negotiation between adjacent dealers, and it was done in a respectful manner.

Gray: Right.

Hoffman: What Chrysler did in particular was kind of unforgivable, I think.

Boeckmann: That’s exactly right…

Vogelheim: I don’t have the stats in front of me, but you sell over 20 a month, right?

Boeckmann: Yeah, a few more than that. [Laughter.]

Vogelheim: What are your numbers?

Boeckmann: Ah, last month we did 367 new Fords.

Vogelheim: Yeah, you’re up into that sphere. So let’s hear from Ford, because as we’re watching all this go on, you know… [Query from audience.] Yeah, we’re goin’ right to that. So this is my final question. It’s to Beau. There’s a theme, we’re goin’ all the way across. So let Beau talk and then we’re goin’ right out there.

So Ford, unique in that they haven’t gone to get the check from the government. You’re watching these other two companies, you’re in the hot seat only because today GM has issues coming down with brands, etc. Ford point of view?

Boeckmann: I gotta say, I thank God every day I’m a Ford dealer right now. And that’s sincere. I really believe in what the manufacturer’s been doing for several years. Because it takes years and years and years to build great products.

We had a chairman and CEO in Nasser that really just wrecked the company, in my opinion. Spent billions of dollars buying other companies. All kinds of waste. Tried to get in the dealer business and everything else. By the time he was gone I think he had just about everyone in the entire organization as his enemy.

Conversely, today, with Mulally, he’s made a lot of great business decisions coming in right off the bat. Frankly, even ones we didn’t necessarily agree with right away. You know, being a Jag dealer, I wanted to keep Jag with the Ford Motor Company, but when you look back it was a brilliant move. Borrowing the money was a brilliant move.

I’ve been fortunate on the product committee, because I’ve been there. It’s a group of about a dozen dealers and we get to look at all the products coming up in the next six, seven, eight years sometimes, and have direct input on that. And I’ve gone from, when I started in about 2001, coming back from these trips very afraid and very scared, to a few years ago being extremely optimistic.

And now we’re starting to see that great product come out—you know, at the worst possible time in the sales area, but at the same time thank goodness that great new product is coming.

So as far as the dealerships go, we at Galpin, our market somewhat took care of itself. There were nine dealerships in the valley back in, I don’t know, Fifties and Sixties, before I was born; there’s currently three.

We didn’t grow our business through advertising and cutthroat. It was really by word of mouth and by repeat and referral business. And, you know, our competitor was Ralph Williams, and you saw what he got in trouble with… [Audience chuckles.] That problem took care of itself.

Now the last dealership was exactly what you were talking about, where we went in with the other dealers in the market, we all put up money and Ford Motor Company put up money and bought that dealer out. So it was a win-win-win situation all the way around. We had a market that made more sense, with points in areas that made more sense and the dealer got, frankly, a beyond fair price now. But he did get a very fair price for his dealership.

So that is currently what Ford is still working on now. They’re looking at markets where they’re overdealered and trying to figure out, is there a way, financially, to make it make sense.

Vogelheim: So yeah, anxious for questions…

QUESTIONS?

Mitch McCullough: You mentioned backroom deals. Do you think government politics has played a role in any of these big decisions?

Boeckmann: Of all I said, that’s what you remembered? [Laughter]

We do have the government running two of the three American car companies now. So they’re calling all the shots. Their whole idea was that everybody’s going to give; the workers, the managers, and the dealers. This is one way trying to clear the market. You’ve all heard there are too many dealers. Yes, the government is kinda running everything right now, which I don’t personally agree with.

Gray: Maybe the back room thing. Do I think that everybody’s agenda was the same? No, I don’t. The unions are looking out for the union. The politicians are looking out for the next re-election. Detroit’s looking out to save Chrysler and their jobs. You have so many working pieces, I guess whoever the decision maker is they are going to go to what they deem is the number one priority. That might be different from what I would prefer the number one priority to be. So obviously the way that Obama handled the UAW was not the same as the way Reagan handled the airlines. So do I think there were back room deals? I don’t know the proper way to say it, but it’s “what’s the priority?” Am I thankful? I’ll let you know in five years. I had to learn to speak Italian for a while at Fiat.

