Avoidable Contact #85: In which a customer turns down $26,000 in free money and the investor class gobbles it up for Thanksgiving
Do you like a good Thanksgiving story? I do. Let me share this one with you. It happened for real, earlier this week, at a Chevrolet dealership owned by a billion-dollar Automotive Group. You won’t read this in the pages of the general-interest automotive press, but this has been the best year anybody can remember for car stores. It’s true that this, ahem, novel coronavirus crisis is absolutely eviscerating America’s small-business base in a manner that would seem deliberate to anyone who doesn’t completely trust our, ahem, infallible world government. It’s also true that the people who actually buy new cars — the managerial/professional/toady class of American corporations — are experiencing a nontrivial increase in disposable income right now. They can’t travel or eat fancy meals, so they’re buying new cars instead.
At the same time, dealer inventories have never been lower, thanks to a massive number of factory shutdowns here and overseas. So the dealers are in an enviable position of having motivated buyers and very little profit-sucking extra inventory. The election has softened the market a bit, largely because the news media was predicting and/or encouraging a November 4th Götterdämmerung, but until then the dealers were printing money. To misquote Tom Selleck’s old AT&T ads, “Have you ever paid full sticker for a Chevy Trailblazer and taken it in the shorts on your trade? You will.”
“Four grand bang on new cars, seven grand on used.” That’s the phrase being chanted in “manager towers” across the country, and it refers to the expected gross profit on each transaction. Can it get better than that? Sure it can. How about a twenty-six-thousand-dollar markup on a used car that has been sitting on your lot for the past… three hours? Can it get weirder than that? Yes, because in this case the dealership tried like hell to give the customer some, or all, of that money. I’ll explain.
Our story begins with a Baby-Boomer-aged fellow driving his three-year-old Corvette Z06 up to his local Chevy dealer for a lease return. This car is mint, ladies and gentlemen, it’s got the 3LZ package, and it’s low mileage. The owner sits down to do the paperwork with the dealership F&I guy. (That’s Finance And Insurance, by the way, and it’s where all the money gets made.)
“Looks like your lease-end buyout is $46,000,” F&I guy says.
“What’s your point?” the customer replies.
“Well,” and at this point I’m imagining Jon Voight in Heat explaining how Roger van Zant might want to buy his bearer bonds back, “it’s just that this car is worth more than $46K. A lot more. So if you trade it in today, instead of returning it, you could have… oh, fifteen grand in equity here.”
“I don’t care,” says the customer. “I don’t need another car. I have an Audi sedan and a Porsche SUV. I leased this for fun.”
“Sure,” the F&I dude agrees, “but who wouldn’t want a new Silverado for twenty grand? Or a Malibu for ten? Hell, we could give you a Chevy Spark. Right now. Give you one.”
“Whatever game you’re playing,” the customer snaps, “I don’t want any part of it. I came in here to drop off my car. That’s what I want to do. Stop trying to rip me off. I don’t want another Chevrolet.”
“Pick a used car out there,” F&I begs. “Doesn’t have to be a Chevrolet. Don’t you have grandchildren?” But the customer doesn’t want to hear it. So he signs off on the lease return and the customer’s wife drives him home. The general manager comes over to talk; he’s heard a bit of this from a distance. Having been caught up on the state of play, he promptly instructs F&I to go into the GM Financial website and click “Buy” on this car. The dealers always have the right to buy the car at the residual value. Back when I was doing two-year leases on Tauruses, our general manager let us know that such foolishness would be punishable by immediate termination. In this case, however, it made sense.
Now the dealer has a perfectly-detailed Z06 in his possession at $46K. The social media guy takes a few shots and puts it up at a Hail Mary price of $72,000. Two hours later, the phone rings. An hour after that, a buyer from the East Coast has sent a $10,000 deposit to buy it at the no-haggle listed price.
Back when I was selling cars for local-family-owned shops, I can tell you what would have happened at this point. We’d have ordered enough food and liquor for everyone on the showroom floor, we’d have locked the door at eight, and we would have partied until some item of dealership property got damaged and/or the cashier slapped a middle-aged salesman for groping her. But those days are over. This store is corporate. About three grand out of that twenty-six will be paid out to various people — F&I, the general manager, whatever warm body they assigned the phone sale to. The rest of it will be added to the ten-figure-balance sheet of a massive dealership group owned by the proverbial one-tenth of America’s one percent.
What makes a customer turn down a free Chevy Spark? Maybe you don’t like Chevy Sparks. What makes a customer turn down a perfectly good used Camry or Corolla or CR-V sitting on a dealer lot with $14,999 on the window sticker? My contact at that dealer tells me that they probably would have written the fellow a $9,999 check just to feel better about the deal, if he’d asked to take his Corvette equity in cash.
All I can offer by way of explanation is this: America’s car dealerships have spent the better part of one hundred years taking people for a ride, figuratively and literally. As a result, people treat dealers with a kind of terrified distrust they don’t apply anywhere else. T.C. Mits, The Celebrated Man in the street, will spend nearly every moment of his life paying full retail for things, whether it’s a chocolate bar at Whole Foods or a refrigerator at Best Buy or a brand new $899,999 McMansion built in a former bean field. Then he’ll walk into a Chevy dealer and sweat blood for hours to ensure he doesn’t pay $300 more than his neighbor paid for an Equinox LS.
Can you really blame this dude for not believing he was about to get a free car? Me neither.
I get the sense that our culture is kind of winding Thanksgiving down nowadays. Pretty soon we’ll have a Brutalist concrete building or two filled with Winston Smith types whose sole job will be to erase the holiday from historical images. The very notion of being thankful is currently, as they say, kind of problematic. We all know that power nowadays comes from being aggrieved, so who would willingly yield that power just to express unwanted gratitude? Yet I will take this moment to be thankful: for my family, for all of my readers. For the Corvette Z06, and for a system that occasionally tries to do the right thing even if it is frustrated in said attempts. Let’s hope that 2021 is filled with better news for all of us, including prospective Trailblazer buyers who are tired of paying full retail. Tis the season!