Archive for the ‘Auto Industry – General’ Category

Observations from “The Dark Side”

Wednesday, April 10th, 2019

First off, Brazelton Auto is still running strong (some clients thought from our last newsletter that we were shutting down Brazelton Auto!!!). I will continue to spend the majority of my time over the coming months at our new dealership, South County of Sealy CDJR. Since I’m now a “seasoned vet” from the new car franchise world, I thought I’d share some observations about this side of the industry with you. I’ve been drinking out of a firehouse now for 2.5 months. A franchise dealer adds a whole new dimension to the game. It is more different than I anticipated.

First, pricing is brutal. Our strategy is to price very aggressively; to give customers a reason to drive out to Sealy. My dealer partners are located in a small town called Gilroy, CA about 40 miles south of San Jose. Despite the small population, they sell 400-500 new cars a month. They see Sealy as a Texas version of Gilroy, and are helping us to get to that volume level. The only way to attract that sort of volume is deep discounts. We price vehicles at a material loss, hoping to make up the difference on trade-ins and the back end (finance, warranties, etc). Fortunately, it seems to be working. We’ve taken a store that historically did 15-20 units and moved 82 vehicles in March making it the first month it has ever broken even.

Much like Brazelton Auto, the success of the store is primarily determined by the people. When the discussions of this store became serious, I called our long time Jeep/Ram fleet guy, Brandon Everitt. I was interested in having him join us, but our immediate need was a good general sales manager. He put me in touch with Roel “Taco” Guerra. Two weeks later Taco was my first hire. Taco brought in a whole new sales team. Brandon joined us a few weeks later. Together they add the expertise I sorely lacked, and they deserve 100% of the credit for turning up the volume.

 

And I call on their expertise daily. Chrysler has a ton of programs and little ways to bring money to the bottom line, from certified pre-owned programs, to demo allowances, loaner car programs, make-ready allowances, volume bonuses, etc. I’ll be learning for quite some time but lean on these guys to get me though. I’ve spent much of my time where I can add value; used cars and the service department.

All those little programs are needed. It’s obviously a very capital-intensive industry. We stock over 200 new vehicles and about 50 used. Being $10M in debt doesn’t help my sleep at night! Unlike used cars, you have to plan your new car inventory at least 60 days out. We order new vehicles not knowing what the market or rebates will be when the cars finally arrive.

Operationally there are some similarities and differences from Brazelton Auto. We use fixed pricing on new cars (can’t go any lower), but we do some haggling on used vehicles. We stress straightforward dealings though, without the manipulation and games most dealers play. We’re trying to build our reputation while we build profitability. Like Brazelton, our people will be the core of our business. Hire the best and take good care of them, so they take care of the customers.

We have a long way to go, but I’m very happy with the progress we’ve made so far. I’m still working 12+ hours a day but can breathe a bit during the day. I look forward to the day when my time is more evenly split between the two stores, but it’s exciting the see things improve out here daily.

New Contender: 2018 Ford Expedition & Expedition Max

Friday, January 18th, 2019

In mid-2018, Ford’s all new Expedition and Expedition Max came onto the market to go head-to head with GMs Tahoe/Yukon and Suburban/Yukon XL. After years of a mediocre product, the new Expedition came out swinging.  It’s certainly caught the attention of our customers as well, as we have sold more Expeditions in the past several months than we have in the past several years.

So, what’s new? Everything; new sheet metal, all new interior, upgraded drivetrain, steering, and suspension. However, it shares a whole lot from its pick-up truck counter parts, so there is less worry of the first-year model issues. It’s powered by the EcoBoost 3.5L twin-turbo V6 that puts out 375 HP and 470 lb-ft torque (on the Platinum trim level it is tuned to put out 400 HP and 480 lb-ft torque) and is backed by a new 10-speed transmission that is found in the F-150s.  The technology in the Ford is just about unmatched from the simple infotainment and navigation, to safety and towing features, the car can even park itself (kind of).  Some of the features offered also seem to be unmatched, from the panoramic sunroof to 2nd row seats that can give access to 3rd row seats easily even with a car seat in them.