Ed Justice: This is for Peter. Friday morning the GM letters are going to go out. I turn on NBC news in the morning and they’re camped out at your Chevrolet dealership. Number one: did you know they were going to be there? Number two: did you get a letter?

Hoffman: I’m not sure if the people who were camped out were the same people I’d spoken to the night before. The way that went was, I was called the night before and asked what I thought about what Chrysler was doing. I responded pretty much the way I just said. They said, “We’d like to send a camera crew down to talk to you.” They sent the camera crew down, and I said it again, that I didn’t think it made much sense, dealers don’t really cost the factory that much, and this isn’t really addressing the issues you’d think they’d be addressing. Bankruptcy, and that kind of thing.

I sort of thought it was over, and she said, “Well, if you get this letter from General Motors tomorrow, will you tell your employees?” I said, “Yeah. We have a good relationship with them and we’ve got more eggs in the basket than just General Motors.”

And that was the quote that got on, in the context of somebody asking what happens when we get the letter. Because we were going to get the letter, and we were the example of the franchise that was going down.

We started off the day answering phone calls about us closing, and being defensive about it. By the end of the day we were trying to use that as a marketing strategy, because we did get a lot of phone calls.

But we did not get the bad letter from General Motors either time.

Vogelheim: I called there and he said, “Yep. We are closing. Better hurry up and come buy the last car …”

Hoffman: That’s right. Big sale.

Robin Eckard: From what we’re seeing at Kelly Blue Book online surveys, Ford is heavily benefiting from what’s going on with GM and Chrysler, not only from a used car value perspective, but from interest in new car shopping for all these Ford models. You said you had big sales last month. Are your seeing traffic going away and into the Ford vehicles?

Boeckmann: I hate to say it, but that wasn’t really a big month for us. That was pretty miserable. Still, that was roughly 35 percent off last year, which wasn’t a great year, nor the year before. So it’s certainly been tough in the Ford business.

What we’re seeing now is that they’ve really focused their areas in product a number of years ago. So we are benefiting from that. Frankly, I think this is just the beginning. It takes years for things to happen. So you’re not seeing a shockwave of General Motors or Chrysler yet.

I think Ford has a tremendous opportunity with the products that we have coming out. I’ve ordered a ton of new vehicles. We are hiring salespeople. We’re very optimistic about what we see in the somewhat near future, and certainly down the road.

Hoffman: I would interpret that data a little differently. In the long run, Ford does have some interesting product. So does General Motors. So does Chrysler. Actually, Chrysler not so much. [Laughter] But there’s a lot of interesting product coming down the line. There’s a reason for optimism. The consolidation of the dealer body is going to leave a stronger bunch of dealers.

What’s happened with the General Motors product, and I suspect with Chrysler right now, there’s a lot of stores that are closing or dumping inventory. So there’s an awful lot of inventory that the factories have to get rid of, and they’re getting rid of it through the auctions. So when somebody comes in and looks at a used General Motors product that’s got 900 miles on it, and it’s $4,000 to $5,000 less than a new one, they tend to say that used one looks pretty good.

So they’re distorting their own sales because they’re dumping so much through the auctions. I don’t know how much of that is left. It seems like that was more a phenomenon of the last few months. But it probably makes it look like things are happening that are actually a little different than they are.

Eckard: [Inaudible follow-up question].

Boeckmann: We are hearing it on the showroom floor. I have customers coming in saying, “I am buying a Ford because GM and Chrysler took the bailout money, and I don’t appreciate that.” I also have customers who have come in and said, “I have bought five Toyotas in a row. I now want to buy an American product.” I look at Ford and I’m proud of what they’re doing. Their products look great. Our quality is up dramatically, right on par with Honda and Toyota. So we’ve got a great story to tell all the way around, and we’re seeing the benefits from it.

So we’re not just seeing it from GM and Chrysler. We’re also seeing it from Toyota. I’m most happy about that.

Gray: I’ve got to chime in real quick. Peter and I were at an Isuzu ad association together about a decade ago, so we’ve got to stop hanging out in these places. What’s interesting is that everybody wanted to be a Dodge dealer in 2001, 2002. We were killing it with the new Dodge Ram truck, the four-door. Jim Robbins, Theodore Robbins, Robbins Ford, 2004, 2005, couldn’t stand being a Ford dealer. Now you guys are crushing it. And it’s our turn. In terms of the value six months ago, a Ram truck was worth nothing. Now? I paid $800 back of book for a Ford …. Er! Ford! No! … a Dodge Ram 2500 diesel.

Now. As at Chrysler used to keep saying. Chrysler. Chrysler … is it plummeting? I never knew it was up. Like Sebring. In all fairness to the franchise, you say the word “Chrysler,” but let’s not kid ourselves. It’s all about Jeep and it’s all about Dodge Ram. At one time certainly the Chrysler 300. I wish they’d call it a Dodge 300. [Laughter]

You laugh, but I’ve been telling people whatever’s going to happen with Fiat, you ought to not worry so much about Fiat and worry about Chrysler. Leave Jeep and Dodge alone.

Alysha Webb: This might be a bit prosaic. We started out talking about whether or not you make money selling new cars. I just wanted to ask about the whole business model for dealerships. That’s not really something new in this market. You’ve never really made money selling new cars, right? It’s always accessories or after-sales service. But accessories have often been aftermarket companies, right? Then it’s hard to put them on cars because they’re not warrantied, blah, blah, blah. I’ve been hearing from the OEs that they are now trying to help their dealers out by coming out with more accessories. So my question is two-fold. First, are you guys seeing a big increase in accessory sales, and also, are the OEs trying to help you out in boosting accessory sales or are you pretty much on your own there?

Boeckmann: First, I don’t know what “prosaic” means. [Laughter.] Interestingly enough, the vehicle personalization manager from Ford flew out and I met with him right before this meeting. They have a very strong program. They’ve even brought up warranties to make sure they do the testing on the wheels and be able to warranty it. Also, they have licensed products. If they see a good third-party product that they feel confident enough to put the Ford name behind, they’re doing that now. So that could be from the Skyway Navigation GPS system to a foot cover that we do to a calfskin leather interior. We’re seeing quite a bit of support from Ford and they really have been putting a lot of work and effort into that.

Those sales have increased pretty dramatically. It used to be with Ford you’d get bug shields and other crap that was not any good and very expensive. Now we’re seeing some very great beautiful designs with the warranties and the Ford name behind them.

Gray: I do have one thing that I disagree — that it’s being profitable is not a new thing. I don’t know how it is for you all, but it’s in direct proportion to the products that you’re selling. When the Grand Cherokee came out in ’93 our new vehicle department was very profitable. When the Ram came out … that’s more of a product-driven system than it is just this “the new vehicle department can’t be profitable.” If you’re building cars people are passionate about, in Econ 101 I remember this from San Diego State, build one less than demand and you’ll be profitable.

Well, the domestics have built 100,000 more than demand and then it becomes accessories and … I’m not … Ford’s obviously on a roll, but historically they’ve had stuff there tell a hand four times as well. When you come out with a re-badged this or a re-badged that, it is tough to make profit. The Grand Cherokees and the Dodge Rams, there’s so many good products, and then there’s the segment over there that’s kinda just, geesh, what was the game plan there? You have no money to market it and suddenly it becomes “ten grand off every one in stock.”

Zoran Segina. Given the fact that your dealerships have been in business for a long time, please take a hypothetical. If you sold your average-priced car under the terms of old. Namely 36 or 48 month loan, straightforward for cash with a bank credit. How many cars could you sell under the old system. Which brings another question. How much of the new car volume in the last 10, 15, 20 years was a result of the financial wizardry and whether when you take the wizardry away as we did in real estate your customers who would love to buy the new product simply do not have money to afford it.

Hoffman: Is the wizardry just longer-term financing? Because without the longer-term financing I think our market would be cut pretty dramatically right now.

Segina: I’m specifically talking about the leasing agreements, about deals where you roll the existing car loan into the new car loan, and then the owner owes more than the car is worth.

Boeckmann: I think if you took in the market right now, of the deals … not that we could have done in the past. Let’s just take common sense for a minute which is out the window. I think our business could increase between 15 percent and 20 percent of people who do pay their bills, are responsible, and can’t finance these automobiles. A lot of that does have to do with the carry-back of negative equity on vehicles.