The big question from our clients is “how does it compare to the GM products” since that has been our bread butter for years? Well, there is a lot that goes into it.  There are things on both that are good and bad, but Ford finally has a vehicle that is bringing a lot of clients away from GM.

On the trim levels, Ford offers XLT, Limited, and Platinum. Within the XLT and Limited trims, each have three package levels.  It’s a little tricky to compare apples-to-apples, you have to compare them with certain options within trim levels, but below is as close comparison of some of the more common trim levels we sell.  There are some small differences still, but this gets you close.  You always have us to call to make sense of it all!

Price wise, they are neck and neck, but Ford may arguably have more bang for the buck. The mistake a lot make is thinking the Expedition is more expensive because they compare the Tahoe Premier trim level with the Expedition Platinum trim level (because they are the highest trim level for each) but remember Platinum level is comparable with the Yukon Denali.

In the end, Ford has a full-size SUV that is making an impact in this market. It’s long overdue after having years of an average product that was lacking power and appeal.  Now, to see what GMs next play is!

Why We Stopped Changing Oil

Friday, September 7th, 2018

When I started working on cars I was changing oil every 3,000 miles, belts were changed every 2 years, tune ups every 12,000 to 15,000 miles (if the parts lasted that long). There was always something that needed attention. Your hood was opened 3 to 4 times a year. That gave us many opportunities to find problems you might have. Today oil changes happen between 7,000 and 12,000 miles, about once a year. Drive belts last 50,000 to 80,000 miles, and the first tune up is around 100,000 miles. Your hood is now only opened about once a year.  Just like going to the doctor for an annual physical, your car needs the same physical. When we raise the hood on your car for its annual oil service, we look at everything we can. Our “Vehicle Health Report” gives you peace of mind when you get in your car. Our goal for your vehicle is to be problem free for the next year.  We could change the oil and filter, check the fluid levels and add washer fluid. It would cost less but that would be an injustice to you. We pull the wheels, rotate the tires, check the brakes, belts, hoses, battery, cooling system, all the fluid conditions, wiper blades, lights, and many other things on our 130 point inspection.  We won’t just do an oil change because I never want you to ask me “why didn’t you see a problem? You just worked on my car.”

The Numbers Behind the Automotive Trade War

Thursday, July 26th, 2018
Auto Imports to the US Current Import Tariffs
Country of Origin $Billions Cars Truck/SUV
Canada/Mexico* 89 US 2.5% 25.0%
Japan 40 Europe 10.0% 10.0%
Germany 20 China* 25.0% 25.0%
* currently exempt from tariffs under NAFTA.
* China recently agreed to drop to 15% in response to tariff threats.

There has been much ado about automotive tariffs and a potential trade war in the sector. The threatened increase in the US tariff to 25% would have devastating effects on the automotive sector, both here and abroad, and undoubtedly lead to retaliatory tariffs overseas. Hopefully this is a positioning and negotiating strategy, not a goal of the administration. The recently announced cease-fire with Europe with the aim to get all automotive tariffs to 0% in both directions is certainly encouraging.

Interestingly, I don’t see any winners from a trade war. “Domestic” automakers are thoroughly global company’s now, making tons of cars and sourcing parts internationally. And alternatively, almost all of the “foreign” manufacturers build lots of cars here and employ thousands of US workers. For instance BMW exports about 70% of the vehicles they produce in the US and helped lower the trade deficit in 2017 by more than $1 Billion. There will certainly be some makers who are hurt worse than others, but it’s shades of gray.

So how legitimate are our cries of unfair automotive trade tariffs? Well if you look at cars, we have every right to complain. Until just recently, China’s import tariff was ten-fold ours, and Europe wasn’t much better. But it’s a different situation when it comes to trucks and SUVs. Back in 1963 Europe imposed an import tariff on US chickens. We struck back with a 25% import tariff on trucks and SUVs. The so-called Chicken Tax has virtually eliminated truck and SUV imports ever since (with the exception of Canada and Mexico, which are exempt under NAFTA). That is why all of the foreign manufacturers plants in the Southeast part of the country make SUVs, not cars.

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