There are some other oddball things happening. For example on a credit card someone who pays their bills every month may have a $5,000 balance and a  $20,000 limit that gets cut down to a $10,000 limit. We’ve seen their credit scores drop by 100 points even though they pay their bills. So it’s a lot of screwy things.

In the past how many times did we roll a deal with the impression, “Man, the bank bought that? Wow.” It was a lot. I don’t know how to answer that directly with numbers, but if it was as ridiculous as it was just a year or two ago, we’d probably be doing a few million more units a year.

Gray: Without question I agree. That’s our number as well. The second the banks get back to reality, and I’m not talking about the guy with no proof of income, all that nonsense, I hope we don’t get back there anytime soon. There is the person who stubbed their toe a little bit, that’s no credit risk, it’s tough to do. And we’d get up 15 percent to 20 percent the second this got back to reality.

I guess diving into that question deeper, that’s what I was saying a minute ago, when the [annual sales rate] was at 16 [million], whatever it was whenever it peaked, how much of that was artificial? Somewhere between 10.0 and 16.8. I do think there’s a certain percentage of that which is something you should not build a business plan around, but the retraction is equally ridiculous. I’m looking forward to plugging the machine back in.

Mike Caudill: Monday the news hit with General Motors. The sales numbers came out at the end of Tuesday. I think Robyn brings up a very interesting point. I want to hear you guys elaborate a little on what’s coming from corporate Detroit. The Ford F150 led in sales last month, followed by the GM Chevy Silverado, and then followed by the Camry. So you have two full-size pickup trucks. How much pressure are you getting, because Monday and Tuesday all you heard in the news was “Green. General Motors isn’t green enough.” We’re not green enough as an industry; yet, they are producing hybrid vehicles. How much pressure are you getting to start putting these hybrid vehicles on your lot and pushing these green vehicles? That was the first part of the question.

The second one is, let’s take our suits off just for a minute, it’s Sunday, you’re drinking a beer, having a BBQ, got friends over. How would you fix the situation? Last week that was the big question we were getting, not only on our website at NADA Guides, but that was the number one question I got on air last week was what are we going to do with these dealers and how are we going to fix this? What are you telling your friends about what’s going on at your dealership?

Hoffman: Could you be more specific about what we’re fixing?

Caudill: I think the big question is of course dealers are going to go away. Where I live in San Diego, I’ve got 37 miles to the nearest BMW dealership and I’ve got 37 miles to the other BMW dealership. I want to have one in the town. We’ve got dealerships going away. We’ve got DC saying we need to be greener. We’ve got Detroit saying we’re going to cut dealers, but they don’t want to cut dealers. I guess what I’m asking is, if you were in Detroit and you were running Chrysler or Ford, what would your answer be?

Hoffman: Where’s the parachute?

Caudill: I guess there is no simple answer. I guess I’m answering my own question.

Hoffman: I’ll give you just a thought. There’s an article in yesterday’s Automotive News by Mike Jackson who used to work for GM. There was an article in I think Wall Street Journal by David Brooks a week or so ago. Both talking about essentially the General Motors culture. I think that’s where that’s got to start. To me the greatest negative indicator of the last couple of weeks is the participation agreement they sent to dealers that are going forward. I understand that they’ve amended that a little bit, but that was so heavily laden with typical GM command and control kind of thinking that to me it was pretty depressing.

Caudill: [to Jon Gray] Are you shaking your head because you agree or disagree?

Gray: I agree. If I were … Jim Press said, hey I’ll fly you out, your principal for a day, you know? There is a story and I’ll probably mess this up a little bit. When Toyota first decided to get going in 1970 whatever and they said “Our goal is going to be 1 percent of market share per year.” Next thing you know 30 years go by and they have 30 percent market share.

With the American car companies, it’s short-term gain without a long-term strategy, it seems. Again, with my respects to Jim at Ford with whom I don’t know a ton about what’s happening with him now.

So if you’re asking me what would I do … how do you re-create yourself? How do you re-invent yourself? What’s so wrong with all the nonsense of board meetings and all these layers of management? Is the answer hybrids? No, it’s not. That is not the answer. I think the statistic proves that. You can’t force consumers to buy something they do not want. I don’t care what its price. Should there be an effort to be more fuel efficient? Obviously. But you can’t just make things happen.

The problem with Chrysler is, “Who’s Lee Iacocca?” Who’s in charge? Could anybody outside this room say who is the face of the franchise? What is the identity? What are we all about? At one time we were the industry leaders, in my opinion, with sport utilities with Jeep. It was sooo great. The commercials were great. It was cutting edge. The dealers were fired up. Detroit was fired up. We were somebody.

Somehow that got lost. I just don’t know that whatever decisions are being made are being made for the long-term strategy of the manufacturer rather than short-term gain for the board of directors and the shareholders. That to me is the difference between the imports and some of the domestics.

Hoffman: I’d say neither GM nor Chrysler seem to be doing much for shareholders lately. 

Boeckmann: We’re very fortunate the position that we’re in because we do have a great relationship with management board of Ford Motor Company. I can say with all sincerity that I would keep doing what they’re doing. They’re really on track and the key is they’ve been listening to the dealers, they’ve been listening to the customers, and taking that to heart. They’ve been doing things exactly the way I’d be doing it.

The key is the government’s got to do something to stimulate sales. That is the answer. We can’t keep cutting. This industry can’t survive at these levels. You’re going to see things get much worse if we stay at this level. Cash for Clunkers, although it’s not perfect, it does achieve certain things. Getting inefficient cars and polluting cars off of the road. It helps consumers get into a car. It helps manufacturers, and it helps the dealers. Although that’s not a long-term, we do need a little shot in the arm right now. I think that could help.

Long-term we’ve got to figure it’s going to be getting the banking systems right and everything else back to the real world.

Gray: I’ve got to say one more thing. Let’s not forget that Toyota lost more than GM last quarter. Out of 10 million cars there’s going to be plenty of people sitting up here. And I hope I’m not one of them. Sincerely. I’ve been pretty critical of some of the decisions. Jeep’s all I’ve known. I was ten years old. I hope this works out, obviously, outside the financial reasons, but I will tell you this: there are people sitting in Tokyo right now having meetings of, “Holy Cow What are we going to do?” Bbecause the model does not work on 10 million.

So to your point, until demand is fixed, whether that’s from the government or the banks loosening up or a combination, we’re all going to be wondering how to fix this thing. Because it isn’t going to work on 10 million a year.

Hoffman: Going to your first question, which was hybrids. The Fiat and the GM new plant that’s going to build small cars, they’re also going to fail unless they pick up demand for more fuel efficient cars. We saw a statistic that I’d like to throw out that last year 2008 Americans drove 100 billion fewer miles than they did in 2007.

That’s the first time in history that this country has driven less in this year than they did last year. 100 billion miles. That’s 500 round trips to the sun. That’s more than all the CAFÉ standards will save and all that. It’s a huge number. It shows to me that the economy is part of that, but mostly there was that high price of gas that forced people to buy smaller, drive less. It affected all 250 million cars on the road in the U.S. rather than just the 10 to 16.8 new ones that are being sold. I think there’s a real message to the policy makers in that number.

Don Fuller: I want to thank the three of you for being here and bringing a nice dose of reality to this meeting we have every month. I’ve also done product training for Lincoln Mercury and for General Motors products. Maybe you know BJ Killeen? She and I used to do a lot of product training in Southern California. I’ve been to dealerships all over the country. I’ve also sold cars. I’ve dealt a lot with manufacturers reps talking about manufacturers trying to help the dealers. I have found those people to be largely clueless. I have also found the customers to be largely clueless. In the middle with the reality is the people trying to sell the cars.

You touched on the point with that great visionary Nancy Pelosi who on the one hand we have these geniuses like Barney Frank and Harvey Waxman who want to legislate some weird little ethanol hydrogen thing that nobody wants to buy. Yet the enabler for the mess has been federal government energy policies that have artificially kept the price of gas down low. As long as you have the federal government acting like the drug dealers supplying cheap gas how are you going to possibly get people to want to buy some more efficient vehicles?

As you pointed out, Peter, we finally have a drop in mileage driven because the price of gas went up. Duh. You’ve already talked a little bit about that, but maybe you have something to add to what happens when Nancy Pelosi and Barney Frank and that brain-donor Harry Reed become part of the development program for the products.

Vogelheim: That was pretty good. [Laughter.]

Fuller: I like to get right to the point.

Hoffman: I think you make sort of a good point. Just because it makes sense for people to be buying more fuel efficient cars and strategically our dependence on oil needs to be reduced. Global warming is a big concern. Transportation in this state is a third of it. You just can’t force people to buy something without putting the financial incentive there.

Now with that said, there’s fee-based bills that keep coming up in California. Those focus on new vehicles being sold and they prejudice a less-efficient vehicle with a fee and they benefit a more efficient vehicle with a rebate. We think that’s a really stupid piece of legislation because it kinda misses the mark. Just because you bought a Suburban or an Expedition doesn’t mean that you’re going to drive it a lot. And you may have six people in it. Which might be way better than the single Prius driving from Moreno Valley to downtown everyday.

I think that we’ve seen some evidence that the hybrid buyers tend to feel enabled to drive more. Because they’ve already done their piece for the environment; they bought that car. You need to make the impact of what you’re doing fit the goal you are seeking. And I think fee-bates particularly don’t. The other aspect of that is if they did work I would say it would break our state government. But they’ve already done that. It would make it a lot worse.

Gray: I watched “60 Minutes” on Sunday with Vernacky. Pretty impressive guy. We always used to joke, “Hi. I’m from the factory. I’m here to help you.” I have no idea in terms of recession, depression, what bailouts should have been in and should have been out, but in regard to what cars manufacturers should build, here’s a novel concept. Let the free market determine that.

If Ford conquers the world because they guessed right, then God bless them. That’s the way the world works. If Chrysler goes out, then that’s the way the worlds works, and I’ll find something else to do. But I don’t want anybody from Sacramento or DC who does not have a clue in the world about reality trying to play God with consumers in the free market. It’ll fix itself.

Should there be stimulus to stimulate the consumers to buy whatever they choose? Probably. We’ve got to increase demand. But you can’t just force the issue. If gas goes to $5 a gallon then you know what? Sergio Marconi from Fiat, he’s going to be my savior. If it stays at $2.50 a gallon, I kinda’ wish Nissan had bought us.

Vogelheim: Quickly, I’m just going to go down the line here. Jon Gray, you’ve been in business how many years, how many employees, and approximately how much do you donate to the community in a year?

Gray: Started in 1981. We have 60 to 65 employees. I don’t know how to quantify the donations to the community. We’re going to do this year $50 million in sales. We’re going to do over 1,000 new cars still. The sky hasn’t completely fallen. In terms of every Little League team and this and that, we’re always there. We’re always picking up the phone and this might come out a little corny but it’s not the kids’ fault, it’s not the community’s fault, that this is all happening. Do I pick and choose a little differently? Yea. Certainly. But there’s still an obligation to give back and I think we’re reasonably gracious to the community.

Hoffman: We have 200 employees. Sierra Auto Cars was formed in 1967. We’ve been pretty active with the community this year. This is a time when the needs are going up. It’s not a good time to retreat from your community support. We’ve been long-time supporters of the ?Indy center? And the library and Boys and Girls Club, Little League, and those kinds of things. We try to keep it pretty aggressive in that regard. I think most dealers realize that the vitality of their community is what allows them to be profitable. So our investing in our own community is kinda part of business.

Boeckmann: In business since 1946. We have roughly 900 employees. As far as our contribution goes, that’s something that’s been instilled in me by my parents early on. We’ve been active in more charities than I can count. The first three months of this year we donated to over 300 charities. Over the years I would say it has been thousands if not tens-of-thousands of charities that we’ve helped. Those are not things that, frankly, we discuss. We believe that it’s our duty and responsibility to help our community. We don’t try to buy business through doing that or brag about what we do, because I think that defeats the purpose. I believe that you give quietly, silently, and out of your heart because that is what God tells you to do. I encourage everyone I know family and friends to donate to charities and give their time and efforts as well.

Vogelheim. Thank you